U.S. government dumps metals

Adding to the intricacies of marketing metals are the strategic inventory purchase and sales programs of the U.S. government. The programs were announced in 1992 and, currently, several non-ferrous metals are due for stock reduction.

The Defense Logistics Agency (DLA) is authorized to sell a maximum of 75,000 tons zinc, 52,000 tons lead, 24,000 tons copper, 10,000 tons tin, 400 tons cobalt and 10,000 tons nickel. About 20% of each solicitation is reserved for domestic use and anyone can register and bid on the tenders. In terms of world consumption, these quantities are not substantial, but in an oversupplied market they only add to downward pressure on prices. Much of the DLA material was amassed decades ago when the U.S. defense policy was to maintain a 3-year supply of conventional war materials. Consequently, much of the metals are considered second-class by current standards. In early 1993, after consultations with producers, traders and consumers, a system of regular monthly or bimonthly tenders was arranged. The first few tenders included representatives from all categories. It should be noted that, when market conditions for metals are weak, tender prices are usually lower than those for better-quality materials; however, the prices are still indicative of where future values are heading. Recent awards (albeit for low-grade material) were US$2.27-2.34 per lb. for nickel US$10-11 per lb. for cobalt. (Interestingly, Inco is a steady bidder for the nickel tenders.) On the Russian front, there are rumors that the government is offering its strategic metal stockpiles as collateral for urgent bank-financing needs. Coincidentally, the European Economic Community has begun reviewing aluminum dumping by Russia. As a result of the recession and the huge increase in shipments by the Commonwealth of Independent States, London Metal Exchange (LME) stocks exceeded 1.8 million tonnes, or six to eight weeks of consumption.

Cobalt markets are sharply weaker. Spot July prices eased to US$12-13 per lb., while Western brands (with end-of-June values in parentheses) were US$13 (US$14.50). Russian brands were US$9 (US$13) and those of producers were officially US$18 (US$18).

Amid slow arrivals of Russian nickel, sharp drops in LME stocks and the beginning of slow summer demand, average LME nickel in July dropped to US$2.41 (US$2.51) per lb. LME inventories declined again to 85,476 (86,646) tonnes.

About to test the downtrend line, copper prices in July continue to recover by climbing to US87.3 cents (US84.2 cents) per lb. Inventories of the LME and the Commodity Exchange of New York also rose, reaching 543,248 (542,264) tonnes.

Molybdenum oxide, on low volumes, is firmer at US$2.25-2.30 (US$2.25) per lb. Beset by slow demand for batteries and planned DLA sales of 45,000 tonnes, LME lead prices for June, July and August drifted to 17.6 cents (17.9 cents) per lb. LME stocks steadied at 261,600 (261,675) tonnes.

As with lead, the crush of LME zinc stocks, which rose to 689,500 (687,875) tonnes, pressed prices to US42 cents (US44.5 cents) per lb. Producers of these two metals have still to make serious production cuts. Propelled by investors and speculators betting on sharply rising rates of inflation resulting from recent moves of the Organization for European Economic Co-operation (OECD) to reactivate its members’ economies, gold prices moved ahead to US$385 (US$371.91) per oz. Silver also gained, mainly in sympathy, to US$4.76 (US$4.37) per oz.

At a time of high unemployment, serious inflation in OECD-member nations seems unlikely, at least for a few years. Most other supply-and-demand factors are unchanged. As long as central bank sales programs make up the difference between mine production and fabrication needs, it will be difficult to hold higher prices. Information on Canada’s recent gold sales should be available soon.

Supported by investors and improving auto figures, platinum rose to US$390.92 (US$383.69) per oz. and palladium jumped to US$140.42 (US$126.89) per oz. Rhodium, on rumors of sharply increased Russian supply, eased to US$908 (US$925) per oz.

— Jack Dupuis is a minerals marketing consultant in Thornhill, Ont.