METALS COMMENTARY — Metals markets being driven by fundamentals

Ignoring a host of poor economic forecasts, physical metals markets churned ahead in June, as world metal demand maintained its strong tenor. There is some consumer sector slowdown in North America, particularly in the U.S., where the industrial pace is faltering from more than 110% to some 90-100% of nominal capacity. However, U.S. demand for scrap and virgin metals remains reasonably firm, with prices holding at current levels or up slightly. Scrap markets, always a good barometer, are also holding or are up slightly. While summer shutdowns are planned, mills are still buying steadily.

The pickup elsewhere, particularly in Europe and Asia, appears to be more than compensating for the dip in North America as the exchange stock levels for most nonferrous, publicly traded metals continue their steady decline, indicating persistent deficits in all the traded metals.

The same conditions are being experienced in markets where metals are not traded on public exchanges. An example is iron ore, where companies that regularly tender for their requirements are having difficulty finding offers. The prices for many metals have doubled over the past 18 months and appear likely to maintain or improve their gains for the balance of this year.

The fire sales of Russian metals inventories are also ebbing, as more and more of the material appearing in the marketplace is of current production. This should have a positive impact on markets, allowing real values to dominate.

The following average prices and inventories of the London Metal Exchange (LME) are for June to date, with the previous month’s figures shown in parentheses (unless stated otherwise).

The fundamentals of strong demand and falling stocks dominated and pushed nickel to US$3.54 (US$3.28) per lb., as inventories fell to 91,722 (104,484) tonnes. Spot quotes have been rising all month, and are sitting at around $3.70 per lb.

Seasonally quiet markets continue to characterize cobalt free-market quotes for Western A Grade at US$27.25 per lb. (US$28.50 on June 1). A large parcel of uncut Russian ingot has appeared and is settling prices to the low, $26-per-lb. range. Industry sources believe this to be the last large parcel of Russian inventory, and future Russian sales will depend on current production levels.

Steady demand, assisted by persistent hot weather, kept lead prices steady at US27.6 cents (US27.1 cents) per lb. as LME stocks fell again, to 245,950 (262,350) tonnes.

Zinc markets remained quiet, with prices easing slightly to US45.8 cents (US47 cents) per lb. and stocks dropping to 851,450 (897,500) tonnes. Ignoring trade opinions about possible oversupply, the combination of inventories on the LME and the Commodity Exchange of New York declined to 183,709 (206,536) tonnes as LME copper strengthened to US$1.35 (US$1.26) per lb.

Spot molybdenum oxide prices continued to find support at the producer sales levels of US$7 to $8 per lb. (unchanged since the end of May).

Meanwhile, precious metals generally marked time, looking for some direction.

Gold sat at US$387.47 (US $385.23) per oz., and silver averaged US$5.38 (US$5.54) per oz., unchanged during June but down from April and May peaks.

Platinum was little-changed at US$437.61 (US$437.39) per oz., as was palladium at US $158.56 (US$160.68) per oz. Rhodium began to ease back, but was still ahead at US$535 (US$470) per oz.

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