A thriving recovery in global base metals demand is underway and is outpacing forecasts. The recovery is no longer confined to just a few metals in a few regions but has become widespread and is gaining momentum. Having been a drag on consumption for the past 18 months, OECD demand is now in firm growth territory, with Europe leading the way and the US and Japan not too far behind. Supply-side dynamics are further supporting demand for many metals with the tightness in scrap supply boosting buying of primary metal as a substitute. Increased metals demand has indeed become visible through firming physical premiums and declining LME inventories, which together with the flow of positive economic data readings is giving support to metals prices, which is expected to continue over the coming months. This price expectation was reinforced by the feedbacks from the CESCO conference in Chile. The clearest consensus was seen on mine supply, where it is apparent that many of the issues faced back in 2008 have begun to resurface such as producers facing rising cost pressures, skilled labour shortages, declining ore grades, delays to new projects and challenges in bringing new production to market.
    Global demand is now growing at a double-digit pace for all the base metals, which is reflective of the strong economic backdrop. Chinese GDP growth came in stronger than expected, at a two-year high of 11.9% in Q1 10, while US GDP grew by 4.5%.
    Both leading indicators and activity statistics suggest that industrial production has remained strong through Q1 and is likely to remain solid in Q2. On a year-on-year basis, the OECD + 6 (BRIC + Indonesia and South Africa) continued to rise in February, growing 13.1%.The Purchasing Managers Indices (PMIs) continued to defy pessimistic expectations by rising again in March. In the US, the PMI rose to 59.6, which is the highest level since mid-2004, while indices in the Euro area were also better, with Germany in particular showing strong gains from 57.2 to 60.2. In China, the PMI improved after what appears to be an issue with a seasonal adjustment for Chinese New Year, rising from 52.0 to 55.1. That said, there was some evidence to suggest PMIs should soon ease from their current high levels, albeit to remain in expansionary territory.
    Interestingly enough, global auto production remains on course to rise by 20% in 2010 after the dramatic cuts in production last year. However such a rise is mainly driven by China, where this year, auto sales are forecast to rise by 25% to 17 million units.
   In the very end of the month, base metals prices retreated as worries over Greece, Europe and the euro bring volatility to the market. In fact, rating agency Standard & Poor’s decision to slash Greek debt to junk status and downgrade Portugal and Spain largely heightened concerns. However, Greece has since agreed with the EU and the IMF on the terms of a multi-billion euro rescue package aimed at averting a sovereign default.

    In London, the Lead cash settlement price slightly increased to US$ 2,253 per ton while the Zinc cash settlement price was at US$ 2,343 per ton on the 29th of April 2010.
    Zinc demand has bounced back from the downturn but the supply side response has been even stronger. In fact, the ILZSG forecasts a surplus of 418,000 tons with world metal output rising by 10% YoY to 12.5 million tons and demand rising by 11% YoY to 12.1 million tons in 2010. Meanwhile, ILZSG's lead market forecast is for a surplus of 100,000 tons in 2010. Refined lead production is predicted to rise by 7.5% to 9.4 million tons, compared with an increase in consumption of 7.3% to 9.3 million tons.
    In the Philippines, TVI Pacific has confirmed that the zinc circuit at its Canatuan mine is due to be fully operational by the middle of Q2 2010. The additional flotation circuit has been designed to produce about 1,000 tons of zinc concentrate per month.
    In India, Vedanta Resources has increased its zinc capacity with the early commissioning of its 210,000 tpy zinc smelter at Rajpura Dariba and its 1 million tpy concentrator at Rampura Agucha. The new operations will take Vedanta’s total zinc smelting capacity to 879,000 tpy. Vedanta increased its full-year refined zinc production by 5% to 578,000 tons, while refined lead output rose 11% to 72,000 tonnes due to improved mining performances.
    In Japan, Sumimoto Metal Mining’s Harima smelter shut down on 18 March, for scheduled maintenance, and is due to restart on 6 May. Harima has the capacity to produce 95,000 tpy of refined zinc and 40,000 tpy of lead bullion. The lead bullion is then refined at Sumitomo’s Niihama refinery.
    In Alaska, there are still some issues that are yet to be resolved regarding the water discharge permit at Teck’s Red Dog mine, and that this could pose a real risk to mine supply outlook, particularly for 2011. If approval is not received by May, Teck Resources plans to stop work at the operation. Red Dog produced 132,000 tons in 2009.
    Reported lead stocks have been rising for 18 months and LME lead stocks have now reached a seven year high of around 180,075 tons. Meanwhile LME zinc stocks stand at 545,375 tons.

    In London, the Copper settlement price dropped by over 6% to US$ 7,430 a ton with a contango of US$ 39 on the 29th of April 2010.
    With copper demand outside of China now showing signs of improvement and the sulphuric acid market also having moved back into balance, some smelters are now looking to boost output in 2010, reversing the cutbacks of 2009.
    In China, two announcements have added a further 800,000 tons per year to planned new smelting capacity. Tongling plans a 400,000 tpy expansion at its Jinchang smelter and refinery, while Shandong Xiangguang will treble its smelting capacity to 600,000 tpy. In total, Chinese smelting capacity is expected to grow by an average of 11.6% per year over the next five years, with concentrates demand increasing from 3Mt/y to 6.2Mt/y of contained copper.
    In March, China's refined copper imports increased by a larger than expected 53% MoM and 14% YoY to 337,000 tons, signalling bullishness.
    In Chile, BHP Billiton reported that Escondida will likely produce about 1.05 million tons of copper this year as in 2011, down from 1.1Mt in 2009. Falling ore grades at the mine continue to weigh on output.
    In Zambia, China Non-Ferrous Metals (CNMC) will spend $300 million to bring the 60,000 tpy Luanshya Copper Mines project into production in the Q1 2012. Meanwhile, production is set to ramp up at Konkola Copper Mines' (KCM) Konkola Deep project, which is expected to boost the group’s overall copper output to 500,000 tpy by 2012 from production now of 200,000 tpy. KCM also announced the completion of the $43 million expansion of its Nkana refinery, boosting its capacity to 300,000 tpy from 180,000 tpy. Australia’s Equinox Minerals reported a 37% YoY jump in output at its Lumwana copper mine in Q1 10 and consequently announced it could meet its 2010 guidance of 135,000 tons of copper versus 109,000 tons in 2009. Zambia aims to produce 750,000 tons of copper in 2010, with output expected to hit 1 million tons in 2011. LME stocks have slightly declined in March to 504,025 tons.

    In London, the tin settlement price rose to US$ 18,475 per ton with a contango of US$ 70 on the 29th of April 2010.
    In China, Yunnan Tin, the world's largest producer, reported a 14% year-on-year rise in refined tin output to 17,134 tons in Q1 2010 as world demand recovered. In 2009, Yunnan Tin produced 55,900 tons of refined tin, equal to 17% of reported world production.
    Preliminary data from the National Bureau of Statistics shows that March output of refined tin in China rose by 14.3% YoY to 12,121 tons. Cumulative production in Q1 2010 was 32,596 tons, up 53.1% compared to the same period of 2009, when many major smelters shut down or cut production following the global economic crisis. Currently drought conditions in southwest China are adversely affecting mine production in Yunnan and Guangxi provinces, but have not yet had a significant impact on power supplies to the main smelters. However, a continuation of the drought could result in both raw material and power shortages in the next few months.
    In Indonesia, refined tin exports in March fell by 41% year-on-year to 6,576.01 tons. Yet with the easing in the monsoon rains, individual miners have operated their makeshift dredges along the coastline of Bangka-Belitung islands. According to the International Tin Industry Group, tin exports in April May should therefore recover to about 7,000 tons or more.
    PT Timah, the world's second largest tin producer, reported an 11% YoY fall in output of refined tin to 9,266 tons in Q1 2010, despite an increase in its mine output of 40% YoY to 7,397 tons. The company plans to produce 48-50,000 tons of refined tin this year. In 2009, its production was 45,800tons, equal to 14% of world output.
    In Russia, the sole tinplate producer, OJSC Magnitogorsk Iron & Steel Works, reported a rise in tinplate production to 59,000 tons in Q1 2010, up 44% compared to Q4 2009. LME tin stocks have been decreasing by 12 % this month to 21,020 tons.

    In London, the Gold PM fixing closed the month positive at a 2010 peak at US$ 1,179.25 per ounce on April 30th, 2010 (MTD: +5.71%, YTD: +8.44%), while Silver raised to US$ 18.62 per ounce (MTD: +5.26%, YTD: +9.59 %).
    Gold rallied 5.71% in April, its biggest one-month rise since Nov. 2009 and the highest level since Dec. 4th, 2009, while silver, which is more industrial in use, hit a new high since January 11th, 2010.
    Gold and Silver rise was fuelled by investors continuing to embrace the metal's safe-haven properties on unease over euro zone sovereign debt levels; the gold price, and to a lesser extent the silver price, were rising in line with Greek CDS rates.
    At the end of the month, S&P’s downgrades helped send the euro down to a one-year low against the dollar on April 29th ($1.3112), as fears over the fiscal problems of countries on the periphery of the Eurozone intensified. On the last day of the month, the euro recovered and benefited on speculation of a Greece bailout.
    On the demand side, assets in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose by 29.19 metric tons from March 29th to a record 1,159.002 tons on April 29th, which is a strong signal that some U.S. investors are very concerned about the possible implications of the European debt situation.
    On the supply side, AngloGold Ashanti, the world's No. 3 gold producer, could invest $2.5 billion to $3 billion to build a gold mine in Colombia if feasibility studies show the project is viable (12.3 million ounces in unproven resources). Besides, Gold Fields, the world's No. 4 gold producer with an annual gold output of 3.6 million ounces, has allocated $1.16 billion to develop South Deep before the end of 2014, one of the world's largest gold mines, in a bid to boost output.
    On the mining side, M&A will probably drive the gold sector this year as a preferred means of increasing reserves to exploration and identification of new projects. For example, the ongoing potential deal between Newcrest Mining and local rival Lihir Gold, Australia's biggest and second-biggest gold producers could create the world's fourth-largest gold producer. Newcrest proposed an $8.45 billion bid but Lihir rejected the offer as too cheap. Story to be continued…

    In London, Nickel was the best performer among the base metals this month, rising by over 3% to US$25,775 per ton per ton, with a contango of US$ 75, on the 29th of April 2010.
    Nickel prices have continued to move sharply higher over the month due to a massive rebound in global stainless steel production (accounting for around 65% of global nickel demand). World stainless steel production estimatedly hit 7.8 million tons in Q1 2010, up 53% YoY.
    Reports from the market indicate that order flow remains extremely strong with most producers looking to raise production further in Q2 2010.
    In China, according to the National Bureau of Statistics, domestic refined nickel production increased by 24.8% YoY in Q1 2010 to 47,424 tons. Production in March alone, increased by 34.6% y-o-y to 16,299 tonnes.
    On the supply-side, the strong recovery in global production under way reportedly pushed Q1 2010 nickel production up 8% YoY. However, production was lower quarter-on-quarter and the market remains as constrained as ever. This is mainly due to the ongoing strike at Vale Inco’s Sudbury and Voisey’s Bay operations, which has taken 100k tpy of supply out of the market. In addition, disruptions at BHP’s Perseverence mine and Talvivaara’s Sotkamo mine have added to that supply tightness. Potential for restarts has risen and indications that Minmetals is reviewing Avebury mine for a potential restart and Mincor is doing a similar process for its Miitel mine support this concern. But, the rise in nickel production includes a strong recovery in Chinese nickel pig iron production which is now expected to rise by almost 50% YoY in 2010 to over 150,000 tons. The key to supply remains the timing of the restart at Vale Inco and we continue to assume a mid-2010 restart.
    LME inventories are falling steadily and now stand at 145,884 tons, 19,000 tons below their early-February high.
    Regarding cobalt, Zambia’s central bank said that the metal output surged to 1,921 tons in the first three months, up 77% YoY. Cobalt exports also went up by 52 % YoY to 1,905 tons in Q1 2010. The rise in cobalt output is attributed to the restart of operations at Chambishi Metals.