Is the end of recession in sight? Talks on the topic are endless this month and as might be expected at this point in the economic cycle, there is plenty of evidence - and argument - on both sides. In the more positive camp, the OECD said that its overall measure of advanced member countries now points to “recovery”. Besides, the IMF is considering revising its 2010 growth forecast up sharply from 1.9% (in April) to 2.4%, partly due to the collective global stimulus measures. On the other hand, the IMF warned this month that it was “still too early to assess whether [this] is a temporary or a more durable turning point”. And Dominique Strauss-Kahn added that: “The large part of the worst is not yet behind us”.
Having said that, base metals have enjoyed a remarkable recovery so far this year. The main driver of these rallies are the dramatically improved supply-demand fundamentals in China in 2009, which have tightened many markets from the dramatically oversupplied position that existed in late 2008 and looked set to persist for most of 2009. Secondly, the intense inventory destocking cycle that has hit non- Chinese demand looks set to end in the second half of 2009 and this could provide another positive catalyst for commodity markets, even if some of the Chinese buying seen of late starts to ease.
Prices for most of the industrial commodities found a floor in the 50th to 75th percentile of the cash cost curves as these prices induced significant supply adjustments. Now that some prices are rising, some of the large capacity closures seen since over the past 12 months can be reversed. For many commodities, supply restarts will dampen the price recovery - already recent rallies appear to be stimulating reopening of Chinese zinc and nickel capacity, for example.
In the Eurozone, annual inflation has turned negative for the first time since records began. The ECB has slashed its main policy interest rate by 325 basis points to 1 per cent since October, and pledged to meet in full bank demands for liquidity - resulting in the injection in late June of €442 billion in one-year loans into the banking system. The ECB’s governing council is expected to leave borrowing costs unchanged and analysts expect the rate to remain at 1 per cent for many months.
In the US, economic data continue to reaffirm expectations for an end to the recession by this summer. The mounting evidence on economic recovery has pushed markets to price a Fed policy reversal as early as December 2009.
Moreover, the manufacturing cycle is turning and this is expected to boost economic activity in S2. But prospects for later this year show there are potential risks of a spike in GDP growth as the inventory cycle gains momentum. However, the inventory cycle is essentially a one off “kicker” to growth that cannot be sustained in the absence of a firmer consumer recovery. Thus, a deeper and more sustained recovery remains conditional on a recovery in the durable goods cycle.

In London, the Lead cash settlement price rose by 5.5% to US$ 1,730 per tonne while the Zinc cash settlement price rose by 0.25% to US$ 1,555 per tonne on June 30, 2009. The International Lead and Zinc Study Group estimates that the global zinc market was in a 203,000 tonnes surplus in January-April 2009, while the lead market was in a 40,000 tonnes surplus.
The rally in zinc prices over the past two months has reportedly seen 90% of Chinese zinc mine capacity switch back online. China could produce 3.1million tonnes over the next 12 months if prices remain at current levels. According to the NBS statistics, zinc mine output rose by more than 20% month-on-month in May, while lead mine output surged by 64.6% month-on-month to 159,000 tonnes.
In Peru, Doe Run halted operations at its La Oroya smelter due to financial and environmental setbacks that have prevented it from buying concentrates. La Oroya was expected to produce 130,000 tonnes lead metal, 55,500 tonnes zinc metal this year.
In Sardinia, Portovesme smelter had been placed 80,000 tonnes per year lead metal production line on temporary care and maintenance. In Kazakhstan, Kazakhmys said it had suspended zinc production at its Balkhash plant which produced 48,000 tonnes of zinc and 138,000 tonnes of zinc concentrate in 2008.
LME Lead stocks rose to 91,650 tonnes and zinc stocks increased to 353,375 tonnes.

In London, the Copper settlement price rose by almost 3.5% to US$ 5,108 a tonne with a backwardation of US$ 8.5 on June 30, 2009. Copper prices have picked up by 66% since the beginning of the year, driven by Chinese stockpiling and tighter copper scrap availability, as well as the impact of positive investor flows.
Thus, the momentum behind the dramatic downturn in copper consumption in Q1 now appears to be dissipating, with real and apparent Chinese demand recovering, and indications that the destocking phase in other major markets is now over. The copper market is expected to be in surplus by 240,000 tonnes in 2009, providing very little coverage in the event of further production losses.
Besides, the outlook for mined copper production remains limited, with an expectation of growth averaging 3% per year out to 2013, pointing to a severely supply constrained market going forward.
In Peru, Doe Run halted operations at its La Oroya smelter due to financial and environmental setbacks that have prevented it from buying concentrates. La Oroya was expected to produce 66,000 tonnes copper this year.
In Zambia, Konkola Copper Mines (KCM) announced that it had suspended output at its 300,000 tonne per year Nchanga smelter for about two weeks due to a technical fault, while it had restarted production at its Konkola mine, which was hit by flooding earlier this month following a power outage.
In North-America, HudBay Minerals said it would close its ageing Flin Flon, Manitoba copper smelter before July 2010 and its White Pine, Michigan refinery shortly thereafter, citing the deteriorating economics of the operations.
In Canada, Teck Resources is to cut production from its Highland Valley copper mine by around 16,000 tonnes in the second half of the year and by 52,000 tonnes in 2010, due to geotechnical issues.
LME copper stocks have dropped in June by 16% to 265,725 tonnes.

In London, the tin settlement price rose by almost 1% to US$ 14,950 per tonne with a backwardation of US$ 75 on June 30, 2009. Since the beginning of the current quarter, prices have risen by over 50%, as demand has stabilised across all main end use sectors.
The severe destocking that impacted on the solder sector, which saw shipments down 40% year-on-year in the first quarter, is now said to have ended. However, solder which is highly dependent on the automotive sector, is not expected to show signs of recovery until the end of the year.
Other end-use sectors such as tinplate, largely used in packaging/food cans, are reported as holding up well, particularly in Europe and North America where consumers have switched to buying more tinned food.
China has provided a key source of support through restocking. In April, Chinese imports of refined tin jumped 284% year-on-year to 4,817 tonnes, partly prompted by the opening up of a wide arbitrage window between the LME and Chinese physical prices. However, by mid-May this arbitrage window disappeared.
Besides, such price rally has prompted an upturn in supply, with Indonesian authorities issuing 4 new export licenses, while Chinese output has also rebounded in April. However, due to a lack of investment in new capacity, tin production is likely to remain constrained for the next 3 to 5 years.
In Indonesia, refined tin exports surged to 9,873 tonnes in May, up 38% year-on-year. Meanwhile, the consortium of seven Indonesian independent tin smelters will operate at less than half capacity from June through Q3 2009, due to rising ore prices.
LME stocks have increased by over 16% to 17,130 tonnes.

In London, the Gold PM fixing decreased by almost 5% to US$ 934.5 per ounce and spot Silver decreased by 14% to US$ 13.94 per ounce, on June 30, 2009.
Demand levels in the jewellery market improved in the second quarter, driven in the main by a reduction in scrap supplies. Scrap return is likely to remain at or above 1,000 tonnes per annum for the foreseeable future, but the jewellery market should gradually recover, helping to improve the overall supply-demand balance in the market. Even so the prospect for higher prices rests with investor attitudes and these in turn are likely to be guided by the expectations for the dollar’s outlook and the need to hedge against economic and financial risk.
In the US, the Congress has passed a legislation that grants permission for the IMF’s planned sale of up to 403.3 tonnes of gold, as part of its new funding plans. This opens the way for the sale to go into the next Central Bank Gold Agreement. The current agreement is due for renewal on September 27th.
Silver shot higher and collapsed back, as is in its nature; nevertheless it remains higher relative to gold than it has been for most of this year. Stronger industrial demand is giving silver an independent source of price gains from the yellow metal, but deep uncertainties remain as to how solidly-based that demand source currently is.
In Guinea, Crew Gold Corp has adjusted its production guidance for 2009 at its Lefa gold mine to a range of 220,000-240,000 ounces, down from its previous estimate of 290,000 ounces. In Mongolia, authorities have suspended the operating licence for Centerra Gold Inc’s Boroo gold mine for a period of up to three months. The mine had been expected to produce between 160,000 and 170,000 ounces this year.

In London, Nickel rose by 12% to US$ 16,010 per tonne, with a Contango of $45, on June 30, 2009. Cobalt min. 99.8% traded at US$ 15.70 per pound and Cobalt min. 99.3% at US$ 15.20 per pound on June 26, 2009.
Nickel has been the stand out performer in the base metals world this quarter, with its price rising by 12% since the beginning of April. The nickel market has received a strong boost from a major surge in Chinese buying with imports of all finished nickel products hitting 30,500 tonnes of nickel contained in April, up 34% year-on-year and easily the highest-ever monthly imports.
The surge also reflects the collapse in Chinese nickel pig iron production in late 2008/early 2009 as nickel prices fell below breakeven costs. There are still around 20-30 producers of this product in China, compared with over 300 producers in 2007/08. However, the recent rally has stimulated some interest from China in reopening nickel pig iron (NPI) facilities.
Most nickel producers are operating at only 75% of capacity, restarts are possible and, indeed, likely in a recovering market. In Zambia, the mines minister Maxwell Mwale says the Munali nickel mine will reopen in July after operations were suspended in March because of the low nickel price. The mine’s nominal capacity is 10,500 tonnes per year of contained nickel. In Australia, BHP Billiton has suspended operations at its Leinster nickel operation after a rock trapped a mine worker about 1,000 meters underground. The Nickel West complex produced about 27,000 tonnes of nickel in the March quarter. LME stocks have increased to 109,584 tonnes.