Demand for metals in the main developed countries remains weak and may remain soft in the coming months, but Chinese slowdown is more short-lived and reflects a combination of Olympic-related factors and temporary measures to slow construction activity.
Most of the downside risk to Chinese demand growth is likely to be offset by larger-than-anticipated disruptions to supply. Furthermore, the prices of zinc, nickel and aluminium which had been falling to levels either cutting well into the cost curve (nickel, zinc) or, hovering around the marginal cost of production (aluminium), lead to supply cuts or at least restricting future supply growth to lower-cost projects. There are also huge difficulties in starting new productions for mined metals.
Besides, the relatively rapid strengthening of the Usdollar since the 27th of July has pushed gold, platinum, oil and some base metals lower, as their prices are denominated in Us dollars. The second half of the month saw a slight rebound of gold , oil and base metals while the usdollar was stabilising against the euro around 1.47. Towards the end of the month , oil was trading around usd 115 a barrel.
There was no particular change in interest rates, despite some expectations that the European Central Bank might decide to cut the euro interest rate in front of a softening economy. In China, while growth has modestly weakened owing to a slowdown in exports, domestic demand continues to grow at a robust pace. Indicators such as fixed asset investment, industrial production and real retail sales continued to climb, exceeding expectations, which is positive for base metal demand.
In the USA, there was an unexpected increase in US durable goods orders in July, data released from the Commerce Department showed. Orders for durable goods, a useful indicator of US manufacturing activity, rose by 1.3% MoM in July

In London, the Lead cash settlement price was US$ 2,111.00 per ton while the Zinc cash settlement price was US$ 1,800.00 per ton on August 28, 2008.
Zinc low prices combined with rising operating costs have spurred firms to set financially viable plans, resulting in Perilya output cutback by nearly half at its Broken Hill operations, in the shutdown of Balmat zinc mine for HudBay Minerals as well as Lennard Shelf mine in Australia for Teck Cominco and in the postponement of AIM Resources Perkoa project in Burkina Faso. Analysts forecast that 2008 surplus will be modest. The end of the 5% tax rebate on export of special high grade zinc decided by China on august 1, is likely to entail a further decline in Chinese exports, thus softening supply in Europe in the long run.
All the more as the current differential between Shanghai Exchange and LME was still unfavourable, thus giving China little incentive to export. Lead premiums have been falling in Europe as producers accept lower bids, taking profit instead from the rise in prices on the LME, thus spurring difficulty to determine where the market is. However to protect premiums sloping towards oversupply, large European producers tend to export out of the continent, and more particularly to the USA or Dubai.
According to International lead and Zinc Study Group (ILZSG), the global zinc and lead markets was in surplus by 72,000 and 41,000 tonnes respectively in H1 2008. LME stocks were, on August 27,161,225 tonnes of zinc and 83,375t of lead.

In London, the Copper settlement price was US$ 7,648.00 a ton with a backwardation of US$ 58 on August 28, 2008.
The fall of copper prices in early August was mainly due to fund liquidation across the commodities as well as the lack of demand for spot material, combined with unfavourable arbitrage for Chinese taxed imports. In the copper concentrate market, traders were aiming at delaying deliveries from miners until the 4th quarter and into next year. The LME/SHFE import arbitrage finally shrank and is currently around $200/t compared with $800-1200/t for most of the period between mid-March until end July.
This is visible through the Chinese physical copper premium which rose to $125/t from $25/t last month. Other reasons for a potential rally in the copper price is that re-stocking may occur at a time when SHFE stocks are at low levels, at 21,796 tons in late August, or about two days of Chinese daily consumption.
There is also low availability of recycling material and Chinese scrap prices have been higher lately as a result of reduced supply of secondary copper in the domestic market.
Even though copper rebounded as dollar weakened in late August, gains are still capped by concerns about demand from China, the world's biggest consumer of copper. Analysts expect fundamentals to remain sound despite the softening of prices in this seasonally weaker third quarter. LME inventories for copper rose to 170,050 tons, the highest level since February 6

In London, the tin settlement price was US$ 20,000 per ton with a contango of US$ 55 on August 28, 2008. The government of Indonesia stated that it would cap its production of tin in order to extend the life of mines and exercise a degree of control on prices.
Output will hence be limited to 90,000 tonnes per year from 2008 onwards. This goes along with China’s continuous decrease in tin output (July output was down 34% from June and 30.5% on year-on-year) due to power shortages and maintenance, along with the strike at Huanuni mine in Bolivia’s Oruro department costing 28 tonnes of tin per day and with PT Timah announcing a decline in forecasted production of roughly 12,000 tonnes.
The latter also reported that tin import demand from China had been showing signs of weakness. Tin premiums in Europe remain stable as the supply of high-quality material on the continent remains tight, despite the correction in LME prices. Despite a quiet spot demand due to seasonal factors, tin market fall is merely linked to the fall in copper.
The fundamentals remain strong, with the market set to record a supply deficit by the end of the year.LME stocks have fallen steadily in 2008, dropping to 5845 tonnes on August 28 from 12,115 tonnes at the start of January.

In London, the Gold AM fixing was US$ 832 per ounce and spot Silver traded at US$13.78 per ounce on August 28, 2008.
The reversal of the USD against the other currencies and decline in the oil prices from $148 to $111 has led Gold and Silver weaken substantially in the last few weeks. Overall Gold prices posted negative returns of 10% over August.
Silver suffered further more down to 23% over the same month. However, physical demand for gold remains very strong. In industry news, Hochschild Mining said that its Gold output had fallen 19% to 73,700 ounces in the first half of the year due to lower ore grades. On the other hand, its Silver production rose 32% to 7.4mn ounces as the company expanded output at its Arcata, Pallancata and San Jose plants.
The company plans to almost double its output of the grey metal in the next three years.
The World Gold Council advised that sales from banks covered by the Central Bank Gold Agreement had fallen to an 8-year low at 319 tonnes of gold so far in 2007-08, representing about 64% of the quota of 500 tonnes a year.

In London, Nickel traded at US$ 20,000 per ton, equivalent to US$ 9,07 per pound on August 28, 2008. Cobalt min. 99.8% traded at US$ 29.75 per pound and Cobalt min. 99.3% at US$ 25.75 per pound on August 27, 2008.
In the first August fortnight, the slump in Nickel price, followed by a decline in sales reflected the deteriorating demand from stainless steel sector, poor sentiment for the alloying metals together with soaring input costs. Nickel market has therefore braced itself for production cutbacks, Minara Resources delayed its expansion whereas Vale switched from Vermelho nickel project to simpler and cheaper Sao Joao do Piaui project.
More drastic measures were taken by Ufaleynickel, which slashed its production by 50% and even more by Xstrata, which suspended production at its 29,000 tpy Falcondo mine for 4 months in the Dominican Republic. These supply losses account for late August nickel’s price rally. Stocks in LME have been steadily rising, partly due to the seasonal adjustment. However, stainless steel stocks are low, implying that market could stage a sharper-than-usual recovery. Cobalt prices, which had slid by over 50% in the past four months, underwent a spectacular rally, with prices edging higher again as producers around the world raised their offer prices above $30 a pound.
Cobalt was up by 17.4%, amid a sudden spate of aggressive buying on the BHP Billiton sales screen that sparked short-covering and a pick-up in consumer interest, also aided by news of falling production in Zambia and an apparent increase in Chinese buying of cobalt concentrates.