MINING MARKETS & INVESTMENT NEWS — METALS COMMENTARY — Hard times in Asia hit the ferro-alloys sector

As economic recession, and perhaps deflation, spreads from the Pacific Rim, the effect on commodity prices has been devastating. The non-ferrous metals have been seen to bear the brunt, but their supporting cast, the ferro-alloys, have suffered too.

In some ways, the alloy metals were more vulnerable to a slump in the Asian industrial economies, which were highly leveraged to steelmaking and steel-based heavy industry. Nickel, which now commands less than half the price it did in mid-1995, is the highest-profile example. The shortages brought on by heavy consumption of stainless steel, especially during reconstruction after the large earthquake in Kobe, Japan, had driven the price of a tonne of nickel into the US$8,800 range, but when the Japanese economy slowed, the price wavered. The market crashes of late 1997 have simply made the slope more slippery.

Because nickel trades daily on the London Metal Exchange, its price troubles have been more obvious. Off Leadenhall Street, prices of the producer-priced and contract-traded ferro-alloys have been squeezed as well.

* Chromium has held its price better than most other ferro-alloys. Raw ore prices actually rose slightly in 1997, and 65%-basis ferrochrome alloy has stayed comfortably between US40 cents and 50 cents per lb. for a full two years; still, it’s a long way from the US80 cents fetched in early 1995.

* When molybdenum prices fell out of bed in mid-1995, they at least saved the metal from a more drastic fall at the time of the Asian crisis. Moly-oxide, unlike the non-ferrous metals, enjoyed the luxury of a stable price near US$4 per lb. for most of the last three years. But downward pressure has resumed, forcing new lows of around US$3 in the past three months, largely because of the sense that the Asian markets, which had been large consumers, are in a full recession.

* The consensus in the cobalt market has been established for some time now: prices will fall, certainly; it remains only to find out how soon and how far. The apparent slow progress in development of the Voisey’s Bay copper-nickel deposit in Labrador, which would have thrown off large byproduct cobalt production, has bought the market some time, as has political and economic turmoil in Russia and the Democratic Republic of Congo, both major producers. But the slow decay in the price of high-purity ingot has been inexorable.

From an average of more than US$29 per lb. in 1995, the blue metal slid to US$23 last year and is now seeing physical trades of between US$18 and $20.

Most analysts are predicting prices in the US$8-12 range over the next three to four years, and many development projects — including Voisey’s Bay and the large new laterite nickel mines — have based their feasibility projections on credits of US$10-12. Still, the political and regulatory uncertainty surrounding Voisey’s Bay and the technological risks in the unproven Australian laterite projects have led some market pundits to predict shortages in the next few years that could support prices in the US$15 region.

Should Congolese production come back from its present lows, however, any bets on a soft landing are off.

* Despite a recent slump in the price of vanadium, longer-term fundamentals for the metal look good, with a steady decrease in above-ground stocks. Russian economic difficulties have been kind to the metal, prompting price increases through much of early 1998 when there were fears that the Noril’sk mine and smelter complex might be starved for capital.

Like most ferro-alloy producers, vanadium miners are looking to an increase in worldwide steel production. At this stage, a short-term increase would seem a forlorn hope, but commercial development of the vanadium reduction-oxidation battery is expected to bolster demand in the longer term.