Metals, minerals sub-index continues to rise in February

The metal and mineral sub-index of Scotiabank’s commodity price index rose again in February alongside firmer prices for base metals.

London Metal Exchange (LME) copper prices have strengthened from a low of US74 cents per lb. in November to US88 cents in late March. The global supply/demand balance for copper is in better shape than that of other base metals. Economist Patricia Mohr says that LME inventories have dropped by 14% since the end of 1993, with metal being shipped from European warehouses to stronger markets in the United States and the Far East.

U.S. motor vehicle sales surged in January-February and have returned to the robust levels of the mid 1980s, substantially boosting copper consumption. Mohr reports that New York commodity and other mutual funds have been heavy buyers, believing that metals offer better investment value than U.S. bond or stock markets.

Though base metal prices probably bottomed late in 1993, a return to sustained profitability is unlikely until 1995. Prices could slip again in the third quarter as Chinese imports drop alongside high stocks, and economic recovery in Japan and Continental Europe remains extremely slow. Mohr also believes that a sharp drop in Russian domestic consumption will trigger higher aluminum exports than currently expected.

After rising to US$395 per oz. in early January, gold prices fell back to US$376 in late February as the U.S. Federal Reserve Board raised interest rates. The Board has been concerned that the robust fourth quarter gain in the U.S. Gross Domestic Product (GDP) and improving commodity prices would trigger higher inflation rates. Nevertheless, gold rallied to around US$387 in late March, alongside political unrest in South Africa, strong silver prices, and financial market volatility.

South Africa accounts for 33% of Western World gold output, and will hold general elections on April 26-28.

The metal and mineral sub-index was up 2.1% in February from January, to the same level as a year ago. The all-items index rose by 0.4% in February to a level 0.3% above that of a year ago.

The all-commodity index tracks export prices of a variety of Canadian commodities, which are weighted according to their 1984 export values, except crude oil where the value of net exports is used.