The base metals were mixed again on Thursday. Copper sank during the pre-dawn hours and fought its way back during the New York session though it fell short of positive territory at $3.6068/lb., down more than a penny and a third.

Nickel soared to near $10.50 in the pre-dawn hours, fell sharply into the New York open, but rallied from there to close at $10.2603/lb., up 8 1/3 cents. Zinc slumped straight through, only coming off its lows at the end to finish at $0.8745/lb., down a penny and a third. Aluminum was flat until New York opened, then pushed higher all day, ending at its intraday high of $1.301/lb., up a penny and a quarter, while lead sagged without much relief, shedding 3 2/3 cents, to $0.8679/lb.

The pattern seems firmly in place at this time, days of no major changes in industrial metals’ prices, but with an overall down bias. Maybe this is what we’re in for until the U.S. economy gives an unequivocal signal as to which way it’s heading.

The negative sentiment was bolstered again yesterday as the Organization for Economic Cooperation and Development reported that it has cut its growth forecast to 1.8% this year and 1.7% in 2009. Those are the weakest numbers since 2002, reflecting the belief that the U.S. housing-led slowdown is spreading around the world.

Concurrently, London-based researcher CRU cut its estimate for this year’s demand growth in China, the world’s largest copper user, to a “high single digit,” compared with the 11% earlier projected. In contrast, China’s copper demand expanded 19% last year.

“Manufacturers of copper products are experiencing tight cashflow because of rising debt servicing costs after higher interest rates,” CRU said, the result of China’s central bank having raised rates to a nine-month high in December to try to curb inflation.

On the supply side, inventories monitored by the LME rose 1,250 metric tons, to 123,500 tons yesterday, after four days of decline. Including New York and Shanghai exchanges, stocks are equal or 3.5 days of global consumption, less than last year’s average of 4.9 days, but well above the 2-day supply they’d fallen to earlier in the year.

The Chilean Copper Commission is still projecting a shortfall of 46,000 tons this year, but predicts a huge surplus of 450,000 tons in 2009. That would be the first such surplus in seven years.

William Adams, of London-based Basemetals.com, summed it all up by saying, “I’m generally bearish now on metals for the rest of the year … The housing-market downturn and credit crunch will move around and affect Asian demand as well.”
Source: Base Metals Continue Weak - Huge Copper Surplus Predicted for 2009