Chapter

V Minerals and Metals

Author(s):
International Monetary Fund
Published Date:
January 1989
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In 1988, the prices of a number of metals rose to record levels (Chart 7 and Table 61). In terms of SDRs the average annual price of nickel increased by 172 percent, that of aluminum by 57 percent, zinc by 50 percent, and copper by 40 percent. When measured in terms of U.S. dollars, the rise in prices is even sharper. Notwithstanding the strong upward trend, prices for nickel, aluminum, and copper fluctuated widely during the year. The dollar price of nickel increased by 123 percent from January to April, fell by 36 percent over the following six months, and recovered by 46 percent during the remaining two months of the year. The price of copper fell by 17 percent from January to August and rose 59 percent over the following four months. After a steep rise in the price of aluminum (by 79 percent) during the first half of the year, the price weakened during subsequent months and in December was 31 percent below the peak June level. Zinc prices moved steadily upward during the year. Small increases were recorded in prices of lead, tin, and phosphate rock, while the SDR price of iron ore in 1988 remained unchanged at the 1987 level.

Chart 7.Prices of Minerals and Metals in SDRs, January 1980–April 1989

(1980 = 100)
Table 61.Prices of Minerals and Metals, 1979–First Quarter 1989
YearIndex of

Prices of

Minerals

and Metals1
Copper2Tin2Aluminum2Nickel2Zinc2Lead2Iron Ore3Steel4Phosphate

Rock5
(1980 = 100)(In SDR 0.01 a pound)(In SDRs a ton)
197992.069.35421,2414,62457393118.128525.5
1980100.076.25851,3645,00858569620.929535.9
198193.667.05451,0715,04971761620.930442.0
198288.160.95278984,38267549423.732038.4
198395.667.65511,3464,37171539822.429434.5
198494.460.95411,2214,63689943122.530737.3
198589.963.35151,0254,82577238522.327333.4
198673.153.02519803,31564334618.726529.2
198778.762.52441,2103,76861746117.228924.0
1988112.587.72461,89510,25292348817.238026.8
1987I69.550.22501,0112,91259037317.225124.6
II73.253.42451,1033,28963848316.527024.0
III82.262.32431,3604,01962351417.431324.3
IV90.082.82381,3574,79161747217.732023.1
1988I99.181.22321,6247,85566648017.233626.3
II116.980.32372,21112,33587948616.638326.3
III112.479.82631,97110,45099647017.240527.8
IV121.8109.22531,77310,3731,15851517.740026.7
1989I132.2112.12831,68513,5481,42547719.841831.6
(1980 = 100)(In U.S. cents a pound)(In U.S. dollars a ton)
197991.389.57011,6035,9757411,20323.436833.0
1980100.099.17611,7756,51976190527.238446.7
198184.879.16431,2635,95384672624.635849.5
198274.867.25829924,83874554626.235442.4
198378.572.25891,4384,67376442524.031536.9
198474.462.55551,2524,75292244223.131438.3
198570.064.35231,0414,89978339122.727733.9
198665.962.12941,1503,88975440621.931034.3
198778.480.83161,5654,87279859622.237931.0
1988116.2117.93312,54713,7781,24065623.151236.0
1987I67.363.33161,2743,67174447021.631731.0
II72.869.23171,4284,25682562521.435031.0
III80.679.53101,7375,13179665622.240031.0
IV92.9111.23201,8226,43082763323.743031.0
1988I104.2111.13182,22210,74591165623.546036.0
II122.8109.93243,02516,8751,20366422.852336.0
III111.9103.53412,55713,5531,29161022.352536.0
IV125.7147.23412,38213,9401,55669223.953836.0
1989I133.9147.43722,21617,8211,87462826.455041.5
Source: Commodities Division, IMF Research Department.

The weights in the index are as follows: copper, 26 percent; aluminum, 20 percent; iron ore, 19 percent; tin, 10 percent; nickel, 8 percent; zinc, 6 percent; lead, 5 percent; and phosphate rock, 6 percent.

London Metal Exchange (LME) price, c.i.f. European ports.

Brazilian ore, c.i.f. German ports.

Cold rolled coil, price for export, f.o.b. European Coal and Steel Community mills.

Moroccan rock, f.a.s. Casablanca.

Source: Commodities Division, IMF Research Department.

The weights in the index are as follows: copper, 26 percent; aluminum, 20 percent; iron ore, 19 percent; tin, 10 percent; nickel, 8 percent; zinc, 6 percent; lead, 5 percent; and phosphate rock, 6 percent.

London Metal Exchange (LME) price, c.i.f. European ports.

Brazilian ore, c.i.f. German ports.

Cold rolled coil, price for export, f.o.b. European Coal and Steel Community mills.

Moroccan rock, f.a.s. Casablanca.

The large price rises for most metals were associated with the effects on consumption of a sharp acceleration in the growth of industrial production and domestic fixed investment in industrial countries, exceptionally low stock levels, and the absence of substantial excess productive capacity. Industrial production in the major industrial countries grew at an annual rate of 1 percent in 1986, 3 percent in 1987, and 6 percent in 1988 (Table 62). Fixed investment showed a similar development, with an increase of 2 percent in 1986, 4 percent in 1987, and 8 percent in 1988. Much of the excess production capacity that had overhung the market for metals earlier in the decade was closed during 1983–87, as the prolonged period of low prices forced producers to shut down high-cost, unprofitable facilities and sharply cut production costs at others by reducing the labor force and wages. Despite the upturn in prices, producers have been reluctant to reactivate previously closed facilities or to undertake substantial expansions of existing capacity because of uncertainty over how long the world economic expansion would continue. Consequently, the large stock overhang of metals that had accumulated during 1980–82 was steadily reduced and by the end of 1987 stocks were low. In 1988, stronger-than-expected demand, accompanied by supply disruptions in important producing countries, depleted stocks even further.

Table 62.Movements in Prices of Minerals and Metals and Related Economic Indicators, 1982–88(Annual percentage change)
1982198319841985198619871988
Prices of minerals and metals1
In SDRs–5.98.5–1.3–4.8–18.77.742.9
In U.S. dollars–11.84.9–5.2–5.9–5.919.048.2
Real2–10.08.1–2.4–6.4–20.35.940.2
Unit value of manufactured exports
In SDRs4.50.41.21.91.91.62.0
In U.S. dollars–2.1–2.8–3.01.017.712.06.0
GNP deflator in major industrial countries3
In SDRs6.84.73.93.43.12.72.8
In U.S. dollars–0.31.8–0.22.118.010.65.9
Economic activity in major industrial countries3
Real GNP–0.42.95.23.42.73.44.2
Industrial production–3.83.78.12.61.03.36.0
Domestic fixed investment–5.14.09.64.51.84.28.1
Housing starts4–5.126.0–0.32.36.55.0–1.8
Automobile production4–4.312.01.85.20.8–0.42.9
World consumption of metals5
Index of consumption–4.23.55.7–0.62.83.72.0
World supply of minerals and metals5
Index of production–6.21.06.00.9–0.33.34.5
Index of supply6–3.35.05.2–0.7–0.81.21.1
Index of closing stocks19.8–0.9–10.0–4.7–7.7–20.7–3.5
Sources: Commodities Division and Current Studies Division, IMF Research Department.

Refers to IMF world index of prices of minerals and metals. These percentages differ from those reported in the World Economic Outlook, which refer to the index of commodities exported by developing countries.

Index of dollar prices of minerals and metals deflated by the index of dollar unit values of manufactured exports.

Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States.

Updated series with revised definition. Data on housing starts cover only five countries: Canada, France, Japan, the United Kingdom, and the United States.

Overall indices constructed using the same weights for the indices of individual commodities as in overall (world) price index. The commodity coverage of the indices of consumption and stocks is less comprehensive (includes only metals) than the coverage of the indices of production and supply (includes iron ore and phosphate rock).

Supply is defined as production plus beginning-of-year stocks.

Sources: Commodities Division and Current Studies Division, IMF Research Department.

Refers to IMF world index of prices of minerals and metals. These percentages differ from those reported in the World Economic Outlook, which refer to the index of commodities exported by developing countries.

Index of dollar prices of minerals and metals deflated by the index of dollar unit values of manufactured exports.

Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States.

Updated series with revised definition. Data on housing starts cover only five countries: Canada, France, Japan, the United Kingdom, and the United States.

Overall indices constructed using the same weights for the indices of individual commodities as in overall (world) price index. The commodity coverage of the indices of consumption and stocks is less comprehensive (includes only metals) than the coverage of the indices of production and supply (includes iron ore and phosphate rock).

Supply is defined as production plus beginning-of-year stocks.

The combined value of export earnings from four major metals—copper (refined), aluminum (unwrought), iron ore, and tin (metal)—increased from an average of SDR 19.6 billion in 1985–87 to SDR 23.6 billion in 1988 (see Table 4). The growth of earnings in 1988 is mainly attributable to the sharp increases in average unit values, as the combined volumes of these exports was only 5 percent above the 1985–87 average. Export receipts from aluminum increased by 60 percent and those from copper by 25 percent; earnings from iron ore and tin exports declined. Over one half of the increase in export earnings accrued to industrial countries, somewhat more than one third to developing countries, and the remainder to the U.S.S.R. and Eastern European countries. As a result, the share of developing countries in export receipts from the four metals declined from 45 percent in 1985 to 41 percent in 1988, while the share of industrial countries rose from 44 percent to 47 percent. This shift in trade shares is mainly attributable to the rapid expansion in earnings from aluminum, a metal exported predominantly by industrial countries.

The somewhat slower world economic growth projected for 1989 and 1990 combined with increased metals production is expected to lead to price declines for a number of metals during 1989 and 1990 from their average 1988 levels. Near-term supplies, are, however, expected to remain tight for some time. Until stocks are gradually restored to more normal levels, even minor supply disruptions can lead to large price increases, as shown by the price movements in the first quarter of 1989 (see Table 61).

Copper

After a prolonged period of low prices from 1982 to 1986, the price of copper rose substantially during 1987 and 1988. In 1988, for the first time, the average annual price of copper exceeded $1.00 a pound. The price of copper declined from an average of $ 1.11 a pound in the first quarter of 1988 to $1.04 a pound in the third quarter, but increased dramatically by 42 percent to $1.47 a pound in the fourth quarter. Already low stocks of copper were reduced further in 1988 by stronger-than-expected consumption production shortfalls in Zaïre and Zambia, production levels in Chile and the United States that fell short of expectations, and, in the fourth quarter, a 52-day miners’ strike in Peru exacerbated the tight supply.

The copper quotations in this section refer to Grade A cathodes, c.i.f. European ports, as traded in contracts of 25 metric tons at the London Metal Exchange (LME); the LME provides contracts for high grade cathodes for all business days up to 3 months and a monthly contract for up to 15 months forward. The LME discontinued its standard copper contract in January 1989. Both standard and high grade copper are traded at the Commodity Exchange (COMEX) in New York in contracts of 25 thousand pounds covering the current calendar month, the 2 succeeding months, and selected months falling within a 23-month period beginning with the current month.

World consumption of refined copper, which is used mainly in construction, electrical and electronic products, and transportation equipment, is estimated to have increased by just 1 percent in 1988, following increases of 4 percent and 3 percent in 1986 and 1987, respectively (Table 63). The small increase contradicts a forecast early in the year of a small decrease for 1988. Japanese consumption is estimated to have expanded by more than 3 percent on account of a surge in capital spending, a high level of construction activity, and a 3 percent increase in automobile production. Consumption in the Federal Republic of Germany is estimated to have increased by 3 percent, reflecting the accelerated growth in industrial production and business investment, the strong export performance of the economy, and the increased use of copper in vehicle production. Although the growth in industrial production in the United States rose from 3.8 percent in 1987 to 5.8 percent in 1988 and business investment from under 3 percent to 10 percent, copper consumption fell marginally largely because of an 8 percent decline in construction activity.

Table 63.Copper: World Commodity Balance, 1982–88(In thousands of tons)
19821983198419851986198719881
Mine production28,0408,1108,2708,3808,4008,6708,690
Canada610650720740700740730
Chile1,2401,2601,2901,3601,4001,4201,430
China190190190200220270270
Peru360320360380390390320
United States1,1501,0401,1001,1001,1501,2601,350
U.S.S.R.1,0101,0201,0201,0301,0301,0101,020
Zaïre500500500500500500440
Zambia530590580510510530460
Other countries2,4502,5402,5102,5602,5002,5502,670
Refined production29,4309,6709,5409,7009,84010,17010,460
Canada340460500500490490520
Chile8508308808809409701,090
China330340360360360440490
Japan1,0801,090940940940980960
Peru220190220230230220170
United States1,6901,5801,4901,4401,4801,5601,820
U.S.S.R.1,3501,4001,3801,4001,4001,4301,430
Zaïre170230230230220220190
Zambia590570520510490510430
Other countries2,8102,9803,0203,2103,2903,3503,360
Refined consumption29,0309,1009,9309,70010,06010,41010,490
China400400410420450490520
Germany, Fed. Rep. of730740790750770800820
Japan1,2401,2201,3701,2301,2201,2801,320
United States1,6601,8002,1201,9802,1002,1402,110
U.S.S.R.1,3201,3001,2801,3001,3001,2901,300
Other Asia360460540560720810870
Other countries3,3203,1803,4203,4603,5003,6003,550
Market balance3400570–3900–220–240–30
Closing stocks of refined copper2,41,6401,7101,2001,030870480430
United States760710600370300120100
COMEX250370250110801010
Other U.S. stocks51034034026022011090
Other countries8801,000600660570350330
London Metal Exchange2504401201901704070
Other country stocks630560470480400310260
Stocks/consumption ratio (number of weeks)59.49.76.35.54.52.42.1
Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988; and CRU Metal Monitor: Copper (London: Commodities Research Unit Ltd., December 1988).

Estimated by the Commodities Division, IMF Research Department.

Includes China and Council for Mutual Economic Assistance (CMEA) countries.

World production minus world consumption.

Figures may not agree with production and consumption data because of differences in coverage.

Total commercial stocks reported in terms of weeks of world consumption.

Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988; and CRU Metal Monitor: Copper (London: Commodities Research Unit Ltd., December 1988).

Estimated by the Commodities Division, IMF Research Department.

Includes China and Council for Mutual Economic Assistance (CMEA) countries.

World production minus world consumption.

Figures may not agree with production and consumption data because of differences in coverage.

Total commercial stocks reported in terms of weeks of world consumption.

After a period of slow growth, from 1982 to 1986, world mine production increased by 3 percent in 1987. In 1988, however, despite an estimated 3 percent growth in mine production capacity, actual mine output remained at the 1987 level. Growth of production in Mexico, Papua New Guinea, and the United States is estimated to have been largely offset by steep reductions in the output of Peru, Zaïre, and Zambia. In Peru, the number of work stoppages in 1988, including the national miners’ strike from mid-October to mid-December, reduced mine output to about three fourths of the 1987 level.

World production of refined copper increased by an estimated 3 percent in 1988, a higher rate of increase than that recorded for mine production, which was made possible by some reduction in copper ore stocks and an increase in scrap recovery. A 17 percent increase in refined production in the United States, the largest producer of refined copper, together with a 12 percent increase in Chile and a 6 percent increase in Canada outweighed production shortfalls in Peru, Zaïre, and Zambia. Production in Peru fell by about 23 percent largely on account of the strikes, while in Zaïre and Zambia production in each fell by about 15 percent on account of reduced mine output, refining equipment shortages, and transportation problems.

As consumption exceeded production of refined copper from 1984 through 1987, world copper stocks were reduced from nearly ten weeks of consumption at the end of 1983 to little more than two weeks at the end of 1987. Stocks improved in 1988 but deteriorated again toward the end of the year, owing mainly to the Peruvian strike and lower-than-expected output in Chile—because of production problems at CODELCO, the main copper company in Chile and the world’s largest producer. CODELCO lowered its output forecasts several times during the year, revising the total output figure for 1988 again in December to less than 1.1 million tons, or 5 percent below the projections at the beginning of the year. By the end of 1988, commercial stocks were once again estimated to have fallen to the equivalent of about two weeks of consumption.

Export earnings of both copper ore and refined copper in 1988 are estimated to have risen substantially almost entirely because of a rise of about 25 percent in the average unit values (Table 64). With increases in Chile and the industrial countries offset by decreases in Peru, Zaïre, and Zambia, the volume of world exports of refined copper is estimated to have remained at the 1987 level, although that of copper ore is estimated to have increased by a small amount.

Table 64.Copper: Export Earnings, 1985–88
198519861987119881198519861987119881
(In SDRs)(In U.S. dollars)
Copper Ore
Earnings (in billions)1.71.61.72.11.71.92.22.9
Industrial countries0.60.60.60.70.60.70.81.0
Developing countries1.11.01.11.41.11.21.41.9
Unit values (a ton)1,1201,0001,0301,3101,1401,1701,3301,760
Industrial countries1,0609009601,2101,0801,0501,2401,630
Developing countries1,1601,0701,0701,3601,1801,2501,3801,830
(In thousands of tons)
Volumes21,5301,5901,6201,6701,5301,5901,6201,670
Industrial countries580650610630580650610630
Developing countries9509401,0101,0409509401,0101,040
(In SDRs)(In U.S.dollars)
Refined Copper
Earnings (in billions)4.53.94.35.34.54.65.57.2
Industrial countries1.31.21.31.71.31.41.72.3
Developing countries2.82.42.63.22.82.83.34.3
U.S.S.R. and Eastern European countries0.40.30.40.40.40.40.50.6
Unit values (a ton)1,3701,1901,2701,6101,3901,4001,6402,170
Industrial countries1,4101,2401,3201,6801,4301,4501,7102,260
Developing countries1,3401,1701,2501,5801,3601,3701,6102,130
U.S.S.R. and Eastern European countries1,4201,2201,2601,6101,4401,4301,6302,160
Market prices (a ton)31,4001,1701,3801,9301,4201,3701,7802,600
(In thousands of tons)
Volumes3,2803,2903,3303,3003,2803,2903,3303,300
Industrial countries9409809801,0309409809801,030
Developing countries2,0402,0202,0702,0002,0402,0202,0702,000
Chile8909009401,0008909009401,000
Peru180190180170180190180170
Zaïre230220200190230220200190
Zambia510470500440510470500440
Other230240250200230240250200
U.S.S.R. and Eastern European countries300290280270300290280270
Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics, 1987, for exports; Commodities Division, IMF Research Department, for market prices; and World Metal Statistics (London: World Bureau of Metal Statistics), various issues 1988.

Data on exports are estimates of the Commodities Division, IMF Research Department.

Copper content.

London Metal Exchange, spot delivery, higher grade cathodes, c.i.f. U.K. ports.

Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics, 1987, for exports; Commodities Division, IMF Research Department, for market prices; and World Metal Statistics (London: World Bureau of Metal Statistics), various issues 1988.

Data on exports are estimates of the Commodities Division, IMF Research Department.

Copper content.

London Metal Exchange, spot delivery, higher grade cathodes, c.i.f. U.K. ports.

Over the near term, some relaxation in the tight market conditions is expected. Production is projected to expand in the United States—mainly at Bingham Canyon and the Ok Tedi mine in Papua New Guinea. In December 1988, the Neves Corvo project opened in Portugal; production there is projected to reach 300 thousand tons of concentrates in 1989. The recently opened Olympic Dam Mine in Australia has an initial capacity of 45 thousand tons of copper cathodes. In Chile, CODELCO’s output is forecast to rise from about 1.09 million tons in 1988 to 1.25 million in 1989 despite a temporary shutdown of a new flash furnace at the Chuquicamata mine. In Peru, a gradual return to normal production levels is anticipated although labor disputes continued in the first quarter of 1989. With world copper consumption expected to remain at about, or slightly below, the 1988 level during 1989, a weakening in the average price level of copper is not unlikely. Quotations on the New York futures market for copper indicate substantial easing of prices during the year; however, until stocks are rebuilt, from the historically low levels prevailing at the end of 1988, any supply disruption or unexpected strength in consumption could raise prices substantially. Developments with respect to labor disputes in Chile, Mexico, and Peru were associated with considerable fluctuation in prices in the first four months of 1989—a drop from $1.54 a pound in January to $1.40 a pound in February, then an increase to $1.48 in March followed by a decrease to $1.41 in April. In addition, uncertainty concerning the outcome of labor negotiations in North America, which are anticipated in the spring of 1989, could contribute to further price volatility during the year.

Aluminum

The average price for aluminum rose by 63 percent to a record level of $2,547 a ton in 1988. This sharp increase followed increases of 10 percent in 1986 and 36 percent in 1987, with the result that by 1988 the aluminum price was, on average, nearly 150 percent above the average of three years earlier; however, during 1988 the price fluctuated widely. It rose from about $2,000 a ton in January to a high of over $4,200 in mid-June, with most of the increase occurring in late May and early June. By late June, the price fell sharply and then drifted down to an average of $2,300 in October before leveling off at about $2,450 at the end of the year. The major factors underlying these price movements during 1988 were strong demand for aluminum, particularly from the automotive industry, low inventories of the metal, a strike at a large Canadian smelter, and concern about possible work disruptions elsewhere.

Prices used in this section (through the end of 1988) are the cash quotations at the LME for standard grade metal with a minimum 99.5 percent aluminum content, c.i.f., European ports. The contracts for standard grade were, however, discontinued at the end of 1988 and all trading in line with market requirements was based on existing contracts for high grade aluminum. LME transactions on aluminum are in contracts of 25 metric tons and cover all business days up to 3 months and monthly contracts for up to 15 months forward. Aluminum is also traded at the COMEX, but this market does not have an important position in international price formation because of very thin trading volumes.

World consumption of primary aluminum, which is widely used in building and construction, transportation, consumer durables, and packaging, is estimated to have risen by about 3 percent in 1988, down from a growth rate of 6 percent in 1987 (Table 65). The growth of consumption in Japan accelerated from 3 percent in 1987 to 10 percent in 1988, with the increase being attributable mainly to increased use in the automotive manufacturing sector. In the United States, consumption was only slightly above the previous year’s level, despite considerable growth in the beverage can market and an increase of about 6 percent in automobile production. With strong investment expenditure, construction output, and a boom in car sales, the United Kingdom registered a strong increase of 6 percent in consumption, Italy an increase of 4 percent, and the Federal Republic of Germany an increase of 3 percent. Only marginal increases are estimated for the other European countries, which are also major markets for aluminum.

Table 65.Aluminum: World Commodity Balance, 1982–88(In millions of tons)
19821983198419851986198719881
Bauxite production77.978.692.389.692.694.999.0
Australia23.624.431.531.832.434.235.8
Brazil4.25.26.45.86.46.66.6
Guinea11.813.014.714.014.816.316.3
Jamaica8.27.78.76.27.07.77.4
Suriname3.12.83.43.73.72.63.4
U.S.S.R.6.46.36.26.46.34.96.3
Yugoslavia3.73.53.33.53.53.43.5
Other countries16.915.718.118.218.519.219.7
Alumina production22.223.327.125.526.128.128.8
Aluminum
Primary production14.014.315.915.515.516.317.3
Australia0.40.50.80.90.91.01.1
Brazil0.30.40.50.50.80.80.9
Canada1.11.11.21.31.41.51.5
Germany, Fed. Rep. of0.70.70.80.70.80.70.7
Norway0.60.70.80.70.70.80.8
U.S.S.R.2.42.42.32.32.42.42.4
United States3.33.44.13.53.03.33.9
Other countries5.25.15.45.65.55.85.9
Primary consumption14.115.415.615.916.117.117.6
China0.60.60.60.70.80.80.9
France0.60.60.60.60.60.60.6
Germany, Fed. Rep. of1.01.11.21.21.21.21.2
Japan1.61.81.61.71.61.71.9
U.S.S.R.1.91.91.81.81.71.81.8
United States3.64.24.54.34.34.54.6
Other countries4.85.25.35.65.96.56.6
Market balance2–0.1–1.10.3–0.4–0.6–0.8–0.3
Ending stocks33.22.22.82.52.01.51.6
Metal exchanges0.30.20.20.30.10.10.1
Producers2.92.02.62.21.91.41.5
Stocks/consumption ratio (number of weeks)411.77.69.38.06.44.54.8
Source: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988.

Estimated by Commodities Division, IMF Research Department.

World production minus world consumption.

May not agree with production and consumption data because of differences in coverage.

Reported commercial stocks expressed as weeks of world consumption.

Source: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988.

Estimated by Commodities Division, IMF Research Department.

World production minus world consumption.

May not agree with production and consumption data because of differences in coverage.

Reported commercial stocks expressed as weeks of world consumption.

World output of bauxite, the mineral used in aluminum production, grew by an estimated 5 percent in 1988 to about 100 million tons. The expansion is mainly attributable to increased production in Australia, a recovery of production in the U.S.S.R. from the low 1987 level to more typical levels of preceding years, and a partial recovery of production in Suriname.

World production of primary aluminum is estimated to have grown by 6 percent in 1988 following a 5 percent rise in 1987. The expansion of output was facilitated by an increase in utilization rates to almost full capacity as well as by the opening of new capacity. In the United States, the world’s major aluminum producer, production in 1987–88 recovered from the sharp 1985–86 decline owing to much higher prices and a weaker U.S. dollar, which enabled U.S. producers to recapture market shares. U.S. production grew by 18 percent in 1988 to nearly 4 million tons, with almost all of the available capacity fully utilized. This gain in output accounted for more than 60 percent of the world’s increases in production. Comparatively small production increases were registered in Australia, Brazil, India, and Venezuela.

The scrap aluminum market has gained importance in the current tight market conditions. Scrap is widely used for cansheet and castings. Particularly in Europe, more emphasis has been placed on the recycling of aluminum container products, such as beverage cans. The secondary industry provides above one third the volume of primary aluminum consumed in Europe and almost as much in the United States.

World primary consumption of aluminum outpaced world primary production by a considerable margin in the first half of 1988, but during the second half of the year production outpaced consumption. Commercial stocks at the end of 1988 are estimated to have been the equivalent of close to five weeks of world aluminum consumption—slightly higher than at the end of 1987 but only about half the amount four years earlier. Stocks on the LME at the end of 1988 were well above the exceptionally low levels that prevailed throughout the first half of 1988.

The large price rises of aluminum in 1987 and 1988 were reflected in the increases in export earnings of aluminum (Table 66). Global earnings from the export of unwrought aluminum in 1988 are estimated at SDR 14.5 million. This amount is roughly two thirds above that for 1985–86 and is greater than the export earnings in 1988 for any other non-fuel primary commodity, including wheat, the traditional leader. About 60 percent of the earnings from exports of unwrought aluminum were obtained by industrial countries, close to 30 percent by developing countries, and more than 10 percent by the U.S.S.R. and Eastern European countries. Less than 20 percent of the rise in earnings from 1986 to 1988 was attributed to volume increases. Over the same period, earnings from exports of bauxite changed little; the large price rise of aluminum was only weakly reflected in the price of bauxite and the increases in the volume of bauxite were also small.

Table 66.Aluminum: Export Earnings, 1985–88
1985198619871988119851986198719881
(In SDRs)(In U.S. dollars)
Bauxite
Earnings (in billions)0.90.80.70.80.90.90.91.0
Industrial countries0.10.10.10.10.10.10.10.1
Developing countries0.80.70.60.70.80.80.80.9
Unit values (a ton)27.024.722.022.227.429.028.429.9
Industrial countries17.015.013.811.817.217.517.915.9
Developing countries29.227.023.724.629.631.630.733.1
(In millions of tons)
Volumes232.831.031.733.532.831.031.733.5
Industrial countries5.85.75.66.35.85.75.66.3
Developing countries27.025.326.127.227.025.326.127.2
Guinea13.013.214.014.113.013.214.014.1
Jamaica2.62.93.43.32.62.93.43.3
Other11.49.28.79.811.49.28.79.8
(In SDRs)(In U.S. dollars)
Unwrought aluminum
Earnings (in billions)7.47.29.014.57.58.411.719.5
Industrial countries4.84.55.69.14.95.37.312.2
Developing countries1.81.92.53.91.82.23.25.3
U.S.S.R. and Eastern European countries0.80.80.91.50.80.91.22.0
Unit values (a ton)1,1201,0801,3102,0501,1401,2701,7002,750
Industrial countries1,1501,1001,3502,1101,1701,2901,7402,840
Developing countries1,1101,1001,3802,0801,1301,2901,7802,790
U.S.S.R. and Eastern European countries9809601,0301,6501,0001,1301,3302,220
Market prices (a ton)31,0209801,2101,8901,0401,1501,5702,540
(In millions of tons)
Volumes6.66.66.97.16.66.66.97.1
Industrial countries4.24.14.24.34.24.14.24.3
Developing countries1.61.71.81.91.61.71.81.9
U.S.S.R. and Eastern European countries0.80.80.90.90.80.80.90.9
Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics (1987); and World Metal Statistics (London: World Bureau of Metal Statistics), various issues 1988, for exports; and Commodities Division, IMF Research Department, for market prices.

Data on exports are estimates of the Commodities Division, IMF Research Department.

Actual weight.

London Metal Exchange, spot delivery, 99.5 percent aluminum, in the form of T-bars or ingots, c.i.f. European ports.

Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics (1987); and World Metal Statistics (London: World Bureau of Metal Statistics), various issues 1988, for exports; and Commodities Division, IMF Research Department, for market prices.

Data on exports are estimates of the Commodities Division, IMF Research Department.

Actual weight.

London Metal Exchange, spot delivery, 99.5 percent aluminum, in the form of T-bars or ingots, c.i.f. European ports.

Prospects for continued easing of the tight market in the near future are not unfavorable. Production is expected to register further growth owing to capacity expansions in late 1988 and others envisaged for 1989–91. In October 1988, a major U.S. refinery (Burnside), closed in 1985, was recommissioned to come on stream at the end of 1988 with a yearly capacity of 500 thousand tons. Roughly 1 million tons could be added between 1989–91, from Venezuela, Jamaica, Australia, and other countries. Venezuela is planning to expand its primary aluminum production capacity from 420 thousand tons in 1988 to 860 thousand tons by 1990 in line with bauxite mine developments; bauxite output, which was only 240 thousand tons in 1987, is forecast to reach 1 million tons in 1989. In Jamaica, restarts of mines and refineries—among them the Nair refinery in early 1989—are expected to increase aluminum production by 200 thousand tons in 1989 and 500 thousand tons in 1990. Australia’s output of aluminum is forecast to rise by 15 percent to 1.23 million tons owing to a new smelter in Victoria, which reached its capacity in September 1988 and is scheduled to increase its output rate by 10 percent during 1989. A half million ton expansion in aluminum smelter capacity in Canada is envisaged over the period 1989–92. The construction of a 200 thousand ton aluminum smelter in France to start production in 1991 was announced in November 1988, and there are also plans for a new smelter in Saudi Arabia and an increase in Brazilian production. Secondary production is expected to continue to increase.

Aluminum consumption is expected to grow moderately in 1989, supported mainly by the container market where the share of aluminum in the production of cans for beverages is expected to increase. In the transportation market, the increased usage per car is expected to be offset by lower automobile production. One factor that will influence demand growth is the development of the competitive position of aluminum over other materials, especially copper and plastics. Although high aluminum prices during the first part of 1988 temporarily reversed this relationship, copper prices rose in the second half while those of aluminum declined, thereby supporting the competitiveness of aluminum in spite of its high price.

In the absence of severe supply disruptions, these developments are likely to lead to a weakening of the aluminum price from the average level of 1988. To the extent that inventories are rebuilt, the tendency toward price volatility should also be reduced. The signing of new three-year labor contracts by U.S. aluminum producers, six months ahead of schedule, has removed one potentially major disruptive element to supply. Indeed, in the first four months of 1989, the price of aluminum fell from an average of $2,400 a ton in January to $2,125 a ton in April.

Iron Ore

Throughout much of the 1980s demand for iron ore has been weak, reflecting developments in the steel industry and overall excess capacity in ore production that has co-existed with increasing production of high quality, low-cost ore from new projects. While c.i.f. dollar prices in European ports increased by 4 percent in 1988, much of the change is attributable to rising costs of transportation, which account for about 25 percent of c.i.f. prices. Thus, despite an increase in 1988 of over 6 percent in world output of steel, the main determinant of the demand for iron ore, and a 35 percent increase in the dollar price of steel (31 percent in SDRs), on an f.o.b. basis, the price for iron ore continued to weaken. Even c.i.f. prices in 1988 were below the levels of the 1980–83 period.

The international marketing of iron ore is mainly conducted within the framework of long-term contracts with annual renegotiations of prices. Over the years, typical market patterns have developed: Australian exporters negotiate with Japanese steel mills, Brazilian and Swedish exporters with German buyers, and Canadian iron ore producers with U.S. steel mills. Even the timing for the settlements seems to follow a pattern where the negotiated price between the Brazilians and the Germans sets the path for other negotiations; in the last three years, however, the Japanese have led the annual price rounds.

The increase in steel production in 1988 was the largest since 1984 (Table 67). Reflecting the robust growth in industrial production and business investment, crude steel output in industrial countries increased by 9 percent. As a group, industrial countries accounted for two thirds of the global expansion in output. Crude steel output in the EC is estimated to have risen to 137 thousand tons, about 17 percent of world production, with Belgium, the Federal Republic of Germany, and the United Kingdom accounting for most of the increase. In Japan, crude steel production grew by over 7 percent to 105 thousand tons. In both the EC and Japan the increases in production are associated with substantially higher production of capital goods and automobiles. Output of crude steel in the United States in 1988 rose by over 12 percent to 90 thousand tons. Demand for steel for use in the machinery and equipment sectors was strong, although this was partly offset by a slowdown in private and public construction activities and a depressed petroleum and gas sector. Production in the newly industrializing economies of Asia and in Brazil also expanded rapidly. Output is estimated to have increased by 44 percent in Taiwan Province of China to over 8 thousand tons, by 14 percent in Korea to over 19 thousand tons, and by 11 percent in Brazil to 25 thousand tons. Only a small increase of about 1 percent, however, is estimated for the U.S.S.R., the world’s largest steel producer. Voluntary restraint agreements and import regulations continued to restrict international steel trade in 1988.

Table 67.Iron Ore: World Commodity Balance Together with Production of Pig Iron and Steel, 1982–88(In millions of tons)
19821983198419851986198719881
Production of iron ore813776876904917948990
Australia8871949392104118
Brazil9392112128129136145
China107114122132150157162
U.S.S.R.244245247248250251253
United States37395250394851
Other countries244215249253257252261
Apparent consumption of iron ore2823777871905911939995
Brazil20222436373943
China109118128142164168170
Germany, Fed. Rep. of40374446424044
Japan122110126125116112120
U.S.S.R.201202201204203206208
United States49486460516070
Other countries282240284292298314340
Production of pig iron473462491500492500525
Of which: industrial countries221220240241222225242
Production of crude steel646662710719714734780
Of which: industrial countries323328358355330337368
Sources: United Nations, Conference on Trade and Development (UNCTAD), Statistics on Iron Ore; and preliminary UNCTAD data.

Estimates of the Commodities Division, IMF Research Department.

Production minus exports plus imports.

Sources: United Nations, Conference on Trade and Development (UNCTAD), Statistics on Iron Ore; and preliminary UNCTAD data.

Estimates of the Commodities Division, IMF Research Department.

Production minus exports plus imports.

In line with the increases in steel production and in response to steadily rising prices for crude steel and scrap, world pig iron production is estimated to have increased in 1988 by about 6 percent. About two thirds of pig iron production was provided by industrial countries. World production of direct reduced iron is also estimated to have expanded, owing particularly to a 34 percent rise in Brazilian production.

In response to the rise in steel production, iron ore production rose by 3 percent in 1987 and is estimated to have increased by a further 4 percent in 1988. Most of the increase in output in 1988 is attributable to Brazil (33 percent), Australia (33 percent), and China (12 percent). Since 1983, Brazilian iron ore production has increased by 63 percent, mainly on account of expanded production at the Carajas project, where low-cost high quality ore is produced.

About 39 percent of world production of iron ore is traded internationally. After stagnating at an average, level of about 367 million tons during the period 1985–87, the volume of exports increased by 5 percent in 1988 (Table 68). The volume of exports from industrial countries, which has been declining, grew by 7 percent in 1988. Mainly because of increased shipments from Brazil, the volume of exports from developing countries rose by 4 percent in 1988. Owing to lower export unit values, only a negligible increase in earnings from iron ore exports in terms of dollars was recorded, while in terms of SDRs earnings declined.

Table 68.Iron Ore: Export Earnings, 1985–88
1985198619871988119851986198719881
(In SDRs)(In U.S. dollars)
Earnings (in billions)6.95.95.35.17.06.96.86.9
Industrial countries3.02.32.01.93.02.72.62.6
Developing countries3.02.72.42.33.13.13.03.1
U.S.S.R. and Eastern European countries0.90.90.90.90.91.11.21.2
Unit values (a ton)1916141319191818
Industrial countries2016141320191817
Developing countries1815131318181717
U.S.S.R. and Eastern European countries2120211921232726
Brazilian ore prices (a ton)
C.i.f. German ports222.418.717.217.222.721.922.223.1
F.o.b.326.222.418.917.526.626.324.523.5
(In millions of tons)
Volumes371365375385371365367385
Industrial countries153143142152153143142152
Australia8580809185808091
Canada3231303332313033
Other3632322836323228
Developing countries175175180186175175180186
Brazil929297107929297107
India2932293029322930
Other5451544954515449
U.S.S.R. and Eastern European countries4347454743474547
Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statististics (1986), for exports; and Commodities Division, IMF Research Department, for market prices.

Data on exports are estimates of the Commodities Division, IMF Research Department.

Iron ore content of 61.5 percent.

Iron ore content of 64.5 percent.

Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statististics (1986), for exports; and Commodities Division, IMF Research Department, for market prices.

Data on exports are estimates of the Commodities Division, IMF Research Department.

Iron ore content of 61.5 percent.

Iron ore content of 64.5 percent.

Although it is unlikely that the growth in world steel production that occurred in 1988 and continued in the first quarter of 1989 will be sustained throughout 1989, the strong demand for iron ore in 1988 and the first quarter of 1989 reduced iron ore stocks and created more favorable conditions for iron ore producers in their price negotiations with consumers. Price negotiations for 1989 shipments of iron ore started in November 1988 in both Europe and Japan following the usual bilateral pattern. Repeating the course of events in 1988, the first settlement was reached between an Australian mine and Japanese steel producers; an increase in dollar prices of 15 percent on average was agreed, including a 13 percent rise in prices for fine grades of ore and a 17 percent rise in prices for lump ore. This settlement largely determined the outcome of negotiations between Companhia Vale do Rio Doce (CVRD), a Brazilian producer, and German buyers who concluded a similar agreement in December; it by and large set the trend for other iron ore price negotiations. Prices in the first quarter of 1989 were 19 percent above the 1988 level.

Tin

In 1988, prices for tin continued to recover from the 1986 low that followed the collapse of market stabilization operations under the International Tin Agreements.62 Trade in contracts for tin on the LME was suspended in October 1985 in the wake of the collapse of the market stabilization operations; plans for a resumption of trading by mid-1989 have been announced. Trade at the Kuala Lumpur Tin Market (KLTM) was also suspended but resumed three months later in February 1986. In January 1987, the KLTM extended coverage to include Indonesian and Thai tin, in addition to Malaysian tin. In October 1987, a tin futures contract was introduced on the Kuala Lumpur Commodity Exchange (KLCE); the trading volume through early 1989, however, has remained low. Tin prices in this section for the period since 1985 refer to the quotations for transactions for tin metal by New York tin dealers, the leading import “market” since the suspension of tin trading on the LME.

The gradually rising prices—tin prices on average were about 5 percent higher in 1988 compared with 1987—reflect a moderately expanding demand for tin and the successful management of supply, particularly by the members of the Association of Tin Producing Countries (ATPC).63 In the aftermath of the 1985 breakdown of operations by the International Tin Council, the ATPC established an export quota agreement with the objective of gradually reducing the overhang in world stocks, which stood at about 100 thousand tons at the end of 1985. The export quota scheme constrained total exports of ATPC member countries to 96 thousand tons in the 1987/88 marketing year (March–February) and to 101.9 thousand tons in 1988/89. National export quota allocations were made for the major nonmember exporters of tin: 26.5 thousand tons for Brazil and 10.0 thousand tons for China. With world consumption at 227 thousand tons in 1987 and an estimated 234 thousand tons in 1988, the export restraints resulted in a considerable reduction of commercial stocks within a short period—to about 25 thousand tons at the end of 1988.64 At their meeting in October 1988, the ATPC member countries agreed to continue the scheme for a third year but postponed the decision on the size of new total and individual export quotas to January 1989.

World mine production of tin is estimated to have risen in 1988 by 11 percent (Table 69). A large part of the increase occurred in Brazil where mine output was raised by over 50 percent to 44 thousand tons. As a consequence, Brazil accounted for over 20 percent of world mine production in 1988 compared with less than 4 percent in 1982 and is now the world’s largest producer. The increase in 1988 came largely from the Amazon State of Rondonia where production from a new low-cost mine began in September 1987. Although Bolivian production increased by 25 percent in 1988, the level of production remained less than half that obtained in the early 1980s. With the mine rehabilitation program of Corporación Minera de Bolivia (Comibol) suffering from delays, most of the increase in Bolivia’s production came from small mines and cooperatives.

Table 69.Tin: World Commodity Balance, 1982–88(In thousands of tons)
19821983198419851986198719881
Mine production225210205197184185205
Bolivia2725201611810
Brazil8132027252944
China16171820252830
Indonesia34272322252630
Malaysia52414137293029
Thailand26202217171514
U.S.S.R.16171716161516
Other countries46504442363432
Refined production229208212210200202223
Bolivia19141612835
Brazil9131925252942
China17171719202528
Indonesia30282320222428
Malaysia63534346444446
Thailand26192018221514
U.S.S.R.17181918181717
Other countries48465552414543
Consumption204206222216223227234
China13131411121214
Germany, Fed. Rep. of14141616171717
Japan29303332323333
United States34363938343742
U.S.S.R.27293030262626
Other countries87849089102102102
Market balance2252–10–6–23–25–11
Commercial stocks3576349734573525
Stocks/consumption ratio (number of weeks)514.515.811.517.513.38.05.6
ITC stocks53556206000
U.S. strategic stocks194191193188180176175
Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988; and CRU Metal Monitor: Tin (London: Commodities Research Unit Ltd., December 1988).

Estimates of the Commodities Division, IMF Research Department.

World production minus world consumption.

Total commercial stocks reported at end of period.

Some of the stocks held by the International Tin Council (ITC) prior to the collapse of its market operations in October 1985 may not be included at the end of 1985 in the series of commercial stocks.

Commercial stocks measured as weeks of consumption.

ITC creditors acquired the ITC stocks following collapse of ITC market operations.

Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988; and CRU Metal Monitor: Tin (London: Commodities Research Unit Ltd., December 1988).

Estimates of the Commodities Division, IMF Research Department.

World production minus world consumption.

Total commercial stocks reported at end of period.

Some of the stocks held by the International Tin Council (ITC) prior to the collapse of its market operations in October 1985 may not be included at the end of 1985 in the series of commercial stocks.

Commercial stocks measured as weeks of consumption.

ITC creditors acquired the ITC stocks following collapse of ITC market operations.

Production of refined tin grew by 10 percent in 1988, in line with the expanding mine activity. Refined production in Brazil increased by 45 percent with the result that Brazil’s share of world production rose to 19 percent. World consumption of refined tin, mainly for tinplate, alloy, and solder, is estimated to have grown by 3 percent in 1988. The largest advances were registered by China and the United States with increases on the order of 15 percent in both countries.

In 1988 exports of tin metal were estimated to have registered a 9 percent increase, mainly because of rising exports from Brazil of 10 thousand tons—nearly 50 percent (Table 70). Exports of tin-in-concentrates are estimated to have registered a smaller increase. With minor increases in unit values, export earnings in SDR terms for tin-in-concentrates and tin metal are estimated to have remained at the previous year’s level.

Table 70.Tin: Export Earnings, 1985–88
198519861987119881198519861987119881
(In SDRs)(In U.S. dollars)
Tin-in-concentrates
Earnings (in billions)0.30.20.20.20.30.20.30.3
Industrial countries0.10.10.10.10.10.10.10.1
Developing countries0.20.10.10.10.20.10.20.2
Unit values (a ton)8,9504,3604,2504,2809,0905,1105,4905,750
Industrial countries10,7405,2305,0905,13010,9006,1306,5806,900
Developing countries8,4304,1003,9904,0308,5604,8105,1605,420
(In thousands of tons)
Volumes3142494731424947
Industrial countries7108771087
Developing countries2432414024324140
(In SDRs)(In U.S. dollars)
Tin metal
Earnings (in billions)1.90.90.91.01.91.01.21.3
Industrial countries0.20.20.10.20.20.20.20.2
Developing countries1.70.70.80.81.70.81.01.1
Unit values (a ton)10,8405,2805,1405,19011,0106,2006,6506,970
Industrial countries13,7306,6806,5006,56013,9407,8408,4108,820
Developing countries10,5504,7405,0005,04010,7105,5606,4606,780
Market prices (a ton)211,3605,5305,3805,43011,5306,4906,9607,300
(In thousands of tons)
Volumes172168175189172168175189
Industrial countries1624222416242224
Developing countries156144155165156144155165
Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics (1987), for exports; and Commodities Division, IMF Research Department, for market prices.

Data on exports are estimates of the Commodities Division, IMF Research Department.

LME standard grade, spot delivery, c.i.f. European ports.

Sources: United Nations, Conference on Trade and Development (UNCTAD), Yearbook of International Commodity Statistics (1987), for exports; and Commodities Division, IMF Research Department, for market prices.

Data on exports are estimates of the Commodities Division, IMF Research Department.

LME standard grade, spot delivery, c.i.f. European ports.

Market developments in 1989 will continue to be influenced by the actions of the ATPC and the extent of cooperation of Brazil and China with those countries. The new production and export quota scheme for 1989/90 agreed upon in early 1989 takes account of the demand for larger export quotas by some countries owing to their fast expanding tin production and of the production problems in other countries. The ATPC decided to raise total exports for member countries to 106.4 thousand tons from 101.9 thousand tons in the previous marketing year, the extra 4,500 tons allocated mainly to Bolivia (1,500 tons) and Indonesia (2,500 tons). Brazil accepted an export limit of 31,500 tons and China agreed to maintain its 10,000 ton limit. Swapping of quotas is prohibited. With tin prices rising from an average of $3.45 a pound in January 1989 to $4.70 in April 1989, the ATPC at an emergency meeting in April decided to maintain the export quota scheme while encouraging member countries to sell tin out of stocks in order to slow the price increase. There is the possibility, however, of sales from the American strategic stockpile, which at the end of 1988 had tin stocks equivalent to nine months of world consumption. As of the end of February 1989, stockpile managers are authorized to dispose of 29,328 tons of tin. The entry into operation of new and restarted capacity could also influence prices. In Brazil, the development of a newly discovered deposit in Roraima would boost tin production, and in Bolivia and Malaysia, mine rehabilitation programs are under way. The Neves Corvo copper mine in Portugal, commissioned in October 1988, is expected to produce 5 thousand tons of tin-in-concentrates in addition to 135 thousand tons of copper when full capacity is reached in 1991. Consequently, ample potential exists for the growth of tin supply to meet demand, whereas consumption is expected to continue to expand only at a moderate rate.

Nickel

In 1988, widely fluctuating nickel prices set new record highs. The first peak—$21,000 a ton for nickel traded on the LME, c.i.f. European ports—was reached in April.65 After retreating rapidly to a level still well above prices in 1987, prices regained upward momentum toward the end of 1988 and once again broke through the $20,000 a ton level in December. On average, nickel prices in 1988 were $13,780 a ton, nearly three times the average in 1987.

The demand for nickel is mainly determined by stainless steel production, which accounts for about 60 percent of nickel consumption. After growing at an annual rate of 3 percent between 1970 and 1986, world stainless steel production started to increase sharply in 1987. In 1988 stainless steel production continued to expand at the higher rate of more than 10 percent owing to strong demand in areas of traditional use and new uses for stainless steel in areas such as kitchen equipment and building facades. About 60 percent of stainless steel production is used for capital goods and most of the remainder for consumer durables. In Japan, the world’s largest producer of stainless steel, production reached an all-time high in the fourth quarter of 1988, contributing to a 16 percent annual increase in output over the 1987 level.

The tight market supply already apparent at the beginning of 1988 for nickel was reinforced by temporary production problems in the Dominican Republic and, to a lesser extent, at mines in Europe and North America, which led to the sudden, although short, upsurge in prices in the spring of 1988. The supply problems were alleviated by the expansion of nickel production in Cuba to about 44 thousand tons in 1988 compared with 35 thousand tons in 1987, as well as increasing amounts of stainless steel scrap coming on to the market. Nevertheless, late in the year when it became evident that capital goods sectors, the main force driving special steel markets, were continuing to expand at rates in excess of expectations in Asia, Europe, and the United States, nickel quotations began to rise. Prices increased rapidly in December, when it also became apparent that the increase of 7 percent in world nickel production expected earlier in the year for 1988 was too optimistic on account of renewed production problems, particularly in Indonesia, but also in Brazil and other producing countries.

World primary nickel consumption in 1988 is estimated at 880 thousand tons, about 4 percent higher than in 1987 (Table 71). In line with the emergence of new stainless steel capacities, primary nickel consumption expanded in the newly industrialized economies. China, an exporter of 10 thousand tons in 1987, became an importer of nickel in 1988 owing to strong domestic demand for all major metals. It is estimated that consumption in China in 1988 was on the order of 35 thousand tons, whereas production amounted to about 20 thousand tons. Consumption in the United States and Japan was maintained at the 1987 level; for both countries, however, this was high, about 20 percent above the 1986 level. Consumption in the U.S.S.R. and most European countries continued to stagnate.

Table 71.Nickel: World Commodity Balance, 1982–88(In thousands of tons)
19821983198419851986198719881
Mine production629663753795770790810
Australia88777786777265
Canada93125174170164195200
U.S.S.R.170172178172166173175
Other countries278289324367363350370
Refined production629679737759746780814
Australia46423941424551
Canada7496112108111142139
Japan87828995929499
Norway26293638384552
U.S.S.R.190192193190188191190
Other countries206238268287275263283
Consumption649687782775778847878
Germany, Fed. Rep. of58637875778180
Japan107115146136127154152
U.S.S.R.138145140138137138140
United States125137141143125148148
Other countries221227277283312326358
Closing stocks22011821471291238980
Stocks/consumption ratio (number of weeks)316.113.89.88.68.25.44.9
Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988; and CRU Metal Monitor: Nickel/Chrome/Molybdenum (London: Commodities Research Unit Ltd., December 1988).

Estimated by Commodities Division, IMF Research Department.

Total reported commercial stocks measured at end of period may not agree with production and consumption data because of differences in coverage.

Commercial stocks measured as weeks of consumption.

Sources: World Metal Statistics (London: World Bureau of Metal Statistics), various issues in 1988; and CRU Metal Monitor: Nickel/Chrome/Molybdenum (London: Commodities Research Unit Ltd., December 1988).

Estimated by Commodities Division, IMF Research Department.

Total reported commercial stocks measured at end of period may not agree with production and consumption data because of differences in coverage.

Commercial stocks measured as weeks of consumption.

With consumption substantially outpacing production again in 1988, world nickel stocks fell from the already low level at the beginning of the year. Commercial stocks at the end of the year were estimated to be sufficient to cover less than five weeks of consumption.

In 1989, nickel demand is expected to continue to be strong. In the first months of 1989, demand for stainless steel remained at the high level of 1988 in Japan, North America, and Western Europe for use in the manufacture of catalytic converters for automobiles, use in all-stainless automobile exhaust systems, and for use in both electric and non-electric machinery, as well as in consumer goods and petrochemical industries. Stainless steel production in 1989 is likely to continue growing in the newly industrialized economies and to be maintained in the industrial countries at 1988 levels. Any slowdown should occur only in the second half of 1989. Nickel production is projected to expand in the near term in Indonesia, in Australia (Greenvale and Agnew mines), and in Brazil. The recently opened Namew Lake mine in Canada will have a capacity of 11 thousand tons, but full capacity will not be reached in 1989; the mine’s output will largely offset lower output elsewhere in Canada. Cuba is planning to increase its nickel production by another 10 thousand tons in 1989.

LME stocks of nickel were reported to be 2,500 tons at the end of December 1988 compared with about 7 thousand tons in the mid-1980s. Given the exceptionally low stocks of nickel on the LME and elsewhere, and continuing strong demand, prices for nickel are expected to be volatile and on average higher in 1989 than in 1988. In February 1989, prices averaged a record $18,600 a ton but declined to $15,300 in April. Production costs are reported to be about $5,000 a ton, and long-term contracts for nickel incorporate prices that are considerably below early 1989 market levels. In some three-year contracts negotiated between nickel producers and steelmakers, prices are set at the quarterly average LME cash price as long as that average falls within a range of $5,500 to $10,000 a ton; should LME prices overshoot that range, a pricing schedule is envisaged that basically consists of a mixture of actual LME prices and the upper or lower price range, respectively.

Should the price of nickel decline in 1989 or 1990, there is a strong possibility of an abrupt downward movement. Stainless steel mills sell only 50 percent of their production directly to end users. Service centers represent the other major portion of the distribution network, and when demand for stainless steel slackens, these centers can be expected to stop buying in order to prevent their inventories from rising. Stainless steel producers would then be forced to make sharp adjustments in their production schedules.

Zinc

From a 1987 average of $800 a ton, the price of zinc advanced throughout 1988 with only a brief interruption in the third quarter. Record high prices of over $2,000 a ton were set in the LME in February 1989. Both high grade and special high grade zinc contracts are traded on the LME and cover delivery periods in the future on a daily basis for up to 3 months and on a monthly basis for up to 15 months. The zinc prices in this section refer to the high grade (98 percent pure metal) cash contract, c.i.f. European ports. In support of the special high grade contract, which was introduced in September 1988, European custom smelters decided to abandon, as of January 1, 1988, their practice of announcing a reference good ordinary brand (GOB) European produce price and to rely to a greater extent on the LME quotations as a basis for pricing.

Growth of refined zinc consumption, with galvanizing as its primary end use, is estimated to have accelerated to about 4 percent in 1988 from 2.7 percent the previous year (Table 72). This increase results mainly from the high level of capital expenditure in many countries and continued growth in the use of galvanized sheet in the construction and automotive industries. The increases in zinc consumption were exceptionally large in North America—about 5 percent in the United States and about 8 percent in Canada. In Japan, consumption is estimated to have grown by 3 percent. In Europe, France registered a 24 percent surge in zinc consumption in line with a boom in investment and rising car production; although in the Federal Republic of Germany and Italy, zinc consumption changed little.

Table 72.Zinc: World Commodity Balance, 1982–88(In thousands of metric tons)
19821983198419851986198719881
Mine production6,4806,6306,8707,0407,0307,2306,960
Australia670700660730710780760
Canada1,1901,0701,2101,1701,2601,5001,350
U.S.S.R.1,0201,0309801,000970950970
Other countries3,6003,8304,0204,1404,0904,0003,880
Slab production5,9806,3406,6506,8406,8007,0207,140
Australia300300310290310310300
Canada510620680690570610700
France240250260250260250280
Germany, Fed. Rep. of330360360370370380360
Italy160160170210230250250
Japan660700750740710670680
U.S.S.R.1,0501,0601,0501,0501,0701,0501,050
United States300310330310320340350
Other countries2,4302,5802,7402,9302,9603,1603,170
Consumption5,9306,2706,4706,5406,7106,8907,190
China260290330350380360380
France260270280250260250310
Germany, Fed. Rep. of370410430410430450450
Italy200210210220230250250
Japan700770780780750730750
U.S.S.R.1,0501,0501,0501,0009901,0101,030
United States8009309809601,0001,0501,100
Other countries2,2902,3402,4102,5702,6702,7902,920
Stocks2760620600570590510460
Stocks/consumption ratio (number of weeks)36.65.14.84.54.63.83.3
Sources: World Metal Statistics (London, World Bureau of Metal Statistics), various issues in 1988; CRU Metal Monitor: Zinc (London, Commodities Research Unit Ltd., December 1988); and Lead and Zinc (London, International Lead and Zinc Study Group), various issues in Vols. 28–29, 1988–89.

Estimates of the Commodities Division, IMF Research Department.

Total reported commercial stocks measured at end of period. Figures do not agree with production and consumption data because of differences in coverage.

Commercial stocks measured as weeks of consumption.

Sources: World Metal Statistics (London, World Bureau of Metal Statistics), various issues in 1988; CRU Metal Monitor: Zinc (London, Commodities Research Unit Ltd., December 1988); and Lead and Zinc (London, International Lead and Zinc Study Group), various issues in Vols. 28–29, 1988–89.

Estimates of the Commodities Division, IMF Research Department.

Total reported commercial stocks measured at end of period. Figures do not agree with production and consumption data because of differences in coverage.

Commercial stocks measured as weeks of consumption.

Labor disputes and technical problems in a number of countries contributed to the reduction of world mine output in 1988 by an estimated 4 percent, the lowest level since 1984. The strikes and production problems in Peru throughout the year reduced mine production by nearly 120 thousand tons (19 percent) below the output in 1987; in Canada, following a 20 percent surge in the previous year, mine production decreased by 10 percent in 1988 largely on account of the closure of the Pine Point mine and a number of strikes elsewhere.

Notwithstanding the decrease in world zinc mine production, world slab zinc output is estimated to have increased by 2 percent in 1988 to a record 7.1 million tons. Canadian output is estimated to be up 15 percent from the 1987 level, reinforcing the country’s position among the leading producers, whereas little change occurred in zinc slab production in Japan and the U.S.S.R. Australian production is estimated to have fallen 3 percent from the previous year.

Strong demand, coupled with the small increase in slab production, led to a considerable reduction in stocks in 1988. Stocks at the end of 1988 were estimated to have been sufficient to cover only slightly more than three weeks with consumption compared with traditional coverage of about five weeks.

A recovery of mine production largely because of new capacity coming on stream over the next three years mainly in Australia (Red Dog mine), Brazil, Canada, and the United States is projected. Accordingly, a gradual increase in slab production is expected. With respect to 1989, developments in Peru will continue to play an important role in determining world supply. Consumption in 1989 is not projected to rise much above the level of 1988 as moderate growth in the investment and capital goods sectors is expected to be largely offset by less demand in the automotive and construction sectors. Given the traditional strong demand in the first half of the year, prices will remain particularly sensitive to supply problems and will likely ease only in the second part of 1989. In the first quarter, actual and anticipated strikes in a number of producing countries contributed to large price increases for zinc; when supply problems eased in late March, prices declined.

Lead

Unlike the prices for many other metals, the LME price of lead remained relatively stable—at about $650 a ton—during 1988 and the early months of 1989.66 This was close to the end-of-1987 level, although about 10 percent above the average for 1987 and 60 percent higher than the average 1986 price.

Lead consumption, on a rising trend in recent years, is estimated to have grown by 2 percent in 1988 (Table 73). The growth was mainly fueled by strong demand for batteries. Batteries account for 78 percent of the end use of lead in the United States, 50 percent in Europe, and 60 percent worldwide with SLI (starting, lighting, and ignition) batteries as the main element (80 percent). Pigments and compounds make up the second largest use of lead worldwide, accounting for about 14 percent. The gasoline market for lead is declining in most industrial countries and has virtually disappeared in the United States following the introduction of lead-free petrol. New materials have largely eliminated the use of lead for cable sheathing—once its largest single application.

Table 73.Lead: World Commodity Balance, 1982–88(In thousands of tons)
19821983198419851986198719881
Mine production3,5603,5103,4403,6103,3903,4203,400
Refined production5,2905,2905,4505,7005,4805,6305,700
Canada240240250240260230270
China180200200220240240240
France210200210220230240250
Germany, Fed. Rep. of350350360360370340350
Japan300320360370360340340
United Kingdom310320340330330350360
U.S.S.R.800800800810790780800
United States1,0309609701,0509301,0301,050
Other countries1,8701,9001,9602,1001,9702,0802,040
Consumption5,2505,2505,5005,4405,5105,5805,690
China220220220230250240250
France200200210210210210220
Germany, Fed. Rep. of330320360350360350370
Italy240230240240240240250
Japan350360390400390380410
United Kingdom270290300270280290300
U.S.S.R.810810790800760780790
United States1,1101,1401,1901,1201,1201,2001,200
Other countries1,7201,6801,8001,8201,9001,8901,900
Market balance24040–50260–305010
Commercial stocks3540512407453402383390
Stocks/consumption ratio (number of weeks)45.35.13.84.33.83.63.6
Sources: World Metals Statistics (London, World Bureau of Metal Statistics), various issues in 1988; CRU Metal Monitor: Lead (London, Commodities Research Unit Ltd., December 1988); and Lead and Zinc (London, International Lead and Zinc Study Group), various issues, in Vols. 28–29, 1988–89.

Estimates of the Commodities Division, IMF Research Department.

World production minus world consumption.

Total commercial stocks measured at end of period. Figures may not agree with production and consumption data because of differences in coverage.

Commercial stocks measured as weeks of consumption.

Sources: World Metals Statistics (London, World Bureau of Metal Statistics), various issues in 1988; CRU Metal Monitor: Lead (London, Commodities Research Unit Ltd., December 1988); and Lead and Zinc (London, International Lead and Zinc Study Group), various issues, in Vols. 28–29, 1988–89.

Estimates of the Commodities Division, IMF Research Department.

World production minus world consumption.

Total commercial stocks measured at end of period. Figures may not agree with production and consumption data because of differences in coverage.

Commercial stocks measured as weeks of consumption.

Total U.S. consumption of lead in 1988 remained unchanged from 1987. Consumption was only maintained because the severe winter and summer heat wave in 1988 contributed to a 5 percent rise in shipments of replacement batteries and on account of strong automobile sales, especially in the second and third quarters of 1988. In Japan, consumption rose by nearly 8 percent not only on account of an increase in shipments of car batteries but also because of the increasing need for batteries in appliances; the construction sector also contributed to the demand expansion in Japan. In Europe, new car sales of 13 million units set another record for the fourth year in a row, up by more than 4 percent over the previous year. In the United Kingdom, demand for lead in the automotive industry was augmented by substantially increased use of lead pipes and sheets. In the Federal Republic of Germany, although battery demand remained nearly unchanged, growth in other lead uses resulted in an overall increase of about 6 percent.

World mine production, constrained by production problems, particularly in Peru and Canada, is estimated to have fallen marginally in 1988. Peruvian mine production fell in 1988 by 50 thousand tons, or more than 20 percent from 1987, largely as a result of a series of labor disputes. In Canada, production fell by about 10 percent on account of strikes and the closure of the Pine Point mine, while in the United States an increase of about 25 percent occurred. The rebound was attributable to output from new and reactivated mines such as Greens Creek, Montana Tunnels, Sweetwater, and Kellogg. Despite a 17 percent jump in Canadian output, world primary production of refined lead increased by only 1 percent. In the United States, the world’s largest producer, refined lead output was forecast to have risen by only 2 percent against 11 percent in 1987; little change occurred in the production of refined lead in the other major producing countries. Secondary production of lead, accounting for about 35 percent of total refined production, increased again in 1988. Much of the capacity for secondary lead production is located in the Federal Republic of Germany, the United Kingdom, and the United States. With world production almost matching world consumption, world stocks of lead in 1988 changed little.

For 1989 only a small increase in demand is expected. World automobile sales rose to 34.3 million units in 1988 and are projected to fall to about 33 million in 1989. Mild weather at the beginning of the year in Europe and Japan weakened demand and prices fell from $675 a ton in January to $590 in March. With respect to supply of lead, new mining operations are expected to be started only in Canada and Alaska. Consequently, substantial additions to capacity for primary lead production are not expected even over the medium term. The low prices of many years have discouraged exploration and development of lead mines and production. In the 1970s, it took three to five years to bring a mine on stream, and the need to take environmental concerns into account has increased with time. As a consequence, recycling of lead is likely to become more important for supply over the medium term as has been demonstrated by increases in secondary lead smelter capacity, for example, in Canada; however, some rise in lead output might occur in the context of growth anticipated in mine production of zinc with lead as a by-product. Although stocks of lead are low compared with the levels of the mid-1980s, the lead market is expected to move toward a growing surplus and prices are expected to weaken during 1989–90.

Phosphate Rock

Sharply higher food prices in 1988 stimulated demand for and prices of phosphate rock and processed fertilizers. The world index of food prices in U.S. dollars rose by 28 percent in 1988, although it remained at only 86 percent of its peak level of 1980 (Table 74). Stronger demand for fertilizers led to an increase in fertilizer prices, of 17 percent in 1988 to a level equal to 84 percent of prices in 1980.67 World production of phosphate rock rose by 5 percent in 1988 to an estimated 153 million tons, owing to greater use of phosphate fertilizers.

Table 74.Phosphate Rock and Products: World Production, Exports, and Market Prices, 1982–88
1982198319841985198619871988
Production
Phosphate rock (in millions of tons)128.0138.9153.8149.6144.5145.1152.6
Morocco17.820.121.220.721.421.325.0
United States37.442.649.250.840.341.046.0
Other countries72.876.283.478.182.882.881.6
Exports
Phosphate rock (in millions of tons)43.746.448.146.443.544.745.0
Morocco14.014.715.014.813.713.114.3
United States9.211.310.510.37.88.58.2
Other countries20.520.422.621.322.023.122.5
Phosphate products1 (in millions of tons of P2O5)7.28.010.110.19.410.812.3
Morocco0.91.21.31.31.41.72.5
United States3.33.54.84.93.84.55.0
Other countries3.03.34.03.94.24.64.8
Market prices of phosphate rock (per ton, f.o.b.)(In SDRs)
Morocco38.434.537.433.429.224.026.8
United States225.527.528.423.017.818.8
World fertilizer price index3 (1980 = 100)99.196.3103.794.079.472.081.3
World food price index4 (1980 = 100)96.8108.7112.596.073.067.883.4
(In U.S. dollars)
Morocco42.436.938.333.934.231.036.0
United States227.328.228.927.023.025.2
World fertilizer price index3 (1980 = 100)84.179.181.773.371.671.584.0
World food price index4 (1980 = 100)82.189.388.674.965.867.486.0
Sources: U.S. Bureau of Mines for U.S. production; International Fertilizer Industry Associated Ltd. for other production; Fertilizer Economic Studies Limited (Fertecon), for exports; and Commodities Division, IMF Research Department, for market prices.

Phosphoric acid, TSP, MAP, and DAP.

Average export unit value.

Weighted by relative values from 1983–85, based on export volumes and spot prices: phosphate rock, 35.6; phosphoric acid, 20.5; DAP, 33.5; and TSP, 10.4 percent.

IMF index of prices of food commodities.

Sources: U.S. Bureau of Mines for U.S. production; International Fertilizer Industry Associated Ltd. for other production; Fertilizer Economic Studies Limited (Fertecon), for exports; and Commodities Division, IMF Research Department, for market prices.

Phosphoric acid, TSP, MAP, and DAP.

Average export unit value.

Weighted by relative values from 1983–85, based on export volumes and spot prices: phosphate rock, 35.6; phosphoric acid, 20.5; DAP, 33.5; and TSP, 10.4 percent.

IMF index of prices of food commodities.

Production of phosphate rock in the United States rose by 12 percent—from 41 million tons in 1987 to an estimated 46 million tons in 1988. Although U.S. exports remained level at about 8 million tons, use of phosphate rock by local manufacturers rose by about 12 percent to 40 million tons, largely on account of a sharp increase in fertilizer application during the first quarter of the year. Despite the mid-year drought and a 23 percent reduction in acreage planted since 1986, use of rock in domestically applied fertilizers rose from 14 million tons in 1987 to nearly 19 million tons in 1988. As a result of this increase and a further consolidation of the industry, capacity utilization in U.S. rock mines rose from 63 percent in 1986 to 79 percent in 1988.

Production of phosphate rock in Morocco in 1988 also increased—by 17 percent in 1988 to 25 million tons. Even larger gains were registered in production of phosphoric acid and processed fertilizers, which rose by 40 percent and 90 percent, respectively. These increases were made possible by a high rate of utilization of the recently expanded plant capacity. Reflecting the production changes, the volume of exports of phosphate rock rose by 9 percent to 14.3 million tons, while the combined volumes of exports of phosphoric acid and processed fertilizers increased by 47 percent to 2.5 million tons. As a result of the improved downstream demand, Morocco raised its contract price for phosphate rock in calendar 1988 to $36 a ton, from $31 a ton in the previous year.68

In 1988 there was a faster rate of growth in world exports of phosphate products—14 percent, to 12.3 million tons (P2O5)—than in exports of rock, which rose by only 1 percent to 45 million tons. Imports of products by the two largest markets for these commodities, China and India, rose by nearly 50 percent to 2.8 million tons (P2O5). In the case of India, a resumption of imports of diammonium phosphate (DAP) followed a cessation of such imports and significant destocking in 1987. These increased imports were offset somewhat by a 5 percent decline, to 3.1 million tons, in imports to Western Europe; the decline followed a surge in European imports in 1987 when the prices of fertilizers were at their lowest in the decade.

The outlook for phosphate fertilizers is for a continued short-term improvement in demand and prices. Fertilizer applications in the United States are expected to rise sharply in 1989, owing to the expected increase in acreage for feedgrains in response to higher food prices. Lower availability of fertilizers for export and a continued steady demand from Asian countries are expected to contribute to a growth in real prices of rock and finished fertilizers. Should cereal prices weaken, some reduction in real prices could occur by the early 1990s.

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