METALS MARKETS — Metals markets poised for recovery?

Industrial metals markets declined worldwide throughout most of 1992 but steadied near year-end and increasingly appear poised for recovery in 1993.

Metal prices and stocks are at levels that should encourage consumption and modest inventory positions. The European Community and Japan are still working their way out of recession but the economic news in the U.S. looks much better.

Whether the recovery there will be shared remains to be seen. Trade authorities in the U.S. will no longer allow their partners — Canada and other countries — to currency or price “dump” their export products and interfere with U.S. employment and U.S. economic recovery.

Within Canada, metals consumption is in trouble. Steel, foundry and electroplating companies are down sharply in numbers and sales, with work lost to competitive materials or foreign lower-cost producers. While Canadian commodities, manufacturing and service sectors have responded to the recession with static or lower costs and prices, their government “partners” have shown little flexibility as taxing opportunities are remorselessly imposed onto balking and increasingly uncooperative and uncompetitive payers.

The propensity to single out “someone else’s consumption” is distorting the economy and no government appears willing to recant even when its industry partner’s sales and employment decline as the new regulations and taxes are imposed.

For example, the capital investment, growth and employment in the so-called “sin” industries are shifting south as consumers find other suppliers and distributors. Reacting to high diesel, gasoline and accommodation taxes, trans-Canada car and truck traffic speeds to the nearest interstate. Stiff airport taxes siphon vital carrier revenues and discourage travellers. Ontario decided to tax aluminum (American) beer cans but not (Canadian) pop cans.

While Alberta utilities must compete to supply the public power grid, Ontario’s utility has “control” of the generators, grid and the rate structure. Raising rates to make up for declining usage while vetoing cheaper competitor’s access to the public grid does not work for long. In Alberta, where natural gas rates were relaxed, sales are booming and new pipelines are under consideration.

Elsewhere, world metal prices have been marking time for the last few weeks. A more positive 1993 economic outlook and suspected difficulties in the Commonwealth of Independent States’ production areas kept late-December prices steady. The first blush in 1993 for the base metals indicates that at least a short-term recovery may be under way.

Despite an announcement that the U.S. will auction some of its strategic stocks, cobalt prices remained steady as conditions in Zaire deteriorate. December cobalt dealer prices (with November values in brackets) idled around $15.50 ($16) per lb. for Western brands and $11 ($14) for Russian. Producers are holding at $18 ($25).

With Inco and Falconbridge closed for January, nickel prices stabilized at US$2.597 ($2.525) per lb. as inventories slowed their recent rise at 67,914 (62,676) tonnes.

Molybdenum oxide eased to $1.80-1.90 ($2-2.10) per lb. on slow sales to steel companies.

LME and Comex copper inventories reached 435,070 (391,265) tonnes. Despite the runup in stocks, average LME cash prices are little changed at US$1.002 (97.9 cents) per lb. Early January spot prices are ahead at $1.04. The nickel shutdowns may also be a factor since the two Canadian firms’ orebodies contain significant copper and cobalt grades.

LME lead prices appear to have bottomed at US20.6 cents (20.9 cents) per lb. as stocks were up slightly to 212,550 (199,900) tonnes.

Zinc hung on with LME prices at US48 cents (47.5 cents) per lb. and stocks were up sharply to 457,525 (377,275) tonnes.

On a firm upward movement, Platinum jumped to US$362.09 ($355.71) per oz. and palladium was ahead at US$106.73 ($94.52) per oz.

Holding up under sustained government central bank and producer sales was gold, which stood still at US$334.66 ($334.88) per oz. While demand is good, selling by these parties effectively caps the near-term market. Probing its previous low in February, 1991, silver softened to US$3.73 ($3.77) per oz. Gold and silver may be headed for weaker markets as a major world upset would be needed to change the price direction.

— Jack Dupuis is a minerals marketing consultant based in Thornhill, Ont.