V Metals

International Monetary Fund
Published Date:
January 1987
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With growth in industrial production in the seven major industrial countries of less than 3 percent in 1985 and of less than 1 percent in 1986, consumption of metals languished, and the index of dollar prices of metals fell by 6 percent in both years (see Table 6). The annual rate of growth in consumption of metals has declined from an average of 3½ percent during the 1970s to an average of 0.3 percent during 1980–86, while the rate of growth in industrial production declined from an average of over 3 percent to an average of less than 2 percent. Technological innovation in the use of “new” materials, such as plastics and alloys, has led to substitution for most of the metals discussed individually in this section. The trend toward downsizing and miniaturization has also depressed the demand for metals. For example, the change in the size distribution of automobiles in the United States from larger to smaller cars and the downsizing of all categories, as well as the substitution of lightweight materials, resulted in a 25 percent decline in average vehicle weight over the period 1975–85. While the amount of aluminum was up from 86 to 140 pounds a car, the amount of steel used was down from 2,075 pounds to 1,470 pounds. Copper use declined from 32 pounds a car to 26 pounds. On a worldwide basis, the trend toward lighter cars alone is responsible for 10 percent of the decline in world steel consumption over the same period. In the face of these developments in the use of metals, part of the capacity built up to service growth in consumption demand for metals in the 1960s and early 1970s has contributed to excess capacity as consumption growth has slowed and, in some years, declined.

Substantial excess capacity in metals production should prevent any significant and sustained increase in real metal prices in the near term. The weak price outlook has forced many producers to reduce costs by closing unprofitable operations and to further minimize costs at existing operations. Cost minimization may actually entail a buildup of production at some properties as producers attempt to minimize unit costs by increasing their scale of operation.


Despite the reduction in metals stocks to the lowest level since 1980, after two-and-a-half years of overall market deficits and the substantial depreciation of the exchange rate of the U.S. dollar beginning in early 1985, the average level of copper prices in 1986 was 62 U.S. cents a pound, about 2 cents below the average price in 1985 (Table 52 and Chart 6). Nominal prices in 1986 were still 37 percent lower than the average level in 1980, when average monthly prices peaked at 132 cents a pound in February. The continued depressed level of prices is attributable to a considerable deceleration in the growth of copper consumption and the resultant excess productive capacity in the world copper industry, with new capacity still coming on stream and some previously idled capacity expected to be reactivated in the near future.

Table 52.Prices of Metals and Phosphate Rock, 1970–87(In U.S. cents a pound, unless otherwise indicated)
YearCopper1Aluminum2Iron Ore (in U.S. dollars a ton)3Tin4Nickel5Zinc6Lead7Phosphate Rock (in U.S. dollars a ton)8
Source: Commodities Division, IMF Research Department.

Chart 6.Prices of Metals, 1980–86

(In U.S. dollars; indices: 1980 = 100)

International copper transactions generally take place at London Metal Exchange (LME) prices, or at prices based on LME prices. Copper’s major end uses are in cyclically sensitive industries, such as construction, electronics, and transportation. Consequently, copper prices are particularly sensitive to the business cycle and therefore can fluctuate significantly. Historically, this has been reflected in four- to five-year price cycles, with periods of high prices tending to last two years and periods of low prices persisting for up to about four years depending upon changes in the underlying supply and demand situation. In addition to short-term cyclical changes in overall economic activity, however, the world copper market has been affected by long-term structural changes in copper consumption and production. Some of these changes have also contributed to maintaining prices in recent years at the most depressed levels in real terms in over three decades.

Whereas refined copper consumption increased rapidly over 1964–73, on average by 4.2 percent each year, the average annual rate of growth was only 1.2 percent in 1974–84. In 1985, consumption of refined copper declined by 4.3 percent, and only a 1.3 percent increase is estimated for 1986. The marked structural slowing down of copper consumption is attributable to the deceleration in the rate of growth in world industrial production (from an annual rate of 6 percent during 1964–73 to 1.8 percent annually in 1974–84) and the decline in the intensity of copper use.32 The latter partly reflects substitution of competing materials, such as aluminum (in power cables, automobile radiators, refrigerators, freezers, and air conditioning), fiber optics (in the telecommunications market), and plastics (in domestic plumbing), and reductions in the quantity of copper per manufactured unit, for example, in the downsizing of automobiles for greater fuel efficiency. Slower copper consumption also seems to reflect the changing composition of industry, as recent investments in “high technology” industries have increased demand for “new” materials, such as silicon, rather than for traditional metals, such as copper.

To accommodate the strong demand for copper during the 1960s and early 1970s, world mine capacity expanded significantly and production was close to capacity levels in nearly all years (95 percent of capacity on average). In contrast, during 1974–84 mine capacity expansion was modest (13 percent, compared with 46 percent from 1964 to 1973) and the average rate capacity utilization was lower (87 percent, on average), yet production exceeded consumption in 7 out of 11 years. The rise in world stocks of refined copper during the 1981–82 recession was large, reaching 12.6 weeks of current consumption at end-1982, compared with a “normal” level of about 8 weeks. In 1982–84, this significant stock overhang, unutilized productive capacity, changes in inflation expectations, and the emergence of high real rates of interest contributed to the persistent low level of copper prices. In earlier periods of high rates of inflation, apparent spillovers of speculative funds from the markets for precious metals, seeking hedges against inflation, contributed to the sharp escalation of copper prices. In recent years, however, lower price expectations and positive real rates of interest have increased the attractiveness of financial assets over metals and other tangible assets. The depressing effect of these factors on copper prices was accentuated by the appreciation of the U.S. dollar in those years, which further depressed copper prices in U.S. dollars terms. In 1985, the average annual price of copper remained low, increasing by only about 3 percent over the previous year’s level to 64 cents a pound, and, in contrast to its traditional reputation for volatility, recorded relatively minor fluctuations in U.S. dollar terms. The variation in the average monthly price on the LME was only 13 percent between a low of about 61 cents a pound in January and a high of 69 cents a pound in May. The persistence of relatively low prices in 1985 was largely the result of the decline in copper consumption, particularly in the United States and Japan, reflecting slower rates of growth and the perception of a ready availability of copper to meet consumer requirements, given the level of world stocks and unutilized productive capacity.

During the period 1984–86, production has fallen short of consumption each year (Table 53). Although in 1984 a strong world economic recovery boosted copper consumption by about 11 percent, in 1985 the slowing but nevertheless continuing rise in economic growth was accompanied by a 4 percent decline in copper consumption. This decline amounted to over 300 thousand tons, of which Japan accounted for 43 percent and the United States 34 percent. This falloff was associated with the decline in the rate of growth of industrial production (from 11 percent to 2 percent in the United States and from 11 percent to 5 percent in Japan) in these countries and also may have reflected an unreported decline in stocks at the consumer level as well as further substitution of competing materials for copper, such as aluminum in radiators in the United States and fiber optics in the telecommunications market in Japan. World refined copper production continued to be restrained in 1985 as production rose by less than 1 percent and mine and smelter production increased by 1 percent each. As a result, the level of reported stocks of refined copper declined modestly from 8.1 weeks of current consumption at end-1984 to 7.4 weeks of current consumption at end-1985. This is about the level reported at end-1979 and end-1980, in terms of weeks of current consumption, when the average annual level of copper prices reached 90 cents a pound and 99 cents a pound, respectively. The stock level at end-1985 represented a substantial reduction of the stock overhang prevailing at end-1982 and end-1983, when, as noted above, the level of stocks reached about 12.6 weeks of current consumption in both years. In view of the level of stocks and persistent excess capacity in the industry (world mine capacity utilization is estimated at about 80 percent), actual and potential supply was considered ample to cover copper required to meet the weak level of demand.

Table 53.Copper: World Commodity Balance, 1980–86(In thousands of tons)
Calendar Years
Mine production26,0426,4846,2356,2806,3916,4756,540
United States1,1811,5381,1401,0381,0911,0921,090
Other countries2,0212,0822,2072,2382,2102,2702,329
Smelter production26,1476,5616,4476,5336,7176,8156,891
United States1,0531,3781,0219871,1381,1681,166
Other countries2,1852,2092,2862,3962,5562,6342,724
Refined production27,0777,4087,2027,1257,1777,2617,298
United States1,6861,9961,6831,5811,4891,4361,459
Other countries2,7742,8132,7823,0153,1443,3343,375
Net trade with China and CMEA countries415847-198-18-66-66
Refined consumption37,1017,2526,7716,8217,6667,3337,425
Germany, Fed. Rep. of748748731737792754793
United States1,8682,0301,6641,7752,1231,9061,970
Other countries3,3273,2203,1333,0923,3833,4423,512
Closing stocks of refined copper2,41,0351,1331,6401,6671,1911,033906
United States317497738711593367310
Other U.S. stocks(154)(327)(489)(340)(342)(258)(224)
Other countries718636902956598666596
London Metal Exchange(123)(127)(253)(436)(126)(188)(176)
Other country stocks(595)(509)(649)(520)(472)(478)(420)
Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues, and CRU Metal Monitor: Copper (London: Commodities Research Unit Ltd.), various issues.

During the first half of 1986, copper prices remained stable at an average monthly level of about 65 cents a pound, with a variation of less than 3 percent between the low and high average monthly prices. From late June through December, however, the copper prices averaged only 60 cents a pound. The price decline can only partly be attributed to the seasonal downturn in copper consumption that occurred during the third quarter. In an environment of generally sluggish growth in industrial activity, the settlement, without a strike, of U.S. labor contracts during the summer had a depressing influence on price. Not only did a strike not occur, but the unanticipated acceptance by labor of wage concessions averaging roughly 25 percent insured the continued production of many properties in the United States. Several copper companies have agreed to restore some wage reductions over the life of the contract or to grant increases, if copper prices improve. These wage concessions have helped keep many U.S. mines operating at prices that would have been considered unviable just a few years ago. In addition, the announcement of the decision to reopen the Bingham mine in the United States, and the expansion of production from Chile and other sources such as Mexico’s Minera de Cananea and the new La Caridad smelter, have combined to convince the market of the potential availability of ample supplies at current prices.

In 1986, copper consumption increased by roughly 1 percent. Strong growth was recorded in Canada, Germany, Italy, the United States, and in a number of countries in Asia, apart from Japan. The markets in Australia, Japan, the United Kingdom, and countries in Latin America were weak. In general, copper consumption growth reflected the low growth of industrial activity in the major consuming areas. Copper stocks declined over the year as the major users of refined copper, such as producers of consumer durables and capital goods, tightened inventory management.

Copper export earnings have increased only marginally since 1984 (Table 54). With volume almost constant, changes in earnings have been the result almost entirely of changes in unit values. The tendency for exports of copper from developing countries to increase relative to those from other countries was limited in 1986 by production and export difficulties in Africa and South America.

Table 54.Copper: Market Prices and Exports, 1980–86
Calendar Years
Market prices (in U.S. cents a pound)
Copper ore Volumes3 (in thousands of tons)1,3291,4621,6121,4421,3811,5151,380
Industrial countries467515560471518562618
Developing countries8629471,052971863953762
Unit values (in U.S. cents a pound)84.666.154.658.553.249.147.0
Industrial countries77.862.548.050.447.544.743.0
Developing countries87.868.158.162.456.951.950.0
Earnings (in billions of U.S. dollars)2.482.131.941.861.621.641.43
Industrial countries0.820.710.590.520.540.550.59
Developing countries1.661.421.351.341.081.090.84
Copper blister
Volumes (in thousands of tons)712718814784766738466
Industrial countries761039011510210689
Developing countries636615724669664632377
Unit values (in U.S. cents a pound)
Industrial countries122.6107.091.8109.494.287.485.2
Developing countries77.062.254.959.451.449.047.3
Earnings (in billions of U.S. dollars)
Industrial countries0.
Developing countries1.080.840.880.880.750.680.39
Refined copper
Volumes (in thousands of tons)3,2942,8543,0263,4043,2813,2913,308
Industrial countries1,1949529011,1831,033943855
Developing countries1,9411,7882,0162,1272,1222,2262,330
Non-Fund members15911410994126122123
Unit value (in U.S. cents a pound)97.479.668.271.462.665.763.6
Industrial countries101.281.068.772.664.365.162.9
Developing countries94.778.967.870.861.766.163.9
Non-Fund members100.381.369.574.365.966.464.2
Earnings (in billions of U.S. dollars)
Industrial countries2.661.701.371.891.461.351.19
Developing countries4.
Non-Fund members0.350.
Sources: Commodities Division, IMF Research Department for prices. UN Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics, 1986, for exports.

The continued presence of excess production capacity will have a major dampening influence on price in 1987. The copper price outlook will also be influenced by the additional production that will begin during the year. Without strong growth in copper’s major markets, for example, in housing, capital goods, and automobiles, prospects for a sustained recovery in price are remote. The low level of inventories, which reflect lower desired levels, however, should persist throughout the year, and the market will remain sensitive to short-run supply disruptions or unanticipated increases in demand. The seasonal upturn in consumption and prices that usually occurs at the beginning of the year combined with supply disruptions led to price increases in the first quarter of 1987, but this tightening of supplies is expected to be only temporary.


The price of aluminum in 1985 averaged 47 cents a pound, which, although marginally higher than at the end of the recession period in 1982, was 28 percent below the 1983 level and 41 percent below the 1980 level.33 In 1985, excess production capacity continued to overhang the market. The recycling of scrap remained at the high level of 1984 and served as an important source of aluminum and as a factor contributing to the weakening of the aluminum price. The underlying market fundamentals for aluminum in 1986 were much stronger than in 1985 as consumption grew modestly and production declined. Prices in 1986 averaged 10 percent higher than in 1985—still well below the high levels recorded in 1979–80.

Total world bauxite production in 1985 was near 90 million tons (Table 55), of which about 85 million tons were used to refine alumina and the remainder was used for nonrefining purposes such as heat resistant ceramics and abrasives.34 Australia, Brazil, Guinea, Jamaica, and the U.S.S.R. are the world’s largest producers of bauxite. The location of higher grade deposits in Australia, Brazil, and Guinea has enabled these countries to expand their share of world production. Output in France, Jamaica, and the United States has declined. The growth of production in newer areas has served to reduce the market share of the major transnational producers. Bauxite production, however, remains relatively concentrated since about two thirds of bauxite in recent years has moved within integrated company systems. Most of the remainder has traded under long-term contracts.

Table 55.Aluminum: World Commodity Balance, 1980–86(In millions of tons)
Calendar Years
Mine production of bauxite93.188.678.978.392.588.188.0
Other countries21.320.317.915.417.717.217.1
Production of alumina28.126.622.223.427.125.425.2
Primary production16.015.714.014.315.915.415.3
Germany, Fed. Rep. of0.
United States4.
Other countries5.
Primary consumption15.314.514.115.415.916.116.3
Germany, Fed. Rep. of1.
United States4.
Other countries5.
Ending stocks22.
Metal exchanges0.
Secondary (scrap) production3.
Source: World Metal Statistics (London: World Bureau of Metal Statistics), various issues.

Production of alumina totaled 25.4 million tons in 1985 of which 2.3 million tons was for nonsmelter uses. As in recent years, the bulk (about two thirds) of alumina output was traded between refineries and smelters within integrated company systems amid a continued shift in the geographical sources of alumina supply from North America and the Caribbean to Australia, Brazil, and Venezuela. In 1985, there was a significant closure of alumina refining capacity in Japan and the United States, but this reduced industry capacity only marginally as the closure was largely matched by openings of new refineries in Australia, Brazil, Ireland, and Venezuela.

Total world primary aluminum production in 1985 declined by 3 percent to 15.4 million tons partly as a result of cutbacks in smelter operations in the traditional producing countries. Aluminum production in the United States fell by 17 percent. Thus, the trend of a shift in the geographical pattern of production from the traditional producers (North America, Europe, and Japan) to new areas where cheaper power is available (Latin America, Middle East, and Oceania) continued in 1985. The share of the traditional producers in world aluminum production was 68 percent in 1985 compared with 83 percent in 1979. With this shift in production, the United States and Japan became net importers of the metal from Australia and Latin America. Secondary production also fell slightly.

Aluminum is valued for its considerable conductive and structural properties relative to its weight, and is used mainly for vehicle panels, electric cables, residential siding, and packaging. Aluminum has more applications in consumer products than other metals, and consequently aluminum consumption and prices tend to be sensitive to changes in consumer spending. In 1985, world consumption of primary aluminum, at 16.1 million tons, was only marginally higher than in 1984. The combination of the decline in production with a marginal increase in the level of consumption resulted in a fall in total aluminum inventories of 0.4 million tons to 2.4 million tons by the year’s end, equivalent to about nine weeks of consumption.

In 1986, the price of aluminum moved upwards to average 52 cents a pound, 11 percent above the average for 1985. A number of factors contributed to this increase. The decline in the value of the U.S. dollar appears to have produced upward pressure on dollar-denominated prices. In the early months of 1986, a sizable deficit of production of aluminum below consumption developed, and as a result, primary stocks fell by nearly one-half million tons to about 1.8 million tons by the end of June, the lowest level since mid-1980 and equivalent to less than eight weeks of consumption. LME stocks fell by 85 thousand tons from the end-1985 level of 223 thousand tons. An increase in demand in the United States, in response to the anticipated labor strikes toward the end of May, when labor contracts were to expire, also helped strengthen prices. About 15 thousand workers at Alcoa, the largest aluminum producer in the United States, went on strike in May, and workers at Alcan, the largest producer in Canada, also went on strike in early June; the strikes were settled in early July. During January–July, aluminum production was about 1½ percent lower than in the same period of 1985; U.S. production of aluminum was about 13 percent lower than in the same period a year earlier.

World consumption of aluminum in 1986 is estimated to have risen by about 1 percent above the level of 1985. World production of aluminum, in contrast, is estimated to have fallen by approximately 1 percent. The reduction in production is attributable partly to the action of major producers to lower costs and production by concentrating output at their more efficient facilities. Stocks are estimated to have fallen to roughly 7–8 weeks of consumption by year’s end compared with approximately 9 weeks at the end of 1985.

The trend toward greater local processing is seen in reductions in bauxite exports during the same period in which aluminum exports are rising. With the shift in aluminum production from the main centers of consumption to countries in which newer plants and lower-cost sources of energy and raw materials are located, the volume of exports increased in 1985 and is expected to increase again in 1986 (Table 56). In 1985, however, the total earnings from exports of unwrought aluminum fell by about 1 percent from the 1984 level as the effects of the increase in volume were outweighed by the effects of the fall in unit values received. In 1986, with an increase in both volumes and unit values, export earnings are expected to increase by nearly 15 percent.

Table 56.Aluminum: Market Prices and Exports, 1980–86
Calendar Years
Market prices2 (in U.S. cents a pound)80.557.345.065.256.847.252.1
Volumes (in millions of tons)38.634.330.228.934.833.133.0
Industrial countries7.
Developing countries31.528.925.225.029.628.228.2
Unit values (in U.S. cents a pound)1.321.431.341.301.281.291.29
Industrial countries0.800.800.710.730.770.950.98
Developing countries1.431.541.471.401.361.351.35
Earnings (in billions of U.S. dollars)
Industrial countries0.
Developing countries0.990.980.810.770.890.840.84
Volumes (in millions of tons)
Industrial countries4.
Developing countries3.
Unit values (in U.S. cents a pound)18.119.919.317.316.812.614.4
Industrial countries17.018.918.617.116.712.714.2
Developing countries19.421.020.517.617.212.514.8
Earnings (in billions of U.S. dollars)
Industrial countries1.721.691.521.531.791.291.44
Developing countries1.431.561.
Unwrought aluminum Volumes (in millions of tons)
Industrial countries3.
Developing countries1.
Non-Fund members0.
Unit values (in U.S. cents a pound)74.065.954.459.062.051.358.1
Industrial countries76.
Developing countries68.764.554.860.460.545.051.8
Non-Fund members71.562.153.256.451.662.068.0
Earnings (in billions of U.S. dollars)7.996.976.368.067.937.818.97
Industrial countries5.524.543.924.815.004.605.56
Developing countries1.551.661.692.372.111.982.06
Non-Fund members0.920.770.750.880.821.231.35
Sources: Commodities Division, IMF Research Department for prices. UN Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics, 1985, for exports.

Although the supplies of aluminum were somewhat tighter and better balanced entering 1987 than previously, the fundamentals do not indicate much prospect for an increase in price. Overall economic growth is expected to be modest and the resulting growth in aluminum consumption should be marginal. If the housing and automotive sectors are stronger than anticipated, growth in demand for aluminum could exceed 2 percent. On the supply side, the expansion of production in low cost areas is expected to continue. The pace of closure of high cost plants in the United States is likely to slacken as the declining value of the dollar increases the competitiveness of these plants relative to those in Europe and Japan. To the extent that closures are not accelerated in Europe and Japan, excess production may cause an eventual buildup of stocks and could even cause a weakening of prices. During the first quarter of 1987, however, strong seasonal demand, inventory replenishment, and supply cutbacks temporarily strengthened prices; aluminum prices as denominated in dollars rose by 10 percent over the fourth quarter of 1986. For the year as a whole, dollar prices should increase only modestly over 1986 levels.

Iron Ore

The average price at German ports of iron ore imported from Brazil in 1985 was $22.70 a ton, a decline of about 2 percent from the level of 1984. Iron ore prices remained virtually unchanged during the year, averaging $23.00 a ton in the first four months and then falling to $22.00 a ton during July–August before making some recovery in the last four months. In 1986, iron ore prices declined to an average of $21.90 a ton. Ample supply of iron ore, relative to demand, has been the major factor underlying the weakening of iron ore prices during 1985–86.

Iron ore is used almost exclusively for the production of primary iron—pig iron and sponge iron—which is the basic input for crude steel production. Demand for iron ore is therefore a derived demand, depending on the demand for steel. World output of pig iron in 1985 totaled 494 million tons, an increase of less than 1 percent over the level of 1984 (Table 57). World raw steel output rose by about 1 percent to nearly 720 million tons, still considerably below the level of 747 million tons reached in 1979. In 1985, significant increases in steel output were recorded in developing countries, particularly in Brazil and China. In major industrial countries, steel output remained virtually unchanged, except in the United States where output fell by 4.3 percent. In the U.S.S.R. the increase was only 0.6 percent.

Table 57.Iron Ore: World Commodity Balance Together with Production of Pig Iron and Steel, 1980–86(In millions of tons)
Calendar Years
Commodity balance
Production of iron ore891.7851.4776.0735.0813.0829.0835.0
United States77.875.537.138.652.148.046.0
Other countries298.7281.3243.1216.3249.9250.3250.5
Apparent consumption of iron ore2900.6853.2780.5737.6812.1836.8841.0
United States97.598.748.848.364.459.359.0
Other countries388.0365.6349.8313.6360.7363.0366.0
Production of pig iron507.0534.0476.8461.3491.1493.8502.0
Production of crude steel714.7711.0646.2663.3709.5719.9725.0
Sources: Data for world commodity balance from U.S. Department of the Interior, Mineral Commodity Summaries, 1985 and Association of Iron Ore Exporting Countries (APEF), Iron Ore Statistics, March 1985.

In 1985, world iron ore output rose by 2 percent, to 829 million tons, which was slightly higher than the rate of increase in crude steel output for the year. Australia, Brazil, and China each raised their iron ore output by about 7 percent—to 96 million tons, 104 million tons, and 82 million tons, respectively—while output in the U.S.S.R., the world’s leading producer, rose only marginally to 249 million tons. U.S. iron ore output fell by 8 percent to 48 million tons. During the year, the iron ore industry remained plagued with excess capacity, although many new mine projects scheduled to come on stream during the year were either abandoned or scaled down. Brazil’s Carajas mine was a notable exception with the commencement of its operation at an initial production capacity of 15 million tons a year brought forward to February 1985. World iron ore consumption rose by 3 percent in 1985, owing almost entirely to a sharp growth in Brazil; without Brazil’s growth, world consumption would have risen only marginally.

Exports of iron ore in 1985 rose by 3½ percent to 382 million tons, about 45 percent of world iron ore production (Table 58). While Australia, Brazil, India, and Sweden all exported more last year, exports from Norway, South Africa, and the U.S.S.R. declined. The rising trend in the share of iron ore exports in total production was sustained in 1985 as steel producers in Europe and North America continued to replace low grade domestic ore with higher grade imports. Brazil increased its iron ore exports by 6 percent in 1985, to 94 million tons and thus consolidated its position as the world’s leading exporter of the commodity. Australian exports reached 86 million tons, marginally higher than in 1984. The U.S.S.R. shipped 45 million tons.

Table 58.Iron Ore: Market Prices and Exports, 1980–86
Calendar Years
Market prices2 (in U.S. dollars a ton)27.224.626.
Volumes (in millions of tons)386.0371.2333.8314.9369.0382.0383.0
Industrial countries163.2150.1128.1129.0151.2155.0147.7
Developing countries175.9176.9162.9143.0171.9182.4190.0
Non-Fund members46.944.242.842.945.944.645.3
Unit values (in U.S. dollars a ton)19.120.521.420.718.818.117.8
Industrial countries19.521.822.121.519.619.319.2
Developing countries18.819.420.919.417.616.716.1
Non-Fund members18.820.421.522.420.920.220.3
Earnings (in billions of U.S. dollars)7.367.617.166.516.956.936.80
Industrial countries3.183.282.832.772.972.992.83
Developing countries3.303.433.412.783.023.043.05
Non-Fund members0.880.900.920.960.960.900.92
Sources: Commodities Division, IMF Research Department for prices. UN Conference on Trade and Development (UNCTAD), Fourth Preparatory Meeting on Iron Ore, “Statistical Issues, Statistics on Iron Ore,” TD/B/IPC/Iron Ore/21, for exports.

In 1986, the world’s steel output is not expected to exceed 725 million tons, which would represent an increase of 1 percent over the level of 1985. While output in Japan is expected to fall and that in Europe and the United States to stagnate, continued growth in output is likely in the developing countries, particularly in South America. During January–May 1986, raw steel output in the 30 countries reporting to the International Iron and Steel Institute was down 1.3 percent from the same period a year earlier; output in Japan was down 6 percent, and that in the EC by 5 percent. In contrast, output in the United States rose by 1 percent. The lower steel output in Japan is a result of declining purchases of steel by the shipbuilding and construction sectors, the two major users of steel in that country. Based on the slow growth in steel output, iron ore consumption is estimated to have risen by less than 1 percent in 1986.

Iron ore production is also expected to have increased only marginally in 1986. Growth in world iron ore production was attributable to Brazil, where the initial production capacity of 15 million tons a year at the Carajas mine was increased to 25 million tons by July 1986 and is expected to increase further to 35 million tons by mid-1987. Reflecting these market fundamentals, in the annual contract between Brazilian ore producers and European steel producers, a 1 percent drop in iron ore prices for 1986 was agreed. The iron ore prices, at the agreed levels, are about 25 percent below the prices that prevailed in the early 1980s. With little change in the volume of world exports and lower market prices, earnings from the export of iron ore in 1986 are estimated to fall by 2 percent below the 1985 level.

In 1987 projected declines in steel production in industrial countries are expected to be matched by increases in steel production in developing countries, especially developing countries in Asia. The overall consumption of iron ore should remain at about the same level as in 1986.

Iron ore prices in 1987 in terms of dollars also are expected to remain unchanged from the level of 1986. The effects of further increases in Brazilian production, continued excess capacity elsewhere, and slow growth in demand are expected to offset the effects of the depreciation of the dollar on dollar prices. Prices of iron ore in terms of most other major currencies are projected to decline as are real prices.


The course of events in the world tin market in 1985–86 was dominated by the effects of the collapse of price support operations by the International Tin Council (ITC) in October 1985. This marked the end of stabilization measures under six successive tin agreements, which had commenced in July 1956.

The price of tin on the Kuala Lumpur Tin Market (KLTM), which is the indicator price for the Sixth International Tin Agreement, was maintained at or slightly above the floor price of the agreement of 29.15 Malaysian ringgits a kilogram from the beginning of 1984 until October 1985, except for a few days in April-May 1985. While this price was quite stable, the appreciation of the U.S. dollar against both the Malaysian ringgit and pound sterling led to a fall in the price of tin measured in U.S. dollars on the KLTM and the London Metal Exchange (LME) through February 1985. Thereafter, the depreciation of the U.S. dollar led to rising prices in terms of dollars in both markets, although sterling prices on the LME fell. A return to a situation of excess supplies of tin coming onto the world market also accentuated the decline of sterling prices on the LME price. As intervention by the Buffer Stock Manager of the ITC relied heavily on forward purchases made at prices prevailing on the LME and sales made at the price ruling at the time of delivery, generally three months later, the declining trend of sterling prices meant that losses were incurred through most of 1985. The financial position of the buffer stock deteriorated to the point where virtually all its tin was used as collateral for bank loans and some brokers on the LME had reached their limits of exposure to the Council. Unable to borrow further, the Buffer Stock Manager ceased operations on October 24, 1985, with gross indebtedness to banks and brokers of over £900 million. Trading in tin on the LME and KLTM was suspended on the same day.

In the absence of an organized market in tin, transactions in subsequent months were made largely through metals dealers in Rotterdam and New York, or directly between smelters and consumers. Quotations by New York dealers indicate that prices fell sharply at the onset of the crisis, from an average of US$5.38 a pound in October 1985 to $4.49 a pound in November. Prices declined further to $3.69 in January 1986 as banks and other holders shipped tin from southeast Asia to European warehouses to be readily available for delivery should the LME reopen. The KLTM was reopened at the beginning of February, but as trading was limited to newly refined Malaysian tin and producers withheld supplies whenever prices weakened, its price quotations were not representative of world market conditions.

In the second half of February, prices in both New York and Kuala Lumpur rose strongly in anticipation that a negotiated settlement to the crisis would be reached. After prolonged negotiations a final proposal was presented to member governments of the ITC. Banks were to provide bridging finance to a new company which would complete the Council’s contracts with LME brokers. The tin purchased from brokers and the tin held by banks would be sold off over a number of years to enable bank loans to be repaid. Member governments were to make a nonequity contribution to the company, and their liability for the Council’s debts would be limited to this contribution. If the tin could not be sold off at an assumed average price of £6,000 a ton (equivalent to US$4.00 a pound), the banks would bear the additional losses. Tin prices in New York increased from an average of $3.75 a pound in the first half of February to $4.95 a pound in the second half.

In the first week of March, however, two major producing members rejected the proposal. In their view, it was too expensive and did not protect their long-term interest by ensuring that they could compete free of export restrictions with low cost nonmember producing countries. Following the failure of the negotiations, some banks sold off their tin, and prices fell sharply, with the New York price averaging $2.45 a pound in the second half of March. Malaysian producers refused to sell on the KLTM when the price fell to the equivalent of $2.80 a pound on March 20, and there was no trading for the remainder of the month. In mid-March, the ITC decided that export controls on producing members would be terminated at the end of the month, and the potential release of stocks held in producing countries added to the downward pressure on prices. A small recovery of prices occurred in April and May as banks held onto most of their stocks, and as prospective cuts in production made it more likely that the large overhang of stocks on the world market would be reduced significantly during the remainder of the year. New York prices in April-October averaged $2.59 a pound and then rose to average $2.88 in November and $3.03 in December. The strengthening can be attributed to the apparent willingness of banks and brokers to continue to hold excess tin and to the agreement to limit exports by the Association of Tin Producing Countries (ATPC).

World production of tin metal exceeded world consumption each year from 1978 to 1983 as high prices, supported by ITC intervention, led to high production and induced the substitution of other materials for tin in the packaging industry. This situation was reversed in 1984 by a 7 percent increase in world consumption associated with the economic recovery in industrial countries (Table 59). In 1985, both world production and consumption declined by 5 thousand tons to 156 thousand and 160 thousand tons, respectively. Production fell sharply in the final quarter following the tin market collapse, while the decline in consumption partly reflected the slowing of economic growth in the industrial countries in the second half of the year. Reported stocks at end-1985 were about 74 thousand tons, and in addition, about 25 thousand tons were estimated to be in the hands of producers and consumers, bringing total stocks to almost 100 thousand tons or the equivalent of more than 60 percent of annual consumption.

Table 59.Tin: World Commodity Balance, 1980–86(In thousands of tons)
Calendar Years
Other countries36333533373429
European Community45424039413839
United States44403334383738
Other countries55515251535354
Closing stocks233437077637456
Of which: ITC buffer stock(—)(2)(53)(55)(62)(…)3(—)
Sources: International Tin Council (ITC).

Largely reflecting the transfer of stocks from Southeast Asian countries to LME warehouses in November and December 1985, the volume of world tin metal exports is estimated to have increased by 21 percent in 1985 (Table 60). Because of lower prices, however, export earnings from tin metal rose by only 16 percent. The combined export earnings from tin-in-concentrates and tin metal of all countries in 1985 are estimated to have increased by 11 percent to $2.2 billion. This increase was in contrast to the trend in export earnings from tin in previous years; the combined value of world exports of tin-in-concentrates and tin metal is estimated to have declined by 11 percent a year on average between 1980 and 1984. In 1986, however, earnings from exports of tin were cut in half with unit values declining by about 45 percent on account of the fall in the market price and export volumes decreasing by about 15 percent.

Table 60.Tin: Market Prices and Exports, 1980–86
Calendar Years
Market prices2 (in U.S. cents a pound)761643582589555523294
Volumes (tin content) (in thousands of tons)34282530292722
Industrial countries9987753
Developing countries25191723222219
Unit values (in U.S. cents a pound)600486472499485437227
Industrial countries676578549657565580327
Developing countries585435438446456394222
Earnings (in billions of U.S. dollars)0.450.300.260.330.310.260.11
Industrial countries0.
Developing countries0.320.
Tin metal
Volumes (in thousands of tons)179187155147146177150
Industrial countries20222117272217
Developing countries159165134130119155133
Unit values (in U.S. cents a pound)742619585568525502281
Industrial countries716591581497498447250
Developing countries747621587577554510285
Earnings (in billions of U.S. dollars)2.932.552.001.841.691.960.93
Industrial countries0.320.
Developing countries2.612.271.741.651.451.740.84
Sources: Commodities Division, IMF Research Department for prices. UN Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics, 1985, for exports.

The outlook for prices in 1987 has been improved by the ability of the ATPC to work out individual country quotas which would limit total member exports to 96 thousand tons in 1987. This is roughly the same level as in 1986 and represents about 60 percent of world exports. The willingness of the ATPC members to adhere to the quotas and the level of production of non-ATPC members will determine whether the renewed strength of tin prices at the end of 1986 can be maintained. The stock disposal policies of banks and brokers are likely to be managed so as to protect prices. While the production of countries that are not members of the ATPC is less certain, it is plausible to believe that aggregate production will be constrained to maintain or even modestly increase tin prices during 1987.

As a result of the failure of a negotiated solution of the ITC’s indebtedness, the Council and member states are faced with a number of lawsuits from banks and brokers claiming restitution of losses. The settlement of these actions is likely to be prolonged well beyond the expiration of the Sixth International Tin Agreement on June 30, 1987.

Other Metals and Phosphate Rock


After posting a modest recovery and a gradual consolidation in 1984, the price of nickel on the LME rose sharply in the first half of 1985 to average 252 U.S. cents a pound in the second quarter, compared with 217 cents in the final quarter of 1984. This increase reflected a concern over the adequacy of supply at a time when a seasonal upturn in demand coincided with low stocks and an absence of any indication that producers were about to increase production. The strong price recovery, however, induced the U.S.S.R. to place large amounts of nickel on the LME and encouraged stainless steel producers to use scrap in increasing amounts, leading to the fall in prices in the second half of the year. Scrap was readily available in the United States and its stainless scrap exports to Europe, in particular to the Federal Republic of Germany, rose markedly. The price fell to 187 cents a pound in the final quarter of 1985 and remained near this level for the first half of 1986; during the second half of 1986 the price fell by a further 10 percent to average 169 cents a pound.

Nickel is used as an alloying element for plating on other metals and in chemical processes. Typical uses include stainless steel, super alloys made of chromium, cobalt, molybdenum, and other alloys. In 1985, nickel consumption fell by about 6 percent, mostly as a result of a fall in the output of the stainless steel sector, which accounts for about 60 percent of total nickel consumption. Stainless steel output in Japan rose slightly, but fell by about 4 percent in the United States and Europe. Nickel output, in contrast, rose by slightly over 1 percent in 1985, with growth occurring mostly in the second half of the year in response to the high prices of the metal prevailing in the earlier months. End of calendar year stocks of nickel rose by about 12 thousand tons to 142 thousand tons, equivalent to about 14 weeks of consumption.

Exports from the Soviet Union are estimated to have doubled during 1986 and this combined with a decline of roughly 3 percent in world consumption was responsible for the price decline. A change in strategy by major private producers in an attempt to protect market shares contributed to the price decline. During the latter part of 1986 the major producers were sending a signal that they were willing to endure a period of low prices and low profits while less efficient producers would suffer losses and would eventually cut back production.

Because of the weak outlook for steel production, in 1987 there is likely to be little or no growth in nickel consumption. The price outlook will depend upon whether the major producers cut back production and on the level of exports from the Soviet Union. It is not implausible to expect some cutback on the supply side and a firming in price by the end of 1987, perhaps to the levels that prevailed during the first half of 1986.


The price of zinc remained at a relatively high level in the first half of 1985, averaging 38 U.S. cents a pound, but then collapsed in the second half to an average of 30 cents.35 While the price of zinc remained depressed in the first half of 1986, averaging only 28 cents, in the second half it increased considerably, to an average of almost 36 cents. This increase was largely on account of reduced supplies as a result of labor disputes in Australia and Canada.

The main producers of slab zinc are located in Europe, Japan, and North America, which are also the major markets. While the main use of zinc is for galvanizing iron and steel to prevent corrosion, zinc is also used in diecasting, brass products, paints, and in photocopying. In 1985, world consumption of zinc fell, although by less than 1 percent, to 6.4 million tons, in spite of a large purchase by China of about 270 thousand tons, which helped maintain prices in the first half of the year. Zinc consumption fell in France, the Federal Republic of Germany, and in the United States, particularly in the brass and diecasting sectors. Production of refined primary zinc stagnated in 1985 at around the level in 1984 of 6.6 million tons, with output growth from new smelters in Thailand and Italy being offset by output declines in Japan, the United States, and France; secondary refined output, however, fell by 9 percent. Reflecting these developments in consumption and production, commercial inventories of refined zinc fell by 42 thousand tons in 1985 to about 584 thousand tons, equivalent to about five weeks of consumption.

In 1986 zinc prices strengthened considerably from the levels that existed at the end of 1985. On a year-end basis, zinc prices rose by 22 percent to a 36.1 cents a pound average for December 1986. The price upturn began in June as disruptions associated with labor disputes in Australia and Canada reduced supplies. The strike at Canada’s Valleyfield refinery lasted five months and contributed to slightly more than a 10 percent reduction in annual Canadian slab zinc production. Supply disruptions are estimated to have resulted in an approximate 3 percent decline in total production in the market economies. With production showing roughly 1 percent growth, stocks are estimated to have fallen from roughly 7 weeks of production in the fourth quarter of 1985 to 6 weeks during the same period in 1986.

The outlook for 1987 is for a modest price decline as supplies that were reduced by labor strikes in 1986 come back onto the market. The zinc market should be characterized by accumulating stocks as supply increases outpace the expected modest growth (1–2 percent) in consumption. The strengthening of the European currencies against the U.S. dollar in 1986 and early 1987 may, however, act to strengthen the dollar denominated price. The dollar cost of producing slab zinc in the major supply areas of Europe has risen dramatically. These producers will be facing pressure to cut back production and thus should act to bring the market into better balance. The expected growth in production in Australia, Canada, Mexico, and Peru and the development of the Red Dog deposit in Alaska, nevertheless, should dampen medium-term price expectations. Excess zinc capacity is expected to continue.


A sharp increase in the price of lead in the final quarter of 1986 represented a departure from the downward trend in price that had prevailed since 1979. The price in the first three quarters of 1986 averaged 17.3 U.S. cents a pound, less than one third the annual average for 1979; the average for December 1986 was 23.4 cents, the highest monthly average since September 1982.

Following a growth of almost 3 percent in 1984, world consumption of lead is estimated to have fallen by approximately 1 percent in 1985 to 5.4 million tons. Consumption in the United States, which accounts for 20 percent of the world total, fell by 2 percent. Lead metal is used mostly for storage batteries, which account for 60–70 percent of total consumption of lead in most developed countries. A relatively mild winter in much of the United States caused a drop in sales of replacement batteries, although lead demand for new batteries remained steady. As a component of gasoline antiknock additive, lead is still important but its use has been declining. Demand for lead in Japan rose modestly until the latter part of the year, when growth slowed with lagging automobile exports to the United States.

In contrast to the faltering demand, world refined lead production rose by about 1 percent in 1985, to 5.4 million tons. Refined output in the United States rose by 8 percent, with most of the growth in production coming from those smelters that suffered from strikes in 1984. Other countries experiencing rapid growth in output included Mexico (17 percent), Peru (16 percent), and France (9 percent). Output, in contrast, declined in Canada (6 percent) and in Australia (3 percent). Secondary production, which accounts for about one half of total refined lead supply, fell by 4 percent as secondary smelters made necessary cutbacks in the face of weak demand. The combination of a fall in demand and an increase in lead output resulted in a 14 percent rise in commercial lead inventories to 484 thousand tons, equivalent to about five weeks of consumption. LME stocks alone rose by 21 thousand tons to 61 thousand tons.

In 1986 the lead market firmed as supply disruptions combined with an unexpected surge in battery demand to reduce stocks from seven weeks of consumption at the beginning of the year to roughly four weeks near the end. Strike activity in Australia and Peru during 1986 combined with a reduction in supplies from the United States because of mine and smelter closures to reduce world supplies by almost 5 percent. Although demand for the year increased by only roughly 1 percent, the above normal seasonal increase in battery demand in the fourth quarter drove prices up sharply.

Lead prices are projected to decline from the levels experienced during the fourth quarter of 1986. A return to normal supplies is projected for Australia and the other major producers. The prospects for growth in lead demand are limited. Increasingly stringent environmental legislation will reduce lead use in gasoline. Lead use in batteries will expand, but at a relatively low rate. With the market returning to “normal” it is plausible that lead prices will move back into the range they were in during the first three quarters of 1986.

Phosphate Rock

The world market for phosphate rock continues to be characterized by abundant supplies and weak demand mainly on account of sluggish growth in the farm sector, which contributed to a weak demand for fertilizer, the main use of phosphate rock. Because of the depressed outlook for food prices in 1986–87, demand for phosphate rock is not expected to recover in the immediate future.

World production of rock increased by 9 percent over the period 1980–85, from 139 million tons to 152 million tons, despite decreasing prices of phosphate rock and food commodities. In 1986, however, world production of rock fell by 7 percent to 141 million tons. Output in the United States—the largest producer and consumer of phosphate rock as well as the largest exporter of fertilizers—was only 41 million tons in 1986, compared with 51 million tons in 1985. This was the lowest level of U.S. output since the 1981–82 recession when reduced demand led to a large buildup of stocks in 1981 and to a cut in output by 30 percent in 1982. Low production in 1986 resulted from reduced demand for finished fertilizer that related to the impact of the U.S. farm bill of 1985 on the U.S. agricultural sector as well as reduced export demand for rock and finished fertilizer. Despite a utilized rate of only 63 percent in U.S. rock mines, stocks are estimated to be equivalent to 40 percent of annual rock use. Output in Morocco in the 1980s has remained fairly stable at about 20 million tons. Although Morocco remains the world’s largest exporter of phosphate rock, its rock exports have been increasingly replaced by exports of fertilizers. In 1985 Morocco’s exports of both rock and fertilizer fell, and in 1986 remained at the lower level owing to poor external demand. From 1980 to 1985, total output from countries other than the United States and Morocco increased by 23 percent, to 81 million tons, as new mine capacity in Brazil, Israel, Jordan, Senegal, Togo, and Tunisia came on stream. In 1986, however, output from countries other than the United States and Morocco fell by 2 percent to 79 million tons.

Phosphate rock prices are expected to remain depressed through 1987. The U.S. farm bill could reduce U.S. fertilizer consumption by an estimated 5–10 percent in 1986/87 as a result of a reduction in acreage devoted to food production. In addition, low food prices are expected indirectly to reduce fertilizer demand worldwide. During the rest of the decade some major adjustments in the phosphate rock industry are expected to occur, as high cost mines close down, and world trade shifts to more processing of rock in producing countries. Barring any shortfall in world food production which would lead to higher food prices and stimulate fertilizer demand, the world market for phosphate rock is expected to return to balance only gradually.

The “intensity of use” is a ratio of the volume of consumption of copper to a unit of GNP, expressed in tons or kilograms per unit of GNP.

Price quotations refer to aluminum sold in the LME, cash for delivery on the following business day, 99.5 percent minimum aluminum content, in the form of T-bars or ingots, c.i.f. European ports.

Bauxite is mined and refined into alumina, which then is smelted into aluminum ingots. It requires five tons of bauxite to produce two tons of alumina, and about two tons of alumina to produce a ton of aluminum.

Price quotations refer to LME, cash for delivery on the following business day, zinc produced by distillation or electrolysis, minimum purity 98 percent (standard), c.i.f. U.K. ports.

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