Prices of Metals Soar With Demand : Production Troubles Help Nickel, Aluminum Set Records
Base metal prices are soaring on world markets, buoyed by record demand as manufacturers find that last year’s financial crash has not hit economic activity.
Demand for raw materials for consumer goods and for building construction, particularly in Japan, has been as important as extensive production difficulties in pushing nickel and aluminum prices to all-time records.
Minor metals, too, have benefited from healthy manufacturing demand to bounce back from recent depths. But producers are suspicious that price bubbles will burst, and they are reluctant to invest in new capacity.
In late March, nickel fetched $10.84 a pound for immediate delivery, the highest price ever for a base metal on the London Metal Exchange, and LME warehouse stocks were at a five-year low. In January, the price was under $3.
“Ten-dollar nickel” is chiefly the result of a tax dispute between producer Falconbridge Dominicana and the government of the Dominican Republic, the source of 5% of the West’s nickel. The dispute has tied up 5,000 to 6,000 metric tons of stocks.
In three days this month, spot nickel tumbled $1.66 to close recently at $7.46, with speculators suggesting that Japan might release some of a strategic stockpile of 8,000 to 9,000 metric tons.
But analyst Neil Buxton of broker Shearson Lehman Hutton said: “The fundamentals for nickel are exceptionally good, based on all-time high levels of demand.”
With little spare capacity available, 1988 consumption is likely to exceed production by some 60,000 metric tons. Total Western output is about 550,000 metric tons.
Barring more output problems, Buxton sees the price settling at $4 to $5. But wage settlements are pending in the industry and, with stocks low, some analysts say strikes could yet push spot nickel up to $14.
Some 60% to 65% of world nickel consumption goes to make stainless steel. Buxton said, “There is no indication whatever that the offtake is slacking.” Stainless steel buyers have full order books into the third quarter.
Nickel has pulled up other alloying metals. Molybdenum reached a three-year high in March of $4.40 a pound from $3 in January. On April 8, it closed at $3.75, and chrome metal is up about 14% this year at $3.20 a pound.
Traditionally active industrial buying for the second quarter also took aluminum to a record price of $2,538 a ton for three-month delivery this month. Analysts say a sharp fall of $146 to a recent close at $2,392 is only a healthy correction as speculators took profits.
Robin Bhar of broker Rudolf Wolff said demand remained strong and when supplies eased in the second half, aluminum should sustain a price of $1,800 to $1,900 a metric ton.
In 1987, demand exceeded Western output of 13.5 million metric tons by an estimated 250,000 to 300,000 tons, he said. And he saw a possible 150,000- to 200,000-ton shortfall in 1988, with demand rising steadily into the early 1990s.
Consultants Antony Bird Associates were more optimistic and said smelters’ expansion plans will still leave Western production almost 4 million metric tons short of demand by 1996.
Unusually, aluminum is fetching more than copper, whose properties are similar, and there are fears it may become uncompetitive. On Friday, three-month copper closed at $2,293 a ton, almost $100 lower than aluminum.
Aluminum competes with copper in the electrical and car industries and in household appliances with steel, plastics and copper. But Bhar says aluminum will not stay ahead for long enough before companies adapt production.
Fears that copper would begin to suffer from substitutes such as fiber optics have proven groundless, Bhar said.
