Metals sub-index drops to lowest level since 1987

The metal and mineral sub-index of The Bank of Nova Scotia’s commodity price index fell in August, hitting its lowest level since early 1987.

Economist Patricia Mohr reports that prices for zinc, aluminum and nickel have dropped below average Western World cash costs, increasing the probability of near-term production cuts.

London gold prices have also retreated to US$355 per oz. from just over US$400 in late July. Softer prices reflect an easing of currency turmoil in Europe and waning demand in the Far East, where jewelry manufacturers are extremely sensitive to price.

In March, when prices averaged US$330, imports of bullion to Singapore and Hong Kong had climbed to 93.4 tonnes. But they plummetted to only 7.2 tonnes in July. Although Far East demand has picked up slightly in response to lower prices, Mohr says market conditions remain quiet, and Russian political turmoil has had only a limited effect on the price.

Copper prices also came under pressure in mid-September, plunging to US77 cents per lb. from US88 cents in August. Mohr believes a tight technical position is being unwound on the London Metal Exchange, with prices reflecting excess global supply and high inventories.

In September, orders for housing and auto-related products were still strong in the U.S. but soft in Europe and Japan. Copper consumption in Western Europe is expected to drop by 10% in 1993, led by a weaker demand for wire and cable in the telephone, auto and building industries.

Chinese imports have also waned, with negative implications for producers in Taiwan, South Korea and the U.S.

The metal and mineral sub-index was down 2% in August from July, and off by 16.7% from one year ago. The all-items index rose by 3.7% in August to a level 2% below a year ago.

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