Demand helps buoy metal prices

Physical supply, robust demand, speculation and slowly dwindling stock levels continue to underpin virgin metal prices.

Producers, indicating that they see nothing to slow it down, are naturally happy that their plants are returning to full capacity, and profitability. Traders have also become more daring, betting on a persistent run-up in prices, and most are benefitting by investing in ever-larger quantities of inventories.

Amid this metallic euphoria, the scrap market is providing strong indications that metal demand is accelerating.

Scrap markets are leading the virgin metals parade, with stainless scrap in particular reaching new highs of US$925-950 per tonne, up more than US$200 in the past two months. At this level, the value of nickel contained in the stainless scrap alloy, at US$3.65 per lb., exceeds the current cost of new nickel units at US$3.46.

This seeming paradox results from the steel mills’ need for scrap feed, which traditionally costs 10-15% less than equivalent new units and is cheaper to melt. (The mills also recover other metals at reduced costs.) Almost all metals are experiencing similar supply tightness, with their respective scraps trading at, near or above the cost of virgin units. The following prices and inventories of the London Metal Exchange (LME) are for the month of November to date, with October’s figures shown in parentheses.

Surging demand for nickel units and some slowing of exports from the Commonwealth of Independent States raised the average price of that base metal to US$3.41 (US$3.06) per lb., while inventories advanced slowly to 151,254 (149,262) tonnes.

The slow grinding, but rising tightness, in cobalt continues to hold free market prices at US$26 (US$26.50) per lb.

Shortages of mine output and improved seasonal battery demand is holding lead at US30.4 cents (US29.1 cents) per lb., as stocks fall to about 358,900 (371,150) tonnes. Much of the stock is reported to be 99.95% quality and not always suitable for battery usage.

Good physical demand for galvanized steel and brass products bumped zinc to US52.5 cents (US48 cents) per lb. as stocks remained at 1.2 million tonnes. Pushed by demand and surges of speculator activity, the combination of inventories on the LME and the Commodity Exchange of New York fell to 337,039 (353,007) tonnes, as copper jumped to US$1.26 (US$1.16) per lb. Falling stocks and soaring demand boosted molybdenum oxide spot price quotes to around US$7 (US$4.10) per lb., as producers began negotiations with their major customers for contract prices for the first quarter of 1995. Lingering in the investor shade, gold dropped, and then steadied at US$384.45 (US$390.25) per oz. Silver mirrored gold’s movements, settling back to US$5.20 (US$5.46) per oz.

Marking time, platinum group metals traded quietly, with platinum at US$413.03 (US$419.42) per oz., palladium at US$156.89 (US$154.66) per oz. and rhodium at US$680 (US$700) per oz.

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