MB CENTENARY: The Swinging Sixties

The social trends that led to the 1960s being known as the “Swinging Sixties” might appear, at first glance, to have had little relevance to the metal markets.

But, on reflection, the free-thinking ambience of that period probably did make a contribution to the debate that raged about the principles of establishing metal prices throughout the decade.

Picking up from the 1950s, the African producer copper price, as it came to be known, was first discernible in late 1961, when London Metal Exchange copper prices became, uncharacteristically, almost motionless at £234 per tonne.

As 1962 progressed, it became clear that someone with large resources was trading against the market to keep copper at that price and succeeded in doing so into 1963, with the only small difference being that a backwardation turned into a contango.

By then it was known that RST, Anglo American and Union Minière were all parties to the manoeuvre. As consumers saw less need to hedge, LME volumes fell. The market changed its contract base and introduced warehouses outside the UK in Rotterdam; but it was not these activities that spelt the end of the fixed price.

Artificial price stability masked a recovery in consumption, so as soon as the market got wind of a change in December 1963, consumers and speculators piled in and it was no longer possible to corral the LME price. Semis again became dual-priced.

With all the market’s volatility focused on an LME handling barely half its tonnage, prices at the exchange reacted more extremely, at one point reaching more than twice the producer price. By 1966, consumers were demanding a return to 100% LME and the producers gave in.

For good measure, Northern and Southern Rhodesia gaining independence at mid-decade threw other spanners in the works. There was a falling-out between the two Rhodesian producers: RST kept metal off the market by cutting back production, but Anglo stockpiled the surplus until it hurt, then sold it to Japan.

Meanwhile, price formation also became an issue in two metals – nickel and aluminium – that had never seen it before. Historically, these metals had been solidly producer-priced, but as trade developed with the communist bloc – a major producer of both metals – a free market developed alongside.

The Gentlemen’s Agreement
In aluminium, the accepted reading of the market had appeared in Metal Bulletin since 1957. But it was not until 1961 that it began, at least in Europe, to overtake the producer price in importance.

The trigger was the so-called Gentlemen’s Agreement, whereby western producers selling into Europe negotiated with the communists each year to buy their surplus and keep it off the market by disposing of it among their vertically integrated subsidiaries. The pricing basis was the Metal Bulletin price.

This approach seemed paradoxical when the object was to defend the producers’ published prices. But its strength lay in the fact that if the Soviets cheated by exporting directly, that would pull down the Metal Bulletin price, to the region’s detriment.

In an interesting parallel with copper, it was in Japan that the Agreement’s inventor, Brandeis Goldschmidt, sold any wholly indigestible annual surplus.

Price formation is the fashion
Nearly 20 years later, and after the Gentlemen’s Agreement had finally run its course, these free market prices paved the way for nickel and aluminium to begin trading on the LME.

The last of these novel approaches to price formation, and in some ways the least in terms of its influence on other markets, was the zinc producer price, introduced on July 13 1964.

As with copper, the aim was to replace the LME as the reference price for period-pricing contracts with a value determined by the producers. The lead was taken by a company then called Conzinc Rio Tinto (the name reflecting the companies whose merger had formed it two years before). We have since known it as RTZ and now Rio Tinto.

There then followed announcements by other major producers of both metal and concentrates: they aligned on a price just £1 per tonne below the going LME price on the day, so their customers were content.

Period-pricing contracts that had indexed on the LME zinc price switched to “the producer price as published in Metal Bulletin”.

In the price’s later years, under the shadow of anti-monopoly investigation, the producers left Metal Bulletin with growing responsibility to reflect the results of their individual price changes in a single figure.

No attempt was made to interfere with the trading that continued on the LME, which initially consisted almost entirely of hedging business from the brass ingot and rod makers, a large part of whose purchases of zinc in brass were from the scrap trade.

Later on, it was metal from the Soviet bloc, notably Poland, which became a mainstay of LME trading.

The end of this particular producer-price story did not come until the late 1980s, when vertically-integrated producers and custom smelters were pulled apart under pressure from East European supplies.

More changes in prices and price discovery
The 1960s also saw the emergence of a merchant trade in minor metals with, once again, a price-discovery role for Metal Bulletin. Previously, these metals had been sold mostly through tied agents of major producers at producer prices.

While all this was going on in base metals, in Europe at least, the evolution of steel pricing practices was far more sedate. However, the so-called Brussels Bourse, a relatively sensitive trade in merchant parcels of steel, was becoming solidly established.

Pricing practices for carrying the variable costs of non-ferrous metals (such as zinc in galvanizing and nickel in stainless steel) into the sale price of the finished steel were also becoming standardised; it is only now that the fairness of some of these practices is being questioned.

Iron ore was one of the markets recognising the rising presence of Australia as a supplier; the other was aluminium, thanks to bauxite and alumina from the Northern Territory.

All this was against a background of a continuing cold war of varying degrees of frost. Potentially the most explosive flashpoint was the Cuban missile crisis of 1962, one consequence of which was the deferral, for many years, of that country joining the ranks of the large nickel producers.

The USSR suddenly began publishing trade returns of its imports and exports and astonished many in the west with the scale of its trade with China, even exerting cultural influence on that country.

The clashing ideals of communism and capitalism also flared up all over Southeast Asia, most notably in the Vietnam war, in which China supported the communist north and the USA the south.

In China itself, Chairman Mao’s Great Leap Forward had some bizarre effects on metals, most noticeably a proliferation of small, uneconomic, inexpertly run blast furnaces, which lasted only a few years.

For traders, a new bi-annual key event was the Canton Fair, at which the Chinese conducted most of their burgeoning business with the west, including sales of metals and ores.

Balancing this was the twice-yearly Leipzig Fair, at which Canton Fair purchases could be sold to East European countries.

Western countries were also suffering problems, such as a nine-month strike by US copper miners in 1967-68. The year 1968 also saw riots, or évènements, in France.

The times they are a-changin’
On the trading front, the post-war regime of the “big three” traders, Philipp Brothers, Associated (Lissauer) and Continental Ore (Henry Leir), entered a period of change. In 1960, Phibro merged with Minerals and Chemical Corp, which was then absorbed by Charles Engelhard. It remained the dominant force in metal trading for a further 20 years, while the two family-owned companies fell behind relatively.

With ever more news to report, Metal Bulletin continued to grow in every respect, forcing yet another office move, this time to offices at 46 Wigmore Street vacated by the Times bookshop and lending library, which had closed down.

In May 1965, the word “The” was dropped from its title, and the company name was changed from Metal Information Bureau to Metal Bulletin Ltd. One reason for this was to avoid the irritation of people ringing up to ask for advice about disposing of scrap bicycles or help with metallurgy questions in their physics homework.

The directory and book-publishing subsidiary Quin Press became Metal Bulletin Books. The seeds of the company’s first diversification were sown with the inclusion of a non-metallic minerals section in Metal Bulletin, sparked partly by an upsurge of interest in mineral sands markets, whose prices were already reported by Metal Bulletin. This led to the establishment of Industrial Minerals as a monthly title in October 1967; it grew rapidly.

Corporately, the 1960s saw the process of changing generations at Metal Bulletin gather speed. FB Rice-Oxley had died at the untimely age of 64 in 1958, and his widow was invited to assume the chairmanship.

Leslie Tarring was only 59 when he died in office in 1964. Harry Cordero then became sole md and the new directors, Trevor Tarring and Raymond Cordero, became non-ferrous and steel joint editors, respectively.

 

Trevor Tarring
editorial@metalbulletin.com