The contraction in global growth unleashed by the spectacular collapse of the credit bubble during Q3’08 gathered pace towards the end of the year. With the banking system braced for a new wave of write offs in 2009 and a combination of a shortage of credit, declining asset values and the growing threat of unemployment all weighing on consumer confidence, production, investment and consumption are all being hammered. Particularly worrying is the synchronicity of the downturn: Globalisation will ensure that no regional economy will emerge unscathed. In China, although Chinese GDP Growth slumped to a seven-year low in Q4’08, monetary money supply and credit did rebound. Lending growth rose 18.8% while the M2 measure of money supply rose 3% to 17.8%. These data suggest that the Chinese government’s current expansionary policy seems to have a positive impact on credit in the country, and this in turn is expected to be supportive of the economy. In the Eurozone, investor confidence bounced back, thanks to the ECB’s decision to slash interest rates by 50 basis points, to a record low of 2% together with the new German €50 billion fiscal stimulus package. The latter is of particular relevance for metals’ demand as €18 billion will be spent on investment, mainly in infrastructure. However, the UK economy is still dire with GDP contracting by a further 1.5% during Q4, its worst performance in three decades. The decline was wide-ranging, with construction, services and manufacturing all hit hard. In the US, the unemployment rate surged above 7% in December while the US car and light vehicle production fell by 20% year on year in 2008. Housing starts were down 45% in December from a year earlier and at their lowest level since 1959. In such a hostile environment, retail sales have been declining by 10% in December. In any major downturn, production cuts tend to lag behind the drop-off in demand. And the latter has been so severe that despite substantial production cuts, markets have moved into heavy oversupply. The key issue for a sustained recovery in prices remains the timing of an upturn in global economic growth. Government stimulus packages are expected to flow through to demand in the second half of the year, although no strong recovery is to be expected until the end of 2009, at the earliest. The fundamentals of physical supply and demand of the LME-traded commodities will therefore play a much greater role in determining their price trajectory than for several years.

In London, the Lead cash settlement price rebounded to US$ 1,152 per tonne while the Zinc cash settlement price dropped to US$ 1077 per tonne on January 30, 2009.
Lead will remain range bound in the short-term, as strong support from the replacement battery sector will offset the severe downturn in the automobile and construction sector. Zinc’s near-term prospects remain poor, although supplier response has been creditable and will help prevent prices declining much further.
In China, the State Reserve Bureau bought 59,000 tonnes of zinc (40% less than expected) from domestic smelters to support prices. In Australia, Xstrata will cease production from its Handlebar Hill zinc and lead mine at Mount Isa.
Oz Minerals closed its Scuddles mine at the Golden Grove operation, further reducing the 2009 planned output to 55,000 tonnes. In Canada, Hudbay has announced that production will be suspended at its Chisel North zinc mine and Snow Lake concentrator, with mining stopping in late-February and the concentrator at the end of May. Snow Lake produced 328,900 tonnes of zinc concentrate in 2007.
In Ireland, Boliden is considering placing its Tara zinc mine on care and maintenance, with production for 2009 now reduced to 185,000 tonnes of zinc and 30,000 tonnes of lead. Meanwhile, Lundin Mining announced the closure in May of Galmoy mine, which has an annual production capability of 55,000 tonnes of zinc and 12,000 of lead. Lead LME stocks increased to 52,750 tonnes while zinc stocks rose by 35% to 342,625 tonnes.

In London, the Copper settlement price rose to US$ 3,106 a tonne with a contango of US$ 44 on January 30, 2008. In the U.S, BHP Billiton announced that its 70,000 tonnes per year Pinto Valley mine in Arizona would be placed on care and maintenance in February.
In Macedonia, Solway Industries suspended production at its 8,000 tonnes per year Bucim mine. Birla Minerals has also announced they would suspend crushing and stacking at its 4,000 tonnes per year Nifty SxEw mine and place the underground mine at its 22,000 tonnes per year Mt Gordon operation on care and maintenance. In Chile, Antofagasta has shut its Lince open-pit copper mine, at its Michilla unit, resulting in the loss of about 7,000 tonnes. In Sweden and Finland, Boliden is cutting back refined copper output in the first quarter by 17,000t, or 30%, at its smelters In Japan, a number of smelters have announced production cuts. Mitsubishi Materials will cut production by 10% starting from February from 560,000 tonnes planned initially. Pan Pacific Copper is to reduce copper output by 10% in the six months to March 2009.
While most of these actions involve relatively modest tonnages of copper, collectively the annualised impact of mine production cuts in 2009 already amounts to 600,000 tonnes of copper. Therefore, a large build-up of surplus metal should be avoided this year.
In Australia, OZ Minerals is developing the Prominent Hill copper mine, expected to start producing some 100,000 tonnes per year of copper-in-concentrate in mid-February 2009. However, LME stocks climbed by 44% to a four-year high of 491,200 tonnes, a sure sign that demand is continuing to weaken.

In London, the tin settlement price rallied to US$ 10,870 per tonne with a backwardation of US$ 70 on January 30, 2009, suggesting near-term tightness of supply.
In Indonesia, PT Koba Tin plans to produce 9,017 tonnes of refined tin this year, against 7,200 tonnes in 2008. The Indonesian trade ministry estimated tin exports increased 14% in December compared to December 2007, but the volume was the lowest monthly figure for 2008, as small smelters remained shut due to low prices. Indonesian officials said the government would soon decide on export quotas to help keep tin prices at a good level. In China, the Yunnan provincial government’s plan to support local base metals’ producers by arranging stockpiling through 2009 has been implemented. Yunnan Tin, is reported to be selling 6,000 tonnes.
The Yunnan Provincial Economic and Trade Commission had earlier said it would initially purchase a total of 30,000 tonnes of tin. However, although China and Indonesia may be trying to restrict supply, other countries including Australia, Brazil and Bolivia are looking to expand production, which may well partially counteract the efforts by the top two.
In Bolivia, the government plans to invest some $40 million to build a mineral crusher, allowing the Huanuni tin mine to double output in 2010, to 2,000 tonnes per month. Production is expected to rise by 50% this year, to 1,500 tonnes per month. LME stocks have risen by 16 % to 9,070 tonnes.

In London, the Gold AM fixing was US$ 918.50 per ounce and spot Silver traded at US$ 12.51 per ounce, on January 30, 2009.
Gold is still the most favoured commodity in most 2009 forecasts. But while it benefits from financial market troubles, there is no certainty about deflation, and prices could trend lower for a while if the economic crisis edges out the financial one in investors’ minds. Contributors to the LBMA’s annual gold forecast survey believe gold will average $880.74 per ounce in 2009, up from $862.33 per ounce in 2008. In South America, Toronto based Yamana Gold Inc said it plans to lift output by up to 44% this year with additional production anticipated from new mines.
Their production of gold-equivalent ounces is expected to rise to 1.34 -1.44 million ounces in 2009, from about 1 million ounces last year. In Argentina, Intrepid Mines has postponed work at its Casposo gold-silver project and in Chile, Coeur d.Alene Mines placed its Cerro Bayo gold-silver mine under care and maintenance. However, silver production to a large degree is not dictated by its price but rather by the price of metals it is produced with as a by-product.
While Latin America as a whole is a significant producer of silver metal, it is mainly through the regions’ gold, copper, lead and zinc mines that silver is produced and only rarely is it the primary metal of production. Output and future mine developments are therefore held hostage to the strength of the aforementioned metals.

In London, Nickel rebounded to US$ 10,870 per tonne, with a contango of $ 130 on January 30, 2009. Cobalt min. 99.8% traded at US$ 17.50 per pound and Cobalt min. 99.3% at US$ 15.58 per pound on January 30, 2009.
In comparison to other base metals sectors, nickel producers have reacted relatively quickly to the deteriorating market conditions. Major production cuts combined with the deferral of a number of large nickel projects are expected to remove around 300,000 tonnes of refined production from the market in 2009, which is equivalent to around 18% of total world supply. Moreover, nickel demand is likely receive a significant boost from the fiscal stimulus packages recently announced, and in particular Chinese infrastructure spending plans.
In Australia, BHP Billiton is to close its 50,000 tonnes per year Ravensthorpe nickel mine, which will reduce 1H 2009 nickel output from its Yabuli refinery by 7,900 tonnes. In Venezuela, Anglo American has temporarily closed its 15,700 tonnes per year Loma mine. In Russia, IPH is said to have restarted nickel production at its 14,000 tonnes per year nickel operations at 50% capacity.
In China, the ministry of commerce will resume a tax-free policy on imports of concentrate for nickel from February 1st, as well as on exports of refined nickel. LME nickel stocks rose to 84,084 tonnes, their highest level since July 1995.