The base metals were all mired in the red on Monday. Copper peaked during the pre-dawn hours and slid from there until the late morning, when it rallied slightly off its intraday lows to finish at $3.8245/lb., down 4¼ cents.

Nickel had a couple of steep ups and downs, but eased off of both highs and lows, closing at $11.7291/lb., down 6¼ cents. Zinc fell from the pre-dawn hours until mid-morning, then came off its lows to end at $1.0222/lb., down 3 cents. Aluminum was down early but traded sideways for the New York day, eventually losing a penny and a quarter, to $1.338/lb., while lead was off straight through, barely edging above its intraday low at $1.0113/lb., down more than 3¾ cents.

Copper fell off primarily on stock increases. Inventories monitored by the LME gained a healthy 1,500 metric tons yesterday, to 122,725 tons.

Analysts believe that there has been some retracing of speculation as to how much extra demand will emerge from China for reconstruction efforts in the wake of last week’s devastating earthquake.

Some are arguing that that copper demand may not take too much of a boost from reconstruction work, because the worst hit areas were largely suburban rather than industrial.

Likewise, traders were downplaying any effect that earthquake-related smelter closings would have on zinc supply. The shutdown may result in production suspension of 15 days or more, but affects less than 1% of China’s annual output, according to a report from the Macquarie Group.

“This minor cut in supply is unlikely to significantly reduce the surplus that we were forecasting for the zinc market for 2008,” the Macquarie analysts said.

Backing up that view were the latest figures from the LME, which reported that its zinc inventories grew by 5,075 tons yesterday, to 128,575 tons. It was the biggest daily gain since January 18.

In company news, the website metalmarkets reports that Rio Tinto is facing a potential boycott of its iron ore by Chinese steelmakers.

“Problems have arisen because,” the report said, “last year Rio made use of flexibility clauses in its contracts, that allowed the group to charge spot market prices for iron ore, at around 10% above the prices set in its contracts.”

A dicey situation, the report concludes: “While a joint action by the Chinese steel industry to boycott Rio’s spot sales could be deeply damaging to the company it would also put China in breach of World Trade rules.”

Source: Base Metals All Sink