This month, President Obama has signed into law a $787 billion stimulus package, raising hopes that the US economy will start to recover in the second half of 2009 and strengthen further in 2010. The plan includes $120 billion spending on infrastructure and $43 billion on energy. In such an economic downturn, metals are still mirroring declining equity market indices, with most prices hovering near the lows, apart for gold and silver still acting as safe havens. The latest economic indicators underline how much a stimulus package is needed. Over the past 12 months, the number of unemployed persons has increased by 4.1 million to 11.6 million and the unemployment rate has risen to 7.6%. The construction sector is still on a downward trend. Housing starts fell to post-war low in January, declining 16.8% in the month to a seasonally-adjusted annual rate of 466,000 units, a drop of 56% year on year. Residential permits fell by 4.8% month on month to 521,000, a decline of over 50% from a year ago. Besides, worldwide automotive industry remains headline news, substantially impacting lead, zinc and copper demand. In the U.S, both GM and Chrysler are asking for further government funding during the month to prevent bankruptcy. In the Eurozone, car and light vehicle production year on year, for 2008 decreased with the UK output falling by 5.8%, the French by 16.1% or the Spanish by 12.1%. In Japan, automakers have cut production sharply in response to collapsing demand. Toyota’s global output in January was 42.6% down from last year. On the same basis, Nissan’s output dropped by 54% and Honda’s by 33.5%. Japanese exports were down by 46% in January. The latest round of economic indicators has reinforced the negative outlook for the global economy and metals consumption. Economic indicators from around the world are showing a rapid contraction in manufacturing activity. In Japan, December’s industrial production (IP) posted a month-on-month decline of 9.6% and an alarming 22.5% decline in year-on-year terms. In Germany, the declines were smaller, although at 4.6% in month-on-month terms and 12.4% in year-on-year terms they show how much activity is falling in what was Europe’s manufacturing powerhouse. In the US, January’s IP figure fell by 1.8% in month-on-month terms and concluded the sixth consecutive month of contraction. Although the Lunar New Year holiday tends to distort Chinese economic data in January and February, the near 19% decline in imports is a cause for concern. This and other negative economic data underlines the grim outlook for the global economy.

In London, the Lead cash settlement price dropped to US$ 1,025 per tonne while the Zinc cash settlement price slightly rose to US$ 1,075.50 per tonne on February 27, 2009. The seasonal high in lead replacement batteries will see the metal’s price well supported through what remains of the northern hemisphere’s winter. Zinc has no such support. The lead price should remain range-bound, while that of zinc may stumble lower before the substantial supply-side cuts begin to be felt. Moreover, the plunge in the world economy has slashed demand for sulphuric acid, a by-product of refined zinc production. The collapse in demand not only threatens smelters with lower revenues but could also force production cuts as smelters have limited acid storage capacity. In China, the State Reserve Bureau bought 100,000 tonnes of refined zinc this month, after buying 59,000 tonnes in January. More mine production cutbacks hit the market this month, removing a further 28,000 tonnes of lead production from 2009 and takes total 2009 cutbacks to 282,000 tonnes of lead and to 1,192 million tonnes of zinc since August 2008. In Peru, the Iscaycruz mine, the second largest zinc producer after Antamina, is temporarily suspending production from March 1st. In Australia, Xstrata has received permission from the Federal environment minister to restart operations at the McArthur River open pit mine. Besides, total 2009 smelter cutbacks now amount to 142,000 tonnes for lead and 1,2 million tonnes for zinc. In Romania, one of just two remaining ISF’s in Europe, the Copsa Mica operation is to close on a temporary basis. In Japan, Toho Zinc is cutting lead and zinc production by 14% from its Chigirishima operation during Q1 2009. LME lead stocks rose to 60,500 tonnes and zinc stocks reached a three-year high of 360,100 tonnes.

In London, the Copper settlement price rose to US$ 3,390 a tonne with a Contango of US$ 31 on February 27, 2009. Chinese buying of refined copper has assisted the price to rise by $500 per tonne since the beginning of 2009, a quite remarkable result given the otherwise poor prospects for demand this year. The State Reserve Bureau may buy as much as 300,000 tonnes of refined copper to add to its existing stocks. Prices will remain strong on SRB buying, but it is only as long as it lasts. Chinese demand was also encouraged by the positive premium between the Shanghai copper price and LME price, which naturally boosted imports. In Zambia, Mopani announced the closure next month of its 60,000 tonnes per year Mufulira mine. In reality, output had fallen to 40,000 per year of copper in recent years, therefore, the loss of this mine will free up 100,000 tonnes per year of concentrate smelting capacity at Mopani’s Mufulira smelter which, in turn, will help alleviate the smelter bottleneck in central Africa. In the U.S, Freeport McMoran has closed its Morenci mill generating a loss of approximately 50,000 tonnes per year of copper-in-concentrates. Taking account of all known closures and curtailments, the overall decline in copper mine output is to date, estimated to 670,000 tonnes per year. However, in South Australia, Oz Minerals’ newly-commissioned Prominent Hill mine delivered its first copper concentrates this month. Overall, the company expects the $750 million open pit mine/mill project to produce between 85k to 100k tonnes of copper-in-concentrates. Production should peak at 110k tonnes of copper next year and the pit life is anticipated to be ten years, although there is also underground potential. In Chile, Codelco will accelerate a nearly $1 billion expansion at its Andina copper mine in the Andes. In Russia, Prime Minister Putin signed an order to abolish export tariffs of 10% on copper cathode. Opening the year at 342,000 tonnes, LME stocks have surged by over 60% to 542,300 tonnes.

In London, the tin settlement price was US$ 11,000 per tonne with a backwardation of US$ 150 on February 27, 2008. Tin has a stronger mix of fundamentals than all other base metals. Indonesia’s ability to turn off supply as and when prices weaken should see tin remain above $10,000 per tonne, 30%-40% above historical levels. Despite an exceptionally weak solder sector, accounting for more than 50% of tin end use, production shortfalls in Asia and decent demand from a resilient tinplate sector are contributing to keep the tin market tight. However, cancelled warrants have dropped from over 17% of total stocks two weeks ago to less than 7%, which suggests nearby tightness is now easing. Indonesia exported more than 6,185 tonnes of refined tin in January, down 37.6% from the same month in 2008, according to trade ministry data. Besides, a senior Indonesian government official said the country would reduce its target cap on tin production this year to below 100,000 tonnes, due to slowing global demand that has triggered falling prices. In Egypt, the government imposed a 10% import tariff on cold rolled flat tin sheets, on top of existing duties, to stabilise the local market price after a recent flood of cheaper imports. LME stocks slightly decreased to 8,845 tonnes.

In London, the Gold AM fixing was US$ 943.75 per ounce and spot Silver traded at US$ 13.21 per ounce, on February 27, 2009. Both silver and gold have enjoyed strong runs recently, but silver has outperformed, with the price rising 30% in 2009 compared with gold’s 11%. However, the gold price climbed above $980 per ounce in mid-February and a new record high is now surely in sight again. This is despite a steady dollar, meaning in many currencies gold is now at record highs. This is taking its toll on physical demand; imports into India and Turkey have slumped and the market is at risk of a sharp reversal if investor sentiment changes. The latest World Gold Council release points to massive increase in investment demand for gold in 2H08 and falling jewellery demand. In such circumstances, gold is being bought up for its use as a hoard value, rather than for its use as a commodity. In South Africa, gold production fell by 13.6% year on year to 220,127 kg in 2008; its lowest level since 1922. The decline was attributed to power shortages (temporary) and declining ore grades (permanent). AngloGold Ashanti expects to produce between 4.9-5 million ounces of gold in 2009, similar to the 4.98 million ounces of 2008. Cash costs increased by $87 to $444 per ounce. Silver investment in Comex futures and the world’s largest silver-backed exchange-traded fund, the Barclays Global Investors’ iShares Silver Trust bullion holdings, rose to more than 430 million ounces.

In London, Nickel traded at US$ 9,675 per tonne, with a Contango of $1,650, on February 27, 2009. Cobalt min. 99.8% traded at US$ 12 per pound and Cobalt min. 99.3% at US$ 10.95 per pound on February 27, 2009. Nickel was the poorest performing base metal this month, as its three-month price touched a five-year low. To date some 16% of global refined nickel production, as a proportion of total output in 2008, has been cut this year. Despite these cuts, the nickel price suggests further cuts are necessary, with the price well below marginal costs of production. Cuts may be announced but as yet they are chasing a target rapidly moving in the opposite direction, the demand for nickel shows little sign of recovery right now. Stainless steel, which accounts for two-thirds of nickel end use, has been ravaged by the global recession with daily announcements from steel producers of output cuts, closures and job losses. Supply and demand will both contract further this year, but overall the market looks closer to balance on an annual basis as a surplus in H1 is offset by a deficit in H2. Eramet slashed planned spending by 54% year-on-year, to $423.3 million in 2009 and will further reduced nickel output to a full-year production rate of 50,000 tonnes in the coming months. In Australia, Norilsk Nickel suspended production at its last two active mines, the Black Swan and Lake Johnston nickel operations. In Canada, Xstrata said it would restructure its Sudbury nickel operations. However, the Fraser mine complex will be placed on care and maintenance, the Strathcona mill will cut shifts, while the Fraser Morgan development project will be deferred. In Russia, Prime Minister Putin signed an order to abolish export tariffs of 5% on nickel. LME stocks have resumed their climb, reaching a thirteen-year high of 98,382 tonnes.