Volatility of metal prices persists

Metal prices continue to show increasing volatility as it becomes more and more evident that supply-demand factors are no longer the primary motivation for price changes.

In some cases, prices are ignoring apparent fundamentals and continuing their upward surges, most of which began late in 1993. Since that time, speculators, sensing the pending turn in prices and shoving fundamentals aside, have been investing in exchange stocks in droves.

In May, some producers, supported by reasonably firm physical markets, also entered the fray, adding to the upward price spiral. So far, the bullish economic news has made winners of many metals investors.

After three years of recession, most production and inventory slack has been completely wrung out of the system. Just-in-time deliveries and cash flow demands are minimizing working stocks. The strong U.S. economy is now reported to be increasingly short of some raw materials.

The economic pick-up in Japan and Europe is adding competition for available supplies and the result is rising base prices and premiums for many metal materials. The net result will see more volatility in many commodities. The following prices and inventories of the London Metal Exchange (LME) are for the month of June to date, with last month’s figures shown in parentheses: The rise in nickel prices in May was attributed to a threatened strike at Inco, but now that an announced settlement has failed to decrease prices substantially, it would seem that other factors have been at work. Seasonally slow Russian shipments and rumored producer buying pushed prices to US$2.832 (US$2.762) per lb. as inventories waffled at 131,892 (131,862) tonnes. Continuing to consolidate recent gains, Western brands of cobalt traded at US$24 (US$23) per lb., while Russian product traded at US$20 (US$19). In firm but quiet markets, LME lead prices strengthened to US23 cents (US21.5 cents) per lb. as LME stocks again increased, to 356,425 (350,025) tonnes. Still showing weak fundamentals, zinc stocks surged again, to 1.2 million tonnes (essentially unchanged from May) as prices improved marginally to US43.3 cents (US43.4 cents) per lb.

Demonstrating how a prosperous world economy can affect stock levels, copper prices continue their rise to US$1.04 (US97.5 cents) per lb., as the combination of inventories on the LME and Commodity Exchange of New York declined to 395,390 (414,127) tonnes. Stocks have declined 300,000 tonnes in the past six months.

With some indication that current prices are beginning to provide adequate supply, molybdenum oxide prices were unchanged at US$3.15 per lb. On little speculative news, but good jewelry demand, precious metals markets have remained quiet. Gold is up slightly to US$382.72 (US$381.34) per oz. and silver is off slightly at US$5.35 (US$5.43) per oz.

Conflicting news of platinum producer estimates for small statistical surpluses in 1994 and strong physical sales kept platinum at US$397.95 (US$398.32) per oz. and palladium at US$134.97 (US$136.19) per oz. Last month, rhodium slid to US$610 per oz. and this week continued its rebound to US$840 (US$725) per oz. on reports of strong speculative buying and higher auto catalyst purchases. Pessimistic forecasts that all palladium catalysts might supplant present technology may have provided a buying opportunity for users and speculators.

— Jack Dupuis is a metals agent, broker and consultant specializing in the marketing of mining properties.