METALS COMMENTARY — Summer doldrums rule metal markets

Despite higher-than-normal stainless mill demand, metal prices remain in their seasonal doldrums with only the rumor mills really active.

There is massive speculation about 1994 Russian production levels for nickel, cobalt, palladium, and some ferroalloys. The Russians, while opening the door to many aspects of their industrial abilities, seem either unable or unwilling to indicate planned production levels for various industrial metals even half-way through the current year.

Governments at various levels impose and cancel taxes, licences and other levees by the month. In a melee of conflicting needs, governments and industry move and countermove, affecting every aspect of commerce. An unwelcome central or local tax is imposed and nothing moves or smuggling begins. Belated attempts to curb suddenly “illegal” commerce merely adds to the chaos as material shipments are constantly interrupted.

In China, imports and exports of metals and other industrial products were recently interrupted and several contracts canceled as some plants closed. Various reasons include heavy rains and flooding, currency devaluation, imposition of new export licences, arrests related to copper speculation, removal of central government subsidies and a recently introduced value added tax.

In South Africa, the recently elected government is learning as it feels its way along. Except for the bargain hunters, investors have stepped aside, awaiting clear signals about the government’s intentions regarding currency restrictions, dividend payments, mine property ownership and taxes. Elsewhere in Africa, needed changes are looming. Corruption, a lack of democratic citizen participation in government and long-simmering tribal animosities may likely result in the forcible border realignments of several countries or massive population shifts.

Canada is not without its conflicts. Federal and provincial environmental departments have persuaded auto companies to reduce or eliminate the use of 67 named substances in their plants, including pesticides, ozone-depleting chlorine-based cleaners and several non-ferrous metals such as chromium, nickel, lead, zinc and copper. Other government departments are busily trying to encourage new mines and persuade manufacturing plants to locate here to make products which presumably will need some of these same raw materials. As one auto executive indicated, they are seriously seeking to reduce or eliminate these government-listed substances and some sectors of society may not be happy with the results.

In base metals, strong economic growth continues and demand for metals is expected to remain firm through the balance of 1994.

Rumors of renewed heavy Russian shipments vied with production losses at Inco’s Thompson operations and labor negotiations at Falconbridge to ease average LME prices to date in August (last month’s figures are in parentheses) for nickel to US$2.748 (US$2.85) per lb. as LME inventories grew to 134,142 (133,344) tonnes.

Despite heavy Japanese buying, U.S. government stockpile sales and rumored heavy Russian sales continue to keep a lid on Western cobalt prices which remain unchanged at US$22.50 (US$22.50) per lb. with Russian products at US$19 (US$19).

On little news, LME lead prices sat at US26.3 cents (US26.3 cents) per lb. as LME stocks suddenly increased to 360,775 (356,425) tonnes. It is uncertain whether the increase, which occurred mainly in the Swedish warehouse, resulted from Russian or Swedish producer selling.

Poor fundamentals continue to plague LME zinc as prices drifted down to US42.8 cents (US43.7 cents) and stocks crept up to 1,215,700 (1,214,075) tonnes.

A slight increase in the combination of LME and Comex inventories to 375,656 (372,017) tonnes seemed to be enough to ease the LME copper price down to US$1.088 (US$1.115) per lb.

Rumors of renewed Chinese shipments and news of higher U.S. production kept molybdenum oxide prices around US$3.50 (US$3.50) per lb.

Precious metals traded narrowly in quiet markets. Gold eased to US$380.03 (US$385.45) per oz. and silver retreated again to US$5.21 (US$5.28) per oz. Ignoring trade rumors of surplus producer stocks and supported by strong U.S. auto sales and rumors of Japanese jewelry buying, the platinum group metals continued their upward march. Platinum rose to US$414.58 (US$411.17) per oz., palladium jumped to US$152.07 (US$145.99) per oz. and rhodium remained at US$875 (US$875) per oz.

— Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.