Base metals prices have rebounded sharply from early February lows as milder-than-expected inflation in China has eased concerns over monetary tightening and as assurances of broader Euro-zone support to help manage European fiscal issues have tempered concerns of sovereign default in the region. Besides, Developed Market fundamentals have also shown nascent, but meaningful signs of improvement, led by the United States. This improvement reinforces the idea that rising demand from Developed Markets, on top of continued robust demand from Emerging Markets, will continue to support the base metals complex and ultimately prove most supportive for more supply-constrained metals such as copper.
    It is nevertheless important to emphasize that despite recent positive signs, the Western world is not yet on solid footing, as evidenced by the 10.5 points drop to 46 in the February US Consumer Confidence Index. Hence, Western demand remains a key risk. Further, signs of a likely temporary slowing in Chinese demand for global supplies with SHFE-LME arbitrage now shut, on top of ongoing policy risk, suggest that the markets will likely remain fragile in the near term.
    Yet, several factors have begun to point to improving demand and tighter metals fundamentals in the West and in the US in particular.
    In the Unites States, the Employment Index is up to 56.1% for the third consecutive month and recent data suggests that production is beginning to catch up with positive leading indicators with January IP data confirming the surge in activity. Specifically, this month, IP was substantially higher than expected, increasing 0.9% month-on-month and rising above year-ago levels for the first time since March 2008. Although activity remains below pre-recession levels, the recent gains confirm that improvement is ongoing and gaining momentum. In addition, leading the gains were metals-intensive sectors, with IP for Motor Vehicles and Parts in particular surging 40.2% above year-ago levels, consistent with a sharp increase in US auto production.
     The stronger-than-expected IP in the United States follows a set of strong data from both Japan - where IP surprisingly increased 5.3% year-on-year in December - and South Korea, where IP surged 33.9% year-on-year. Much of these gains were also centered in metals-intensive electronics and transport sectors. The Euro zone appears to have bucked this trend, rising from 52.4 to 54.2. The German PMI was particularly strong, rising from 53.7 to 57.2.
    The dollar index rose to a new 8-month high this month and the EURUSD finished the month at 1.3570 (9-month low), however the euro rebounded in late February as worries over Europe's debt crisis eased a little on Bloomberg news that Germany might buy Greek bonds through state state-owned development bank KFW. Greece has been at the center of the euro's struggles the last few months, with its fiscal debt this year estimated at more than 120% of GDP, the highest of any euro zone member.
    Eventually, oil prices rose to trade near $80 a barrel on February 26, after the upward revision in the U.S. gross domestic product data boosted sentiment.

    In London, the Lead cash settlement price rose to US$ 2,138.50 per ton while the Zinc cash settlement price rose to US$ 2,157.50 per ton on the 26th of February 2010.
    In China, refined zinc imports rose by 52% month-on-month in January to 28,973 tons as the SHFE-LME arbitrage window opened again while imports of zinc concentrates fell by 15% MoM to 339,929 tons. However, arrivals were almost 50% higher than a year ago, mainly coming from Australia and Peru. Although domestic mine output of zinc concentrates has risen substantially in response to the price rally of last year, part of which is coming from new zinc smelting capacity.
    Lead wise, China remained a net exporter of refined lead in January 2010 despite the 10% export duty on refined lead, with imports at 1,556 tons and exports at 2,871 tons, reflecting the much higher price of lead on the LME as a result of better demand from the western world, especially from the lead acid battery sector and the strength in output from China as a result of substantial expansion from domestic smelters.
    In Australia, Ivernia has announced the restart of its Magellan lead mine processing plant, which has been closed for environmental reasons in 2007. It expects to reach full capacity by the end of Q3 2010 and to produce about 60,000 tons of lead-in-concentrate in 2010.
    In Alaska, Teck Resources said it might be forced to curtail operations at Red Dog mine; the world's largest zinc mine, after environmental groups appealed against a permit issued by the US EPA.
    In Peru, Los Quenuales has decided to resume operations at its Iscaycruz zinc and lead mine, which has been closed since February 2009. The mine produced 23,028 tons of zinc and 1,178 tonnes of lead in 2009, down from 175,184 tons and 13,710 tons respectively in 2008. LME Lead and zinc stocks continue to edge up to respectively 163,025 and 54,2350 tons.

    In London, the Copper settlement price continued to rise to US$ 7,072 a ton with a contango of US$ 24.00 on the 26th of February 2010.
    Another set of annual results has been announced and global copper production reached 15.8M tons in 2009; up 2% YoY from 15.5 millions tons in 2008. South America accounted for 44% of this production, 37% of the world’s copper in concentrate and 66% of the world’s EW cathode.
    In China, refined copper imports totaled 196,296 tons in January 2010, 19% lower MoM but 9% higher from January 2009. Chinese copper concentrate imports went up to 598,146 tons in January, the second - highest on record, reflecting the over-performance of the SHFE relative to the LME in copper prices for most of the time in January 2010.
    In Democratic Republic of Congo, Katanga Mining will almost double production at its operations, to 82,000 tons per year of copper cathode.
    In Zambia, First Quantum and Equinox Minerals have resumed production at their Kansanhi and Lumwana copper mines after a four-day power outage due to vandalism. Kansanshi produced just over 182,000 tons of copper in 2009. Equinox Minerals expects to increase 2010 production at Lumwana by 23% to 135,000 tons of copper in concentrate.
    Vedanta has reiterated that its copper capacity in Zambia will grow to 400,000 tons per year in three years, brushing aside concerns about the viability of its Konkola Deep project, the biggest project on the copperbelt. The Konkola Deep project, expected to be delivered by mid 2010, would produce 8.1 million tons of ore at 3.5% grade and extend mine life by 23 years.
    In Chile, the biggest copper mines hit by a massive quake slowly resumed operations on Sunday despite limited power supplies, which analysts fear could curtail exports from the world's No. 1 producer. The recovery pace of output will depend on the supply of electricity that is currently partial. LME stocks stand at their highest level since October 2003 at 550,225 tons.

    In London, the tin settlement price slightly dropped at US$ 16,675 per ton with a contango of US$ 30.00 on the 26th of February 2009.
    International Tin Research Institute estimates that tin demand in 2009 has fallen by about 9% year-on-year and forecasts consumption to rise by 6% this year.
    In Indonesia, the government has issued two new regulations on mining areas and mining business to allow investors to obtain new mining permits and help speed up issuance for existing investors. Such move should increase certainty and help boost investment in the mining sector.
    Meanwhile, private tin miners are fighting back against the January enacted laws restricting their activities to rivers and riverbanks and thus, threatening tin exports. The independent miners and their smelter customers have been left confused as mining the rivers or banks has been prohibited for years under environmental laws. With police on the lookout for illegal miners and ores, around 90% of Bangka's thousand independent tin miners have stopped working, and a lot less ore is available. PT Timah, the state-owned producer, dominating tin production, probably stands to benefit from efforts to centralize the tin sector. But even it is facing a period of adjustment. PT Timah plans to increase its offshore tin production to 70% of the total by 2012, from 50%. This year, it plans to produce 6,435 tons of tin-in-concentrate, up 5% from its 2009 production.
    In China, Yunnan Tin, the country's biggest tin producer, plans to commission a 100,000 tons per year copper smelter by end 2011. With 80,000 tons per year of tin capacity, Yunnan Tin can also boast the biggest tin output in the world. LME tin stocks have dropped by 11% to 24,840 tons.

    In London, the Gold P.M fixing closed the month positive at US$ 1,108.25 per ounce on February 26th, 2010 (MTD: +2.76%, YTD: +1.91%), while Silver dropped to US$ 16.12 per ounce (MTD: -1.04%, YTD: -5.12%). The dollar index rose to a new 8-month high this month and the EURUSD finished the month at 1.3570 (9-month low).
    During the first week of February, Gold and Silver slipped (-2.34% and -6.9% respectively), as the US dollar gained on weak economic data and reduced the appeal of the precious metal as an alternative investment. Investment demand is still the key driver of the gold price as a result; cyclical changes in the commercial supply and demand for gold have a limited impact on the gold price. Instead, the gold price is driven by macro-economic factors. Thus, in the last days of the month, gold prices (and silver tracking gains) rallied, supported by a rebound in the euro, attributed to a report that a German KFW Bank may buy Greek bonds in an emergency measure, and higher equity markets but the euro stays under pressure. Besides, Federal Reserve Chairman Ben Bernanke reiterated that the Fed intended to keep interest rates near zero but he said inflation pressures remain subdued.
     The IMF said on Feb 17th it was ready to sell 191.3 tons of gold on the market. The fund will shortly initiate the on-market phase of its gold sales program of a total 403.3 tons. China is unlikely to buy, but the Reserve Bank of India, which has increased its gold holdings to diversify its reserves, looks set to be a buyer of the 191 tons.
   On the regulatory side, the US CFTC announced it would host a public meeting in late March to discuss speculation limits in US metal futures, and particularly Gold and Silver. Silver and Gold critics suspect that a handful of large banks control a disproportionate selling position in futures. This month for example, on Comex, 42% of the net short position in silver was held by four (or fewer) traders.

    In London, Nickel prices are on the move again and rallied to a 6-month high at US$ 20,275 per ton (MTD: +8.25%, YTD: +9.71%), with a contango of US$ 75, on the 25th of February 2010.
    On the demand side, China imported 19% more nickel in January, up for the fourth month in a row. Refined nickel imports surged by 113% YoY to 16,219 tons in January, but such volume remains low compared to the 2009 monthly average of 20,851 tons.
    In Finland, Talvivaara Mining Company PLC restarted its nickel plant after a catalyst failure forced a shutdown earlier in the month. It expects to produce 30,000 tons of nickel and to reach full capacity in 2012, when it will produce 50,000 tons of nickel.
    In Brazil, Anglo American maintains its plan to boost production of nickel by 139% and their Barro Alto nickel project is on schedule to start up in 2011 and will produce an average 36,000 tons per year of nickel at full production. LME Nickel stocks dropped by 1.9%, to 161,742 tons.
    The headline this month was the launch of cobalt futures contracts on February 22. The new 3-month cobalt LME contract closed at US$ 39,000 per ton on the 25th February 2010. Cobalt's first three-month-to-fifteen-month spread was in small backwardation. On the first day of trading, the LME transacted 90 lots of 1 ton of cobalt with a total value of $3.6 million. The contract will gather pace as consumers and producers become more used to trading their cobalt. Cobalt miners expect new contracts to bring a measure of stability to what have historically been volatile prices and will allow producers and buyers of metal to hedge the risk of future price movements. The LME cobalt contract will bring more transparency and security, and will enable the market to access finance more easily and develop new projects and applications.
    Refined global production for cobalt was around 54,000 tons last year, with consumption at about 52,000 tons. Prices of cobalt have risen by as much as 14% this year, before tracking back, as supply tightness, and improving demand and economic conditions boost prices.
    In DRC, the Katanga province has lifted the ban on cobalt ore exports. As a result, Katanga Mining will quadruple cobalt production by 2011. This year, Katanga will increase production by 117% to 5,500t.