METALS COMMENTARY — Metals in period of consolidation

After rising almost non-stop throughout 1994, most metals are showing some signs of consolidating despite the fact that inventories are starting to decline slowly but steadily.

Producers of most metals are having trouble turning on any additional marginal capacity and must now decide on whether to risk large capital expenditures to bring on new plant.

With most member nations of the Organization for Economic Co-operation and Development operating at ever-healthier levels, employment and tax receipts are slowly recovering. The steel and auto sectors are particularly strong, and have been so since 1993 in the U.S. and since 1994 elsewhere. Lurking in the background, however, are persistent currency problems, with the international monetary system having recently been subjected to one devaluation crisis after another. Along with many others, the Canadian government is now under intense scrutiny as hostile taxpayers and international lenders wait to see whether the looming federal budget includes serious spending reductions or whether, instead, it signals more taxes, “future” spending cuts and, as a result, further devaluation. Canadian metal manufacturers are experiencing some shortages, longer lead times and double-digit price increases, a result of surcharges on some metals, such as nickel and molybdenum.

Strong sales and steadily declining stocks continue to characterize most base metal markets. The following prices and inventories of the London Metal Exchange (LME) are for February to date, with last month’s figures shown in parentheses.

Nickel was beset this past week with Russian denials that production would be affected by a recent accident at a power station. These denials, together with strong producer sales, pumped the price to US$4.43 (US$4.35) per lb., as inventories fell again to 139,224 (140,652) tonnes.

Ignoring price weakness in other metals, cobalt free-market quotes for Western A grades were unchanged at US$30 per lb.

In quiet markets, supported only by brisk producer sales, lead eased to US27.5 cents (US30.2 cents) per lb. as stocks also fell, to 326,300 (328,750) tonnes.

Zinc also eased, to US49.2 cents (US52.5 cents) per lb., as stocks continued their steady weekly decline to 1.1 million (1.2 million) tonnes. As for copper, strong industrial demand reduced the combined inventories on the LME and the Commodity Exchange of New York to 306,150 (327,288) tonnes. The price of the red metal held near its recent high at US$1.31 (US$1.36) per lb.

After running up to levels near US$20 per lb., molybdenum oxide spot price quotes eased back to US$15 (US$15) as major contract consumers refused to pay the higher spot tags. Their January and February prices are still thought to be around US$12-13.

Precious metals generally refused to budge one way or the other as gold fluttered around US$375.66 (US$378.75) per oz. and silver eased to US$4.70 (US$4.77) per oz.

Also trading flatly were the platinum group metals. Platinum edged up to US$414.31 (US$413.64) per oz., as did palladium, which wavered around US$157.42 (US$156.01) per oz. Rhodium was little-changed at US$600 (US$610) per oz.

For those investors holding indium, some good news: prices are up sharply from recent lows. Spot indium is reported at US$275-300 per kg. — Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.