Renewed optimism swept through financial markets following an encouraging start to the Q2 earnings reporting season in the US which propelled equity markets higher. More positive sentiment that an economic pick up was back on track buoyed commodity markets.
Most commodities, not just base metals, saw their prices peak so far this year towards the end of 1H 2009. However, such price strength is not indicative of a rapid improvement in underlying demand, but rather a remarkable robustness in the risk appetite of the wider investment community, and a combination of the effectiveness of supply-side production cuts in late 2008 and early 2009, as well as radical de-stocking by some metals’ end-users. Having gone so high, so fast, on very little demand support from Western markets, the price risk for the rest of this year is to the downside, as the initial euphoria that “the worst is over” is replaced by greater sobriety and a mood that “the best will be a long time coming”.
For the rest of 2009, further re-stocking will be the key for price sustainability; but if we enter 2010 without a much firmer indication of an economic recovery in Western markets, the first half of 2010 could be marked by diminished price volatility and/or price weakness from current levels.
Some metals will do better than others - those whose producers cut early and cut deep stand to gain most. Eventually, base metals have moved in almost perfect lockstep with equities, suggesting that much of the first half of 2009 rally is confidence based. This rally is likely to slow, but, barring further fresh systemic shocks to global capital markets, is unlikely to collapse all the way back down to the troughs at the start of the year. Gold however disappointed with just a 2% gain during the first half of 2009, as its safe-haven qualities became less important and risk-taking more prevalent.
In China, both refined metals output and net imports of refined products have rebounded. Higher Chinese prices relative to the rest of the world have created better opportunities for arbitrage-related imports, hence transferring into a surge in Chinese imports of copper, zinc and tin.
In the US, new home sales rose 11% month-on-month in June to an annualised rate of 384,000, the highest rate of sales since November 2008. Housing starts also rose 3.6% month-on-month. However, June’s rate of new home sales remained down 21.3% year-on-year. Oil prices rose this month, with WTI currently trading at around USD66/bbl. Oil prices continued to be moved by economic indicators showing that the recession forces are abating. Hope is definitely emerging from the East, where China reported GDP growth of 7.9% in the second quarter of this year.

In London, the Lead cash settlement price rose by 3.5% to US$ 1,842.5 per tonne while the Zinc cash settlement price rose by 7% to US$ 1,748 per tonne on July 31, 2009. Severe production cuts by zinc producers, despite some 550,000 tonnes per year of Chinese output now back online, will support the zinc price throughout the northern hemisphere summer, especially since zinc stands to benefit from the heightened levels of Chinese demand deriving from its infrastructure-focused stimulus package.
Lead is now beginning to enter a period of stronger demand from the replacement battery sector, and will find support from output cuts from key smelters in Peru and Italy.
The International Lead and Zinc Study group reports that for the first five months of 2009, the global lead market was in surplus by 26,000 tonnes and the global zinc market by 178,000 tonnes. In a bullish sign for the zinc market, Teck Resources stated that it now expects that improvement in demand "may occur over the next few months," and as a result, the company will look to reduce the curtailments of refined production at its Trail refinery, in Canada.
Teck's forecast zinc production for 2009 is 235-255,000 tonnes. In Western Australia, the SAG mill at MMG’s Golden Grove mine was restarted in early July after less than a month of suspension. Golden Grove produced 139,900 tonnes of zinc in concentrate in 2008, and output is forecast to be about 70,000 tonnes in calendar 2009.
In China, Jiangxi Copper is to build a 200,000 tonnes per year lead smelter and a 200,000 tonnes per year zinc smelter in Jiangxi province. Construction will take five years. LME Lead stocks rose by 17% to 107.575 tonnes and zinc stocks by 11% to 393,225 tonnes.

In London, the Copper settlement price rose by more than 7% to US$ 5,710 a tonne with a backwardation of US$ 40 on July 31, 2009. Global refined copper net imports surged to an astonishing 1.78 million tonnes for the first half of 2009 compared with 624,000 tonnes over the same period of 2008.
Indeed, in China, the demand for copper cathode and semi products does not appear to have weakened significantly entering what is traditionally the lighter industrial season. The new policies of selling electrical household appliances to rural areas and trading old air conditioners to new ones in cities have also supported demand for flat rolled products and copper tube.
Similarly, the demand for wirerod has held steady entering H2, with an even higher operating capacity in July than in June. Most signals show a better year than expected. Thus, for the fifth consecutive month, imports of unwrought copper and semi-finished copper products rose 12.6% month-on-month and 174% year-on-year to a record 475,999 tonnes in June.
Superficially this might suggest that China is booming like never before, although other data such as electricity consumption, tell a very different story, one of a still-growing China but at a much slower pace than in previous years. China Nonferrous Metal Mining Corp. plans to start building its 60,000 tonnes per year Muliashi copper mine in Zambia in January of next year.
In Chile, Collahuasi, the country’s third-largest copper mine, could see its output fall by as much as 50% in the next several weeks because of the electrical incident that affected the main conveyor belt feeding the plant’s stockpile. Potential damage in supply could be as much as 200-300,000 tonnes. Meanwhile, Codelco is planning to develop a second expansion at its Radomiro Tomic mine, which would add 200,000 tonnes per year of copper fines. LME copper stocks have slightly increased in June to 265,725 tonnes.

In London, the tin settlement price slightly declined to US$ 15,000 per tonne with a backwardation of US$ 345 on July 31, 2009. Tin has this year gone through a 10%-15% contraction in real demand, counterbalanced by the China/Indonesia ability to control supply.
Now, with LME tin stocks climbing faster than at any previous time this year, the price has started declining. Moreover, fears that tin market participants' concerns about the backwardation in the September-December spread might trigger an investigation by the London Metal Exchange, combined with funds selling into that period, has brought down prices and narrowed the backwardation.
According to the World Bureau of Metal Statistics, in the first five months of 2009, the global tin market recorded a surplus of 4,700 tonnes and tin mine production was down 10% year-on-year at 117,400 tonnes. In Indonesia, refined tin exports were of 8,661 tonnes in June, down 12% from May, but up 59% year-on-year.
Refined tin exports in 1H 2009 amounted to 50,575 tonnes, up 9.2% year-on-year. Indonesia approved an export licence for Bangka-Belitung-based smelter CV Nurjanah, bringing the total number issued to 30. LME stocks are now up 130% in the year at 18,405 tonnes, thus reaching a five-year high.
However, this only accounts for about three weeks of global consumption, and most of this additional metal is owed to backwardation, as holders of off-market stock look to take advantage of the premium and deliver into the LME.

In London, the Gold AM fixing was traded at US$ 936.50 per ounce and spot Silver dropped by around 4% to US$ 13.63 per ounce, on July 31, 2009. Once again gold is being tossed around by external factors, mainly the shifts in dollar activity and the search for a trend regarding inflation/deflation.
Actually all the real support is speculative investment in ETFs and futures exchanges, which is not a healthy situation for a metal whose historic function is as a safe haven. However, in the mid-term the US is expected to emerge from recession in early 2010, whereupon attention will switch to how, and how quickly, the US Federal Reserve plans to reverse its zero interest rate policy.
Any sign of tightening of US interest rates ought to be supportive of the dollar and that in turn will be extremely bearish for the dollar-denominated gold price. In Russia, Polymetal, the Russian mining company, raised by 9% its projections for the Albazino gold project in the far east of the country. A feasibility study has put Albazino’s reserves at 2.3 million ounces of gold at an average grade of 4.1 grams per tonne.The first gold pour is expected now to be late 2010.
In India, the Bombay Bullion Association reported that Indian gold imports in June were 11.6 tonnes, 52% lower than the same month last year. During 1H 2009 Indian imports were 63.4 tonnes, 54.4% lower year-on-year. The Indian government presented its budget for 2009-2010 and included proposals to double the import duty on silver and on gold.
In Peru, silver production rose to 325,060 kg in May, up 4.6% compared with the same month a year ago while in Mexico, silver output fell to 170,805 kg in April, down 22.1% year-on-year.

In London, Nickel rose by 5% to US$ 17,650 per tonne, with a Contango of $125, on July 31, 2009. Cobalt min. 99.8% traded at US$ 19.00 per pound and Cobalt min. 99.3% at US$ 17.625 per pound on July 31, 2009.
China imported a record amount of nickel in June as private speculators build stockpiles that may have ballooned to 100,000 tonnes. Refined nickel imports surged 63.8% month-on-month in June to 41,008 tonnes, bolstered by demand from “civilian” investors who are piling money into the alloying metal instead of property or financial markets.
Production wise, nickel has had a staggering rise since April of this year, mainly reflecting the quick restart of nickel pig iron production from China. Apparently, 90% of the production has been brought back in China. Besides, imports of nickel ores from Indonesia and the Philippines, mainly for use in the production of nickel pig iron, rose to 1.6 million tonnes, the highest since May 2008. Consequently, nickel pig iron production is now expected to total nearly 100,000 tonnes this year, up from a previous forecast of 40,000 tonnes or so.
In Australia, China Minmetals Corp, the nation’s biggest metals trader is studying the restart of the Avebury nickel mine after a rebound in prices.
In Canada, Vale’s Sudbury plant which was scheduled to reopen on July 27 after eight weeks of a planned shutdown remains closed due to an ongoing strike that started earlier this month. This month, LME stocks have slightly dropped to 105,888 tonnes.