A very strong end to the year enabled industrial metals to consolidate their position as the strongest performing commodity sector in 2009. However since mid January, base metals retreated on the back of a wave of bearish economic data. Market participants attributed the rapid pricing fall-off to a slew of negative factors, including weaker macroeconomic data out of the United States, uncertainty over the US banking reforms, the impact of lingering anxiety over China's lending clamp down and more widely, ongoing concerns over the speed of the economic recovery, following Greece severe financial difficulties.
    Indeed in the US, President Barack Obama laid out plans to overhaul financial regulation. Obama is pushing for new rules that would restrict banks from using money gathered from deposits to trade stocks and bonds as well as limit the overall size of banks. Another worrying macroeconomic news in the US, came in the form of new residential home sales, which were down for the second straight month in December, according to the U.S. Commerce Department. New home sales last month were down 7.6% from November and off 8,6% from a year earlier, while full-year sales of 374,000 new homes were down 22.9% from 2008.
    In the currency market, the dollar index which weighs the strength of dollar against the basket of six other currencies rose on concerns that Greece and other countries might have problems repaying their loans. Thus the US dollar hit its strongest level against the euro in nearly six months hovering around 1,40. The dollar also strengthened on fears that China will curb bank lending. The China Banking Regulatory Commission said it hasn't "specifically" told banks to suspend lending in January, but a report said that it had asked several banks to stop issuing loans.
    However, the central bank of China just increased its bank reserve ratio requirement (RRR) by 50bp, and some analysts believe that the impact on liquidity in the domestic market is minimal, as it marks a shift, rather than a tightening.
    In the energy sector, oil fell sharply in spite of Chinese data showing that monthly crude imports surpassed 5 million barrels a day for the first time last month. Chinese oil demand rose by more than 15% year-on-year in December, well above 2008 levels.
    Regarding base metals, the pace of recovery should accelerate in 2010 as fundamentals improve. Besides, forward-looking indicators like global PMIs and December Asian exports continue to point to strong manufacturing growth ahead. A recovery in US, European and Japanese metals demand and strong import demand from China should result in a reversal of rising inventory trends in H1 2010. However, an end to the initial restocking boost in the OECD, plus tighter monetary policy globally, means that the momentum of demand growth is likely to be slowing again by H2 10.

In London, the Lead cash settlement price dropped by 16% to US$ 2,055 per ton while the Zinc cash settlement price decreased by 18% to US$ 2,122 per ton on the 29th of January, 2010.
    LME zinc stock build slowed in late January, but volatile prices suggest that the zinc market faces a tough year ahead. Zinc miners and smelters have been rushing into restarting idled mine supply and smelter’s capacity on higher prices, the market is now in danger of maintaining its huge market surplus. The price differential between the SHFE and LME zinc prices is widening and profitable enough, as of late January, for arbitrage trade. It is therefore likely that despite still weak OECD demand, China will yet again come to the rescue in the following few months.
    Lead prices started 2010 with a bang, however they have been drifting for the last two weeks. Lead was in surplus by 58,000 tons in the first 11 months of 2009, according to the ILZSG. China poses the greatest threat to the lead market balance, with surging refined lead production from new smelters coming online coupled with the possibility of a tightening in bank lending, which could slow sales of new cars. Lead’s market balance will therefore be increasingly determined this year by the strength of recovery in OECD demand.
    In China, lead and zinc production hit record highs in December. December lead output rose 12% from November, while zinc output gained 3.8%, according to national statistics bureau. In 2009, China produced 3.87 million tonnes of lead, up 16%, and 4.42 million tonnes of zinc, up 12%.
    In Peru, a 38% expansion at Antamina has been approved. It will lift mill throughput to 130,000 t/d and extend its mine life by six years to 2029. Despite this expansion, Antamina’s zinc production will actually fall in the medium to long term. It should produce at least half of its last year 450,000 tonnes of zinc in concentrate output. LME zinc stocks have risen to 496,700 tonnes, while Lead stocks have increased to 157,300 tonnes.

In London, the Copper settlement price decreased to US$ 6,854 a ton with a contango of US$ 14 on the 29th of January, 2010.
    Copper prices have made a steady start to the year. Data highlighting further improvements in global business confidence in December, fresh signals from the Fed that it is not planning early interest rate hikes and preliminary trade data showing further growth in China’s copper imports from their October low have all been supportive of current price levels.
    In China, imports of unwrought copper and products rose 27% on the month in December, to 369,368 tonnes, with the refined element up 25.5%, to 244,013 tons. China continually surprises the market with its appetite for copper. The volume of refined copper imported by China in December 2009 is up 15.3% year-on-year. Imports in January will almost certainly rise further, due to the widening arbitrage window.
    Jiangxi Copper, the largest Chinese refined copper producer, achieved its target production of 800,000 tonnes of refined copper in 2009 and plans to raise its output by 12,5% this year to 900,000 tonnes.
    In Peru, a major expansion project at Antamina has been approved by the regional and national governments. Such expansion is set to increase mine life by 6 years to 2029 and copper-in-concentrate production by nearly 50% to 500,000 tonnes per year by 2013.
    New labour contracts have been agreed at Codelco’s Chuquicamata mine and Xstrata’s Altonorte smelter in Chile after short strikes at both operations. Strike action continues at Vale Inco’s Canadian operations.
    LME stocks have risen to 541,050 tonnes this month.

In London, the tin settlement price soared to US$ 17,045 per ton, more than 50% higher than January last year, with a contango of US$ 55.00 on the 29th of January, 2010.
   LME tin stocks have grown by more than 2% this year to 27,905 tons, while prices have surged higher, in percentage terms, than any of the other base metals. Such rally has been mainly driven by the Chinese consumption, which was up more than 12% year-on-year, to 112,000 tons, in the first ten months of 2009, supported by a pickup from the electronics sector and on tinplate and tin-based chemical demand. Besides, the supply side of the tin market continues to offer support on various time horizons. In the short term, support has come from a labour strike at Huanuni mine in Bolivia, which according to the ITRI produced 9,300 tonnes in 2009, representing just over 3% of global mine supply. In the medium term, expectations have firmed around the view that Indonesian production will decline year-on-year in 2010, with the final stages of ore depletion at the major onshore mines on Bangka and Belitung islands taking place. Even further ahead, there is only one significant mine project ramping up (Piriquitas in Argentina).
    In Indonesia, refined tin exports in December were up 124% year-on-year to 8,508.36 tonnes. It is working on draft regulations to cap tin output at 105,000 tonnes per year, similar to 2009 levels, to help conserve tin resources. Singapore, Malaysia and China are the three biggest import destinations for Indonesia's tin. Indonesia's Bangka Belitung Timah Sejahtera (BBTS) has restarted operations at 10-20% of capacity after almost two months of inactivity owing to the heavy rains and the tight availability in tin ore due to the recent police crackdown on illegal mining. BBTS is a consortium of seven private tin smelters, capable of producing 2,800-3,500 tonnes per month of tin.

In London, the Gold PM fixing was traded at US$ 1,078.50 per ounce and while Silver dropped to US$ 16.29 per ounce, on the 29th of January, 2010.
    Gold and silver began the new decade quite brightly; yet they’ve both been battered later in the month after the US dollar hit its strongest level against the euro in nearly six months. However this does not point out any fundamental change in the market.
    Clearly, growing investor interest has been pivotal for gold’s price trajectory, and in 2010 currency movements, inflation concerns and the shape of the economic recovery will continue to determine the strength of fresh investor demand, or as fears recede and the dollar strengthens in line with our expectations, the magnitude of redemptions.
    In India, imports of gold picked up in December and were at 34 tons, compared to just 3 tonnes in December 2009, according to the Bombay Bullion Association. However the association said that full year 2009 imports were just of 343 tonnes, compared to 420 tonnes in 2008.
    On the supply side, China cemented its position as the world’s biggest gold producer. A further fall in South Africa’s output, down 5 % on the year, saw it relegated to third position behind Australia. It had been the top producer for more than a century until 2007. In total, global mine supply rose 6% to 2,553 tonnes, a six-year high, helped by a huge jump in output from Indonesia.
    Silver however has a greater reliance on industrial demand implying that it’s more vulnerable to economic activity than gold, as seen in September 2008, when the price collapsed on fears of an economic depression. Anyway, silver has a myriad of new industrial uses, such as in solar panels, therefore it seems likely that its fortunes will be more closely tied to those of the world economy this year than for some time.

In London, Nickel rose to US$ 18,730 per ton, with a contango of US$ 20, on the 29th of January, 2010. On the same day Cobalt min. 99.8% traded at US$ 23.00 per pound and Cobalt min. 99.3% at US$ 22.175 per pound.
    A raft of positive news, both from the supply and the demand sides have pushed prices further up this month. The relative tightness in scrap and ferronickel availability (mainly in Europe and in the US) coupled with delays in mine production starts (Goro, Ravensthorpe, Ambatovi) have therefore renewed late 2009 optimism for the nickel market. Besides, on the consumption side, producers are moving back to full or almost full capacity. In Spain, Acerinox will be up capacity utilization rates from 50% to 70% in February, while in China, major stainless producers are moving back to 100% capacity utilization, on the back of strong demand. Such news tends to indicate a hike in nickel consumption in the coming months.
    In China, according to the latest figures from the Chinese Statistics Bureau, nickel imports jumped 34% and output increased 16% year-on-year in 2009. Jinchuan Group, China’s largest nickel producer, plans to produce 150,000 tonnes of nickel in 2010, which is 20,000 tonnes more than last year.
    In Russia, the government will reinstate a 5% tax on nickel exports next month, a year after suspending export duties due to collapsing nickel prices at the back-end of 2008.
    In Canada, Vale announced that it will restart one nickel furnace at its Copper Cliff smelter in Sudbury, using non striking workers from the end of January. LME nickel stocks have increased by 8% this month, totalling 164 808 tonnes.
    The main news this month regarding cobalt is the LME launch of cobalt futures on February 22, just after the Chinese New Year holiday.