Over the last month the global credit crunch has caused further turmoil in the financial markets, with the de facto “nationalization” of Fanny Mae and Freddie Mac, the collapse of Lehman Brothers, the merger of Merrill Lynch with Bank of America, the bailout of insurance giant AIG and the transformation of Goldman Sachs and Morgan Stanley into bank holding companies. Furthermore, as an end to such a tough month, the $700 Billion Paulson Plan, meant to bail out troubled assets and supposedly, to restore confidence, was rejected on the 29th September.
U.S financial stocks immediately plunged with the heaviest selling hitting two sub-sectors: large securities houses and smaller regional lenders with large portfolios of troubled mortgages. US private housing starts, on a seasonally adjusted annual basis, fell 6.2% month on month in August, to 895,000, a decline of 33.1% from August 2007. The USGS primary metals leading index in August 2008 fell 2.8% year on year to 148, a decline of 0.7% compared with the revised July figure of 149.1.
As a result, lower spot demand coupled with poor economic data from the U.S, whereby existing home declined by 2.2% and new home sales data fell to 17-year low of 460K, brought most metals prices lower. The declining inventories signaled that demand may revive for lead and zinc. However, the recent panic has overshadowed specific fundamental news over the past month, with gold and silver showing safe-haven gains while most other metals slipped. In China, the central bank has unexpectedly cut base lending rates by 27bp down to 7.20%, the first cut in six years.
The PBOC also reduced reserve requirements for all except China’s five largest banks, which is the first such move since November 1999. This gloomy outlook is likely to curb demand for base metals in the short term and affect prices for a few months as a possible recession is looming.

In London, the Lead cash settlement price was US$ 1,801 per tonne while the Zinc cash settlement price was US$ 1,650 per tonne on September 30, 2008.
Zinc remains under threat from oversupply but recently there have been some signs that not all the expected new supply will actually get to the market, with miners closing or reducing production in response to weaker prices.
For instance, OZ Minerals, the world's second largest zinc miner, said it planned to cut zinc in concentrates production by 50,000 tonnes at its Golden Grove mine in 2009.
The revised projected output for 2009 is now in the range of 80,000 - 85,000 tonnes. ABARE, the Australian Bureau of Agricultural and Resource Economics, cut its forecast for the nation’s zinc production in the year ending 30th June 2009 to 1.49 Mt, down from its previous estimate of 1.69 Mt.
From January 2008, zinc prices on the LME have fallen more than 35% to a three-year low. For lead, LME inventories fell 3,875 tonnes to 64,525 tonnes while zinc displayed stocks of 155,375 tonnes.

In London, the Copper settlement price was US$ 6,419 a tonne with a backwardation of US$ 20 on September 30, 2008.
The price was hit by fears that demand would slow worldwide, and that the financial crisis would exacerbate the trend. The Paulson bailout plan led to some relief with the 3-month price recovering at US$ 7,091/t on 23rd September.
However the market remained uncomfortable the following week as the price dropped towards the US$ 6,800 level, then around US$ 6,400. The International Copper Study Group said that the global copper deficit was 130,000 tonnes in the first half of the year, compared with 264,000 tonnes a year earlier. However, on a seasonally adjusted basis, there was a surplus of 89,000 tonnes (compared with a deficit of 68,000 tonnes a year ago).
Freeport McMoran said a failure at its Grasberg mine in Indonesia meant that 2008 output would be 68,000t of copper and 200,000 ounces of gold, lower than previously expected. In Chile, BHP forecasts that its Escondida mine production will be around 10% down, during the year 2009.
In China, Copper imports are becoming profitable again as China’s premia rise to $100, supported by the high backwardation in Shanghai (around 700 yuan per tonne compared to $40 per tonne on the LME). LME stocks were of 198,925 tonnes while cancelled warrants fell 1,825 tonnes.

In London, the tin settlement price was US$ 17,175 per tonne with a backwardation of US$ 25 on September 30, 2008.
The supply squeeze which had led a rally in prices over the last few month, had to come to an end. The severe turmoil on financial markets had the prices move down during the month of September, with the LME 3-month tin price steadily declining to a low of $17,025 per tonne on 18th September, its lowest since February 2008.
A forecast from tin consultancy ITRI said that the global market refined tin deficit would be 20,000t in 2008, up from an original estimate of 12,000 tonnes, as Indonesian supply fell short of expectations. In Indonesia, refined tin exports in August were 8,231.5t, 28.5% lower than the same month of 2007. In Bolivia, Empresa Metalurgica Vinto, the state-owned tin smelter, reduced output by 50% due to a shortage of natural gas. Supplies have been affected by political instability.
 LME stocks remain at very low levels, with only 6,020 tonnes available as of 29 September, reflecting the tight supply situation.

In London, the Gold AM fixing was US$ 897 per ounce and spot Silver traded at US$ 12.96 per ounce, on September 30, 2008.
On the afternoon of Friday September 12 gold was fixed in London at US$ 750.25 per ounce. By the evening of Thursday September 18, the financial turmoil had pushed it back up to $915, with over $100 of that gain coming in 24 hours. Similarly and for much the same reasons, Silver rallied on September 18, fixing in London at US$ 12.93 compared with the previous days US$ 10.77, a gain of 20%.
Thailand’s political crisis meant the launch of trading in gold futures on the Thailand Futures Exchange (TFEX) - planned to start at the end of September - has now been delayed until 2009. Polymetal, the Russian gold and silver producer, said its output of gold would be 0.25 Moz this year, and forecast it to increase to 0.46 Moz by 2011, whereas its silver output is expected to rise to 26 Moz in 2011, from 17.7 Moz this year and 15.9 Moz in 2006.
Output is rising at the company’s Dukat mine. In Australia, the new Boddington mine is foreseen to start production by mid 2009, with initially 6 to 700,000 ounces of gold per year, targeting an average of 850,000 ounces per year over 20 years.

In London, Nickel traded at US$ 15,755 per tonne, with a Contango of $345, on September 30, 2008.
Cobalt min. 99.8% traded at US$ 36.75 per pound and Cobalt min. 99.3% at US$ 34.25 per pound on September 26, 2008. In Australia, BHP has re-started its Kalgoorlie nickel smelter one month ahead of schedule following a smelter rebuild, while OZ Minerals’ Avebury mine in Tasmania made its first shipment of nickel concentrates.
The mine has reserves of 56,100 tonnes of nickel sulphide concentrates and a life of nine years. China’s top nickel producer, the Jinchuan Group, will see production decline after delays to a new smelter and the switch of facilities to making copper. The loss would amount to 10,000 tonnes, with a new target of 110,000 tonnes. In Zambia, nickel producer Albidon is stockpiling concentrate ahead of selling it to Jinchuan Group. Albidon is expanding its nickel concentrator to 1.2 million tonnes per year from 900,000.
The expansion will take their production to 10,000 tonnes per year of nickel content. In Cuba, the 10,000 tonnes per year Rene Ramos Latour, the second of three nickel plants shut by Hurrican Ike, is expected to reopen by end of September.
The largest, Pedro Sotto Alba, reopened in the middle of September. Regarding cobalt, shortage of supply has been offset by weaker demand from China preventing prices from moving upwards with concentrate prices at US$21-23/lb cif China. Nickel is quite in surplus, with LME stocks of 55,596 tonnes.