Sentiment towards base metals was half-hearted at the start of the year because of concerns about the global economy outlook. The turmoil in the credit market and its impact on the broader financial market has increased investor uncertainty and is a major driver of the gold rally. Base metals are the most strongly linked of all commodities with the US economic cycle and as such, they stand to lose the most from a downturn in the US economic growth. The situation in South Africa, where mines resumed production after a power crisis crippled the country’s industry for five days, also increased uncertainty.
Fears over the mounting likelihood of a recession in the US prompted a 75 basis point cut on January 22 and another half-percentage point on January 30 in US interest rates by the Federal Reserve. The moves down now to 3 per cent was part of an ongoing aggressive effort to halt a sharp slowdown in an economy hit by a housing slump and a credit crunch.
Sales of new homes in the US dropped 4.7 per cent in December 2007 to an annual pace of 604,000, their lowest level since 1995.
Germany’s business climate index rose from 103.0 in December to 103.4 in January, reflecting greater optimism in Europe’s largest economy about the next six months.
China’s trade surplus for 2007 was up 47.7 percent on 2006 to a record US$ 262 billion, driven by solid demand for textiles and footwear and sharply rising sales of electronics and metals, especially steel.
China’s 2007 gross domestic product growth was the highest in 13 years at 11.4 per cent, against 11.1 per cent in 2006.

In London, the Lead cash settlement price was US$ 2,741.50 per ton while the Zinc cash settlement price was US$ 2,392 per ton on January 31, 2008.
China’s metals production has been badly affected by the unusual harsh winter weather, particularly in central and southwestern regions, which is causing traffic chaos and disruptions to power supplies. Hunan province, a major hub for zinc and lead producers in China, has halted the majority of its lead and zinc mining and smelting capacities. Zhuzhou Smelter Group Co, China’s largest zinc producer, had shut down its entire 100,000 tons lead capacity and slashed its zinc capacity by 50 per cent or 200,000 tons. Shuikoushan Nonferrous, another major producer in Hunan, has also shut down lead and zinc production facilities due to power blackouts.
China’s lead exports fell 77 per cent year on year to 13,152 tons in December, according to the General Administration of Customs. This took lead exports to 235,758 tons in 2007, a 56.1 per cent decline from the previous year. China lead exports have continued to decline since a 10 per cent export tax was introduced in June 2007. Zinc exports have fallen due to stronger Chinese prices relative to global zinc prices and imports have not increased due to rising domestic production.

In London, the Copper settlement price was US$ 7,170.50 a ton with a backwardation of US$ 0.50 on January 31st, 2008.
Disruptions in power supply from heavy snow in southern and eastern China have crippled the country’s metals industry. Smelting capacity has been brought to a standstill. The upcoming Chinese New Year holiday will also mean the closure of many manufacturing facilities in China, the world’s biggest consumer of copper. Sentiment on copper remains fragile, with fears that severe winter storms across China could reduce short-term demand for the red metal.
A nation-wide power blackout in Zambia cut copper and cobalt production at some mines and damaging mining equipment. The three blackouts, which took place on January 19, 21 and 22 have affected production at Konkola Copper Mines (KCM), Mopani Copper mines (MCM), Cunico and First Quantum Minerals. Combined, Zambia’s copper producers account for some 700,000 tons per year or 4 per cent of global concentrates supply.
Xstrata said it was increasing its estimate of the amount of copper at its Collahuasi mine in Chile by 28 per cent. The company now estimated the mine would yield 5.19 billion tons at an average grade of 0.83 per cent copper, compared with 4.05 billion tons at an average grade of 0.8 per cent copper previously.

In London, the tin settlement price was US$ 16,835 per ton with a contango of US$ 110 on January 31, 2007.
Tin was supported by news that Indonesia’s second largest producer, Koba Tin, was forced to end smelting operations on the island of Bangkok pending an investigation into illegal mining activities.
Tin is benefiting from continued tightness supply. According to recent data, China has reduced its exports to the point where it has become a net importer of tin, and supply disruptions continue in major producer Indonesia, where a crackdown on illegal mining has cut output.
China’s exports of refined tin and alloys amounted to 1,351 tons, while imports were 1,389 tons in December 2007. Compared to December 2006 volumes, exports were down 52 per cent while imports was up 28 percent. China has been a net importer of tin metal since September 2007, as a result of strong domestic demand and prices. Exports will be further discouraged in 2008 by the new 10 per cent export tax which came into force on January 1.

In London, the Gold AM fixing was US$ 923.75 per ounce and spot Silver traded at US$ 16.74 per ounce on January 31, 2008.
Gold continues to receive support from the uncertainty in financial markets. At the end of January, power shortages in South Africa, the world’s second largest gold producer, helped drive gold prices to records, well above the US$ 900 an ounce.
China has become world’s biggest producer of gold ore, ending more than a century of South African dominance of the gold mining industry. Chinese gold output jumped to a record 276 tons last year, a 12 per cent increase over 2006, while South Africa produced 272 tons, the precious metals consultancy GMF said. GMF warned that jewellery buying could fell by 20 percent to 1,031 tons in the first half of 2008 due to high and volatile prices. Silver prices hit a 27 year high above the US$ 16.5 an ounce level, having risen 12 per cent this year.
Silver is enjoying the benefit of being traded as a precious metal following the strength of gold and platinum. New mine supply is rising strongly. Deutsche Bank is forecasting the silver market’s supply surplus will rise from 66.3m ounces in 2007 to 82.5m ounces this year and 91.2m ounces projected for 2009.

In London, Nickel traded at US$ 27,550 per ton, equivalent to US$ 12.50 per pound on January 31, 2008. Cobalt min. 99.8% traded at US$ 47.50 per pound and Cobalt min. 99.3% at US$ 45.90 per pound on January 30, 2008. Chinese nickel imports are expected to be flat in 2008, as a weaker global economy keeps nickel demand in check while nickel pig iron continues to provide stainless steel makers with an alternative raw material. Official customs data showed that China’s refined nickel and alloy imports rose 8 per cent in 2007 to 105,300 tons, while exports fell by 25 per cent to 16,930 tons. Industry sources say that only one third of the nickel used in the stainless steel industry in China is now from refined nickel, with the rest from steel scrap and nickel pig iron, a cheaper alternative raw material. Power shortages are affecting Zambia’s copper and cobalt producers helping drive cobalt prices to a record US$ 49 a pound. Cobalt prices soared nearly 60 per cent in 2007 to US$ 40.25 a pound (US$ 88,735 a ton), the highest since a modern market for cobalt trading started to develop in the 1970s. The price of cobalt, a rare metal used in products such as batteries for mobile phones and hybrid cars, has surged to records levels amid booming demand and supply problems in Democratic Republic of Congo, one of the world’s most important suppliers. Cobalt , which is mainly a by-product of copper and nickel mining, is a tiny, illiquid market with only 65,000 tons produced annually.