The year of trading dangerously

Metal prices in 1997 were satisfactory until the summer, when oversupply and a sagging Asian economy began to drive down the price of most precious and base metals.

* Gold rang in 1997 at a spot price of US$369.40 per oz., but began to slide after peaking at US$415 per oz. in February. The price hit an 18-year low of US$283.00 per oz. at the London PM close on Dec. 12.

The price of the yellow metal was battered this year by the sales of more than 14 million oz. of bullion reserves by the governments of Australia (5.4 million oz. sold), Argentina (4 million oz.), Belgium and the Netherlands.

In October, a Swiss government panel recommended that the country’s Central Bank sell more than half of its 83.2-million-oz. gold reserve.

According to the World Gold Council, which keeps track of 80% of the world’s gold production, demand in the first nine months of 1997 was a record 2,191 tonnes (70.3 million oz.), an increase of 11% over the same period of 1996.

Asia and the Middle East continued to account for more than 85% of the world’s physical gold offtake. The council expects that 1997 gold imports by Dubai (the city in the United Arab Emirates that is the trading centre for most gold destined for the Middle East and India) will exceed 600 tonnes (19.3 million oz.), compared with a record 350 tonnes (11.2 million oz.) in 1996.

India, the world’s largest consumer of gold, recorded its highest-ever quarterly demand figure, during 1997’s third quarter. The country bought 190 tonnes (6.1 million oz.), a 58% increase over the same period of 1996.

A Reuters photo, published in mid-December, illustrated gold’s importance as a hedge against inflation; it depicted a group of mothers in South Korea donating their children’s gold rings to the government in response to that country’s current financial distress.

* Silver prices hovered at US$5.20 per oz. for much of the winter season, rising from a January price of US$4.75 per oz. Prices in the spring weighed in at about US$4.75 per oz. before dropping to its year-low of US$4.22 in July.

In October, stockpiles began to dwindle on buoyant demand from industrial consumers and jewelry-makers. Those factors boosted the price of the white metal to US$5.25 per oz. Also about this time, rumors began circulating that a group of speculators were trying to push the spot price into the US$8-9 range.

The price continued its rise in the fourth quarter as stockpiles shrunk to their lowest levels since the mid-1980s. Silver closed at a surprising US$6.05 per oz. on Dec. 11 and Dec. 17.

* Platinum, at the beginning of 1997, was trading in the US$370-per-oz.

range before several phases of panic buying bolstered the price. Of chief concern was Russian production from the Noril’sk Mining and Metallurgical Kombinat, which was threatened by financial problems and a strike. By June, prices had jumped to US$495 per oz., falling back to US$444.50 in mid-August. Platinum prices eased back to former levels in the autumn.

World platinum production in 1997 is estimated at 4.8 million oz., a slight decline from output in 1996.

* Palladium may have started 1997 at a modest US$117 per oz., but prices rocketed to a 17-year high of US$245.50 per oz. in August as a result of speculative trading and concerns of the quantity of Russian palladium. World palladium production for 1997 is expected to be just 5.7 million oz., owing to interruptions of supply from Noril’sk.

* Copper prices spent the first half of 1997 basking above US$1.10 per lb., but started to decline by mid-July. By September, prices had slipped beneath US$1 per lb. Also in the second half of 1997, the swamped copper market became more volatile.

The outlook for the metal turned decidedly bearish in November and December, and prices slid well below US90 per lb.

* Lead spot prices followed a pattern similar to that of copper. Lead dropped to the US20-per-lb. range from US30, even as London Metal Exchange (LME) stocks languished at the relatively low level of 120,000 tonnes.

* Zinc, by late autumn, had shed most of the gains it made over the year, as the backwardation on the London Metal Exchange eased and analysts began forecasting a slight oversupply in 1998. Spot prices for the metal soared well beyond US70 in August and September before a rapid decline cut the spot price back to its current level of US50-60.

* Nickel experienced a slow, painful slide for much of 1997. At the beginning of the year, spot prices weighed in at US$3.20 per lb. and had swelled beyond US$3.50 per lb. by spring. It was a cruel summer for the metal, however, as the price dipped below US$3 per lb. Nickel finished the year at an even gloomier US$2.70 per lb.

Nickel stocks at the LME climbed to 60,000 tonnes by the end of the year, though even that level is low in comparison with stocks in the mid-1990s.

Concerns over supply disruptions from the Noril’sk complex were offset by the apparently abundant supply of scrap stainless steel originating in Eastern Europe and Russia.

Demand for nickel in the Far East was particularly weak in the latter half of the year as a result of both currency devaluations and the weak Japanese housing market.

* Titanium remained in plentiful supply in 1997. The healthy state of the aerospace industry contributed to increased demand, whereas supply was bolstered by scrap production as older planes were recycled. Sponge free-market prices for titanium held steady throughout the year at roughly US$4.25 per lb.

* Tin continued its 2-year downward price trend but spiked for two weeks on the LME in October as a result of interest from the funds. That period was followed by a bout of consumer buying, leaving the market tight in the fourth quarter.

* Aluminum spot prices, apart from a period of volatility in late summer, were strong throughout the year, fluctuating around the US72-per-lb. mark.

The metal finished the year with an unexpected short-covering.

* Cobalt demand remained strong throughout 1997, led by the super-alloy and battery sectors, but prices weakened in autumn, bottoming out at US$17.50 per lb.

* Vanadium markets remained buoyant throughout the year, with vanadium pentoxide spot prices rising above the US$4 mark during the second half of the year.

* Uranium spot prices in the first three quarters of 1997 continued to decline from highs hit during the summer of 1996, finally bottoming out during the autumn at little more than US$10 per lb. U3O8. Prices rose above US$12 in the last quarter.