The drop in oil prices has weighed across base metals and gold. Renewed fears about the health of the global financial system and the outlook for economic growth has prompted many hedge funds and short-term momentum players to cut back on their commodities exposures.
Gold prices rose to a four-month high of US$ 987.75 an ounce, however they lost ground then due to the retreat for oil. After reaching a high for the year of US$ 3,460 a ton in early March, lead prices fell 55.5 percent to a low of US$ 1,540 a ton in early July.
Lead prices have rallied 36 percent since then and sentiment appears to have become more favourable. Lead rose to US$ 2,265 a ton lately helped by hedge funds closing out short positions. Nickel slipped below US$ 20,000 a ton on weak demand. In the US, the Commerce Department said sales of new homes fell 0.6 percent to a seasonally adjusted annual rate of 530,000 in June while according to the National Association of Realtors, existing home sales tumbled by 2.6 percent from an annual rate of 4.99m units in May to 4.86m units in June. The European Central Bank lifted on July 3rd its main interest rate by a quarter percentage point to 4.25 percent, as a sign to bring inflation back under control.
Eurozone inflation hit 4 percent in June on an annual basis, twice as high as the ECB’s inflation target, according to Eurostat. In the Eurozone, industrial production fell by 1.9 percent in May, according to Eurostat. This is the biggest monthly drop for almost 16 years. Production of durable consumer goods dropped by 3.3 percent in May. China’s economy grew 10.1 percent in the second quarter, down from 10.6 percent in the first quarter.
The growth rate slowed because of weaker export markets and restrictions on lending. In Japan, exports in June shrank 1.7 percent year on year for the first time in nearly five years.

In London, the Lead cash settlement price was US$ 2,230 per ton while the Zinc cash settlement price was US$ 1,906.50 per ton on July 31, 2008.
LME stocks of zinc have risen more than 73 percent so far this year, while lead stocks have almost doubled since January. Weakness in zinc and lead prices have render mines unprofitable, forcing for instance Teck Cominco and Xstrata Zinc to close the Lennard Shelf mine in Western Australia earlier than previously scheduled. Zinc was the worst hit as traders questioned whether recent production cutbacks agreed by 27 smaller Chinese zinc smelters would have a significant impact on the supply surplus expected in the market this year.
Chinese spot prices for lead are trading at a significant premium to LME prices and producers in Yunnan province have cut back on production, so the market in China appears to be tightening. Barclays said that the Chinese production cuts should prove price supportive as output in China had failed to grow at all this year while consumption was continuing to expand at a healthy pace. Lead prices rose to as high as US$ 2,265 a ton, its highest since May, on signs of China buying and after data showed low LME lead stocks.

In London, the Copper settlement price was US$ 8,260.50 a ton with a backwardation of US$ 185.50 on July 31, 2008. China’s imports of refined copper dropped 29.6 percent year on year in June, reaching the lowest level since November 2006.
Tighter credit policies have curtailed consumers’ ability to buy copper so Chinese demand rose just 4.8 percent in the first half of the year, well below the 36 percent increase in the same period in 2007. Meantime, copper prices in Shanghai remain substantially below prices in London (LME) after allowing for Chinese import VAT. Bristish-Australian mining giant BHP Billiton warned that total output from the Escondida mine in Chile, the world’s biggest copper mine, would drop 10-15 percent in the 2009 financial year and stay that way in subsequent years due to lower ore grades.
The mine produces nearly 10 percent of the world’s copper. BHP announced a new copper find near its Escondida mine, a vein estimated to yield at least 1 billion tons of ore grading 0.6-1.0 percent copper. Another copper finding was announced by Chilean mining group Codelco, the world’s largest copper producer, with an estimated yield of 300 million tons of ore grading 0.8 percent copper.
Chile is the world’s biggest producer of copper. Codelco said output could fall 4.2 percent to 1.6 million tons in 2008, declining for a fourth year because of labour unrest and aging mines.

In London, the tin settlement price was US$ 22,535 per ton with a backwardation of US$ 10 on July 31, 2008. Tin prices are expected to rise further this year on strong demand and concerns about supplies from the world’s top producers China and Indonesia, a Reuters survey showed. The two producers account for 70 percent of global mine output.
Last September, rising demand in China turned the country into a net importer, tightening world supplies. Indonesian government introduced rigid export rules following the clampdown on illegal mining. Concerns over Indonesian supplies intensified in June when the government said it would set a production quota of 100,000 tons a year from 2009, to try to reduce environmental damage in the main tin-mining areas.
In June, Indonesia’s tin smelters exported an estimated 5,461 tons of refined tin, a drop of nearly 50 percent from a year ago and 24 percent from May. Demand for tin, used in soldering and cans, has been growing strongly because of changes to environmental regulations replacing lead metal with tin in some applications. Metals X has reopened the Renison tin mine in Tasmania on higher tin prices. The 8,500 tons Renison mine went on care and maintenance in October 2005 after tin fell below US$ 6,000 a ton.

In London, the Gold AM fixing was US$ 912 per ounce and spot Silver traded at US$ 17.48 per ounce on July 31, 2008. Newcrest Mining, Australia’s largest gold producer, posted a 6.1 percent drop in gold output for the second quarter 2008 to 435,120 ounces, which was down on the same period in 2007.
Production at Telfer operation was constrained by the gas supply interruption caused by the explosion at Apache Energy’s Varanus Island. Fresnillo, the world’s biggest silver producer, said its first-half 2008 production of silver was flat, reaching 17.44 million ounces.
The firm, a unit of Mexico’s Peñoles, said it wants to ramp up annual production of gold to 400,000 ounces and silver to 60 million ounces over the next ten years. Gold Fields aims to have a gold production of 4 million ounces per year across the group’s operations by December 2008.
The company expects 50 percent of Gold Fields production coming from overseas mines, with operations in South America producing 1 million ounces per year. The Cerro Corona copper and gold project in Peru, which is set to produce at full capacity 375,000 ounces of gold per year by the end of 2008, could be a platform for growth. Cerro Corona would make its first shipment of concentrates in August/September.

In London, Nickel traded at US$ 18,635 per ton, equivalent to US$ 8.45 per pound on July 31, 2008. Cobalt min. 99.8% traded at US$ 38 per pound and Cobalt min. 99.3% at US$ 33 per pound on July 30, 2008.
Nickel prices touched as low as US$ 18,250 a ton, down almost 50 percent since early March, as stainless steel producers have held back on buying nickel, anticipating that prices could fall further. Nickel prices have come under pressure due to the increased use of nickel pig iron, a cheaper alternative raw material for stainless steel made from low-grade laterite ore.
Cobalt continued to fall from April’s record US$ 49 a pound due to a sluggish demand. Low-grade cobalt prices fell to US$ 34.50-36.50 per pound, while high-grade dropped to US$ 39-40 per pound. BHP Billiton cut its offer price for high-grade to US$ 38.50 a pound.
Markets participants are watching closely to see how output in the Democratic Republic of Congo and consumption in China develop. The market is expecting a price rebound to take place in September when a stronger season for cobalt consumption begins