October 2008 will go into the record books as a historical month with regard to the collapse in base metals prices which plunged by an average of 31% from the end of September, with unprecedented levels of volatility.
The fear and uncertainty that has stemmed from the global financial crisis has resulted in metal consumers around the world curtailing or halting buying, and stocks are being drawn down throughout the supply chain, while production cuts are being initiated. The USGS primary metals leading index in September 2008 fell 7.8% year on year to 138.9. The PMI made the largest negative contribution to the overall decrease in the primary metals leading index.
It is well below the threshold that denotes a decrease in future manufacturing activity. The US Institute of Supply Management’s PMI for manufacturing industries in September slipped to 43.5 from 49.9 points in August. Overall the Eurozone PMI fell from 47.6 in August to 45 in September, its lowest level since December 2001. However, in the US, the $700 billion bailout plan has eventually been passed, followed by other bailouts spreading worldwide. Meanwhile, central banks over the world have been reducing their interest rates. In the US, home re-sales rose 5.5% in September to an annual pace of 5.18 millions, according to the National Association of Realtors. In the oil market, OPEC announced that it would cut its production by 1.5 millions of barrels per day, in an effort to slow down the fall in oil prices.
For the third time in just a month and a half, China has cut interest rates by 27bp for both loans and deposits of one-year maturity. However, retail activity in China is up 23% year to date, exports are still running nearly 22% above a year ago and fixed asset investment growth is on track to top 25% for the sixth year in a row.
In addition, the country has announced that it intends to spend massively to fix the damage caused by the winter storms and earthquakes earlier this year and proposed fiscal measures aimed at boosting the property market.

In London, the Lead cash settlement price was US$ 1,469 per tonne while the Zinc cash settlement price was US$ 1,091 per tonne on October 31, 2008.
Current prices are well below production costs for several mines, therefore enticing further production cuts and projects delays. But this could at least lend some supports to the market, traders said. In Australia, Oz Minerals said it was considering a full or partial closure of the Century zinc mine, after a 25% slump in prices for the metal. Century is the world’s second biggest zinc mine.
In Canada, Xstrata partially closed its Kidd zinc and copper operation in northern Ontario in view of a strike planned by members of the Canadian Auto Workers Union. Kidd produces some 140,000 tonnes of zinc a year. Canadian miner Teck Cominco has declared force majeure on zinc and lead shipments from its Red Dog mine in Alaska as “adverse" weather conditions forced the company to end its shipping season prematurely. The shortfall in shipments is equivalent to 20,000 tonnes of zinc metal in concentrate and 1,100 tonnes of lead metal in concentrate.
Production in 2007 from Red Dog totalled 575,700 tonnes of zinc and 136,200 tonnes of lead, according to Teck’s website. Doe Run Resources, the world’s second biggest lead refiner, said it expects mine projects to be delayed, which in turn will mean lead production being curtailed.
The company expects an approximate balance in lead supply-demand this year. Zinc held relatively firm despite a 3,350 tonne rise in stocks totalling LME zinc stocks to 181,975 tonnes, while LME lead stocks were of 48,575 tonnes.

In London, the Copper settlement price dropped to US$ 3,995 a tonne with a backwardation of US$ 5 on October 31, 2008. During October, the substantial fall in copper prices has been more pronounced on the LME than on the SHFE, resulting in the arbitrage remaining positive on average and higher Chinese refined copper imports.
The recent increases in production costs in the mining and smelting industry, facing now much lower prices induced production cuts and projects deferrals. Freeport stated that, in response to market conditions, it would be deferring several expansion projects, including projects at Sierrita and Bagdad (US) and the planned restart of the Miami (US) mine. Recent production problems at several Chilean mines has also contributed to less copper units being offered on the market, whether this will be enough to offset potential reduction in copper consumption during the coming months is difficult to assess. However, on a long term basis, copper demand should rebound sooner or later.
In the Philippines, Oceanagold Ltd has postponed the start up of the production at its Didipio copper-gold project, as it still had not found a partner to help fund the US$320 million development. KGHM copper producer, said the company’s copper production was currently at break-even point. Workers at KGHM are planning a 24-hour strike on 5th November, the first strike since 1992.
The International Copper Study Group (ICSG) has released data for another month of copper production and usage, indicating that the refined copper market continues to edge into oversupply. LME stocks have risen to 230,650 tonnes.

In London, the tin settlement price was US$ 13,860 per tonne with a backwardation of US$ 240, October 31, 2008.
China and Indonesia, the world's biggest tin producers accounting for 72 percent of the world's supply in 2007, have been curtailing exports due to rising production costs and China's own domestic demand.
In Indonesia, PT Timah, the world's second largest tin producer, said it may further cut 2008 tin production to 45,000-48,000 tonnes, thus reducing their tin output by as much as 23% from last year. Similarly, Indonesia’s small smelters have agreed to slow production to bolster prices for tin, which have slumped by almost 50% this year.
For instance, earlier this month, an Indonesia tin consortium BBTS producing a combined 3,000-4,000 tonnes per month of tin also said it has stopped production. China, the world's largest tin producer, has followed a 30% cut in its 2009 tin export quota with further regulations on its tin exporters.
Tin production might not increase much in the near term, as the credit crunch may limit the ability of expanding new deposits. LME stocks have been further falling by 2,250 tonnes, thus bringing down the total stocks to 3,715 tonnes.

In London, the Gold AM fixing was US$ 728.50 per ounce and spot Silver traded at US$ 9,28 per ounce, on October 31, 2008.
Gold has succumbed to the collapse in commodity prices. It settled 14 percent lower this month, shedding its previous ‘safe-haven’ status and turning back to its inverse relationship against the dollar as the greenback rallied to a 2-year high against a basket of currencies.
The US Mint ceased production of ¼ ounce and ½ ounce American Eagle gold coins due to unprecedented demand for all gold coins. The move will allow it to focus on producing the 1 ounce Eagle coin.
In Argentina, Intrepid Mines Ltd has postponed construction of its Casposo gold-silver project, designed to recover about 380,000 ounces gold-equivalent over about 6 years.
In Australia, St Barbara Ltd poured the first gold at its Leonora operations this week, representing the revitalisation of the historic Gwalia gold mine; with probable reserves of 6Mt at an average grade of 9.0 gram per tonne Au have been delineated, sufficient for a mine life of about nine years. In Mexico, Fresnillo, reported a rise of 3.5% in its Q3 production and said it was on target to achieve its full year target of 34 Moz for 2008.
Mexico’s total silver output was 238.87 tonnes in July, 1.4% higher year-on year. In Peru, the world’s leading producer, output of silver was 324.06 tonnes in August, 9.7% higher than in the previous year.

In London, Nickel slumped to US$ 11,305 per tonne, with a contango of US$ 200, on October 31, 2008. Cobalt min. 99.8% traded at US$ 30.00 per pound and Cobalt min. 99.3% at US$ 24.50 per pound on October 31, 2008.
Several mining companies have been suspending production or project developments blaming tumbling metals prices, higher production costs and the difficulty in raising money during the current financial crisis. In Australia, OAO Norilsk Nickel, the world’s biggest producer of the metal, warned that it would halt production at its Cawse laterite nickel operation. In Finland, Belvedere Resources Ltd has stopped development work at its Hitura nickel mine.
In Canada, Ursa Major Minerals Inc has stopped pre-production mining at its Shakespeare nickel project in Ontario, despite achieving a 10% higher head grade than forecast by the reserve model. The project was designed as a mine and concentrator capable of producing about 26,000t of nickel, 33,500 t of copper, 76,400oz of platinum, 47,500oz of palladium, 21,400oz of gold and 900t of cobalt. Similarly, First Nickel Inc announced plans to suspend production at its Lockerby nickel mine in Sudbury.
In the end of the month, nickel prices rallied, mainly on news of supply cuts from Vale do Rio Doce. Vale announced its plans to cut at least 30 million tonnes of low-quality iron-ore production from its mines in southern Brazil, as well as 20% of the metal’s output on Indonesia and 65% in China and to delay its Goro and Onca Puma nickel projects.
Nickel market is in substantial surplus, with LME stocks rising to 57,630 tonnes.