METALS MARKETS — South African tensions stir markets

Tensions are mounting as political blocs in South Africa jockey for power. The African National Congress (ANC) party, which has yet to demonstrate it can represent or govern democratically, upped the ante, calling for a 2-day general strike and other mass action Aug. 3, all designed to force the white minority government to concede more power to the black majority who are split into three main and bitterly warring factions.

Unless production facilities are damaged or closed by a prolonged strike, serious metal shipment interruptions from such actions are unlikely. In the longer term, while potential supply problems of industrially required precious metals are of concern, of far greater importance to the well-being of western countries is the production and supply of ferroalloys, particularly those of chrome and manganese, required to make alloys of iron, steel, stainless steel and a wide variety of chemical compounds. South Africa accounts for some 50% of the western world’s supply of the above-mentioned materials, for which in the near term there are no economical substitutes.

Add to the above, in varying amounts (and in most other countries as well), high unemployment, slowly improving economies, government overspending, high taxes, elections, growing trade protectionism and, not surprisingly, currency jitters.

In precious metals, average July gold prices rose to US$350.90 per oz. from $340.70 in June, driven mainly, it appears, by currency apprehensions. Influenced by the heavy selling of a Middle Eastern bank in early July, silver slid sharply to $3.88 per oz., then partially recovered to reflect only a small drop in the average July price to US$3.97, down from $4.06 in June.

Fuelled by increased investor interest, average July platinum and palladium rose strongly to US$384.86 per oz. and $86.36 per oz., respectively, from $369.25 and $80.69 in June.

Nickel was also active, spurred by rumors of heavy funds and Chinese buying, reasonable seasonal demand by stainless mills, declines in shipments of unofficial nickel products from the Commonwealth of Independent States, strong stainless scrap prices, and declines in LME inventories to 27,636 tonnes from 28,296 tonnes. Average July LME cash nickel prices rose to US$3.408 per lb. from $3.263 in June.

In the U.S., a decline in demand for aerospace alloys, reflecting recent military cutbacks, has slowed buying for all metals used in that industry, including nickel and cobalt. Worldwide, this sector accounts for 10-15% of nickel and 20% of cobalt consumption. As a result, prices for cobalt eased again to US$20.50 per lb. from $21.50.

On continued firm producer sales, average July LME zinc prices eased only slightly to US59.6 cents per lb. from recent highs of 62.9 cents in June as stocks increased to 338,725 tonnes from 330,650 tonnes at the beginning of the month.

Steady consumption and good investor interest pushed average July LME cash copper to US$1.143 per lb., up sharply from $1.042 in June. LME and Comex stocks are again down to 286,222 tonnes from 289,071 tonnes on July 1. Industry speculation of a September-October LME contract squeeze, possible labor action at the Doe Run plant in the U.S., fund buying and good consumer demand sent average July lead prices surging to US28.1 cents per lb. from 24.8 cents in June. On a cautionary note, however, stocks were up again to 147,200 tonnes from 143,025 tonnes on July 1.

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