As Money Morning warned in an investigative report that ran in early April, the stumbling U.S. commercial real estate sector was developing into a financial black hole that was threatening to blot out the resurgence of the U.S. economy. Commercial real estate prices have been in sharp decline for the past two years, making it tough for owners to refinance and pressuring companies to sell buildings at steep discounts.

The plummeting prices not only jeopardize a possible recovery, but they put pricing pressure on commercial mortgage-backed securities (CMBS) that are held by institutional investors.

Commercial property is “certainly going to be a significant drag” on growth, Dean Maki, a former Fed researcher who is now chief U.S. economist at Barclays Capital Inc. (NYSE ADR: BCS), told Bloomberg. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.”

Property values for commercial real estate such as hotels, apartments, shopping malls, and office buildings fell by more than 18% on a year-over-year basis during the second quarter, according to an index published by the Massachusetts Institute of Technology’s Center for Real Estate. That’s the biggest decline in the 25 years since the index was first published. It’s also the fifth consecutive quarterly drop and the seventh quarterly decline in the past eight quarters.

The index is down 39% from its mid-2007 peak, surpassing even the 30% decline in housing prices.

That means companies that earlier in the decade borrowed heavily and expanded as property values soared have been left with buildings that are worth far less than their mortgages and aren’t generating enough cash from rental fees to pay off financing expenses.

Maguire Properties Inc. (NYSE: MPG), one of the largest office-building owners in Southern California – including in the downtown Los Angeles market, for instance – is making preparations to turn seven properties with about $1.06 million in debt over to creditors.

But even with those sales, Maguire still has $3.5 billion in debt and many analysts believe that exceeds the value of the properties in its portfolio.

“Almost everything in Maguire’s portfolio is underwater,” Michael Knott, an analyst with Green Street Advisors Inc., told The Wall Street Journal. “I don’t envy some of the choices that they are having to make.”

Maguire reported a second-quarter net loss of $380.5 million, more than triple the loss of $110 million reported a year earlier.

If the slump in commercial real estate continues to test these depths, the Federal Reserve may be forced to keep emergency-lending programs in place and leave its benchmark interest rate close to zero for longer than some investors expect.

The Fed expanded the Term Asset-Backed Securities Loan Facility (TALF) in June to cover as much as $100 billion in loans to support commercial mortgage-backed securities.

More than 40 members of Congress, led by Rep. Paul E. Kanjorski, D-PA, on July 31 sent a letter to Bernanke and U.S. Treasury Secretary Timothy Geithner, asking them to extend the program through 2010.

“The $6 trillion commercial real estate market has recently experienced a massive credit shortfall, which the TALF program has only just begun to help stabilize,” the petition read. ”While I would like to wind down the government’s emergency support for the private sector as quickly as possible, we need to provide more time for the TALF program to work in this industry, especially with $1 trillion in commercial real estate debt maturing in the near future.”

Fed Chairman Bernanke – in his testimony before the Senate Banking Committee on July 22 – assured lawmakers that he is ready to counter the threat posed by the ailing commercial real estate market, and said he would consider the policymakers’ petition for an extension of the Term Asset-Backed Securities Loan Facility.

“We will certainly be monitoring the situation, and if markets continue to need support, we will be extending the final date of that program,” Bernanke said. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.”

Source: Will Commercial Real Estate Pose the Next Hurdle for the Federal Reserve?

The momentum behind China’s economy is staggering.

“China is increasingly becoming a responsible citizen in the global community,” economist Allen Sinai of Decision Economics told The Associated Press. “No longer lawless, no longer difficult to deal with, much more responsible. It is now a powerhouse among economies and finance. And it’s a rich country.”

In just the past few weeks, two of the world’s key global institutions – the World Bank and the Organization for Economic Cooperation and Development (OECD) – and a large swath of investment banks raised their 2009 and 2010 growth estimates for China’s economy.

The OECD said it now expects China’s economy to grow by 7.7% this year and the World Bank boosted its projection to 7.2% growth.  GDP will expand by 9.3% in 2010, according to OECD estimates.

BNP Paribas SA (OTC: BNPQY), Barclays Capital, Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), UBS AG (NYSE:UBS), Morgan Stanley (MS), Standard Chartered Bank, and RBC Capital Markets all raised their forecasts for China’s economy as well.

So far, BNP Paribas SA is the most bullish on China’s prospective growth, as it boosted its prediction to 8.2% this year. That would top Beijing’s 8% target.  Barclays Capital, Goldman Sachs, and JPMorgan all raised their 2009 forecasts to 7.8% growth.

“The strong acceleration in underlying economic activity is now unmistakable,” Goldman Sachs economist Yu Song told TIME magazine.

China’s Homegrown Growth

China’s $585 billion (4 trillion yuan) stimulus package gave the economy a big kick in the first half of the year, spurring bank lending and driving fixed asset investment. It even stimulated the oft-maligned Chinese consumer, boosting domestic demand while the market for exports remained dormant.

Chinese banks lent about $1.08 trillion (7.37 trillion yuan) in the first half of the year, nearly double the total loans extended throughout all of 2008.  And even though the economy is clearly on the road to recovery, it’s not likely lending will let up for the rest of the year.

BNP Paribas chief economist Chen Xingdong told Bloomberg thathe expects new loans will reach 9.5 trillion yuan by the end of 2009.

“The growth recovery has been even stronger than our anticipation,” Chen said.  “Strong fixed-asset investment growth and retail sales have started to generate real demand for industrial production.”

Fixed-asset investment rose 33.5% in the first half year to $1.34 trillion (9.132 trillion yuan), according to the National Bureau of Statistics (NBS). Investment in infrastructure rose 57.4% year-over-year, with spending on railways up 126.5% and highway spending up 54.7%. Property sales were up 53% in the first six months from a year earlier.

Of course, fixed-asset investment has been consistently strong in China for the past decade. The real turnaround in the past six months has been that the frugal Chinese consumer has begun to spend more liberally.

China’s retail sales in the first half of the year rose 15% to $859.6 billion (5.87 trillion yuan).  Retail sales in June also rose 15% from May, said NBS spokesman Li Xiaochao.

“There were two highlights in promoting domestic demand: commercial apartments sales rose by 31.7% in the first half year from the same period last year; automobile sales expanded by 17.7% year on year,” Li said.

Auto sales reached 6.1 million vehicles in the first six months, helping China to supplant the United States as the world’s largest automarket. Sales could easily surpass 12 million this year.

“The rebound has been driven by the domestic economy,” Jing Ulrich JPMorgan Chase & Co.’s Chinese equities strategist told Fortunemagazine. “The consumer proved resilient – and the government acted as a catalyst.”

“China can still achieve 8% growth,” she said. “Everything is happening very fast there.”

The One Potential Hurdle for China’s Economy

There’s no question that China’s stimulus package has been an unequivocal success. In fact, the only problem may be that it is working a bit too well.

In the United States concern about inflation prompted Federal Reserve Chairman Ben S. Bernanke to outline an “exit strategy” for the withdrawal of liquidity from the financial system. Similarly, China’s biggest challenge going forward will be clamping down on lending to keep potentially hazardous bubbles from growing in its economy.

Inflation is a particular concern, as rising commodity prices have crept into imports.

“Commodity markets around the world have bottomed and are rebounding, raising imported inflation pressures,” the People’s Bank of China (BOC) said in a report analyzing second-quarter economic trends, issued by its Financial Survey and Statistics Department. “At the same time, domestic demand continues to rebound, liquidity remains flush and inflation expectations are surfacing.”

However, as in the United States, policymakers in Beijing have said they will remain committed to “proactive fiscal policy” until it is certain a recovery is underway. In fact, some analysts don’t expect to see a significant change in policy until November, when leaders and regulators meet for their annual conference on the economy.

“We must see that the economic recovery is not on a solid foundation, and the negative impacts from the international crisis have not eased,” said Chinese Premier Wen Jiabao. “An improvement in the economy does not mean the difficult period is over.”

Indeed, stimulus must be maintained until China’s all-important export sector has recovered. And while Chinese exports climbed 7.5% from May to June, they were still down 21.4% from a year ago.

Of course that doesn’t mean Beijing will just sit back and wait for lending to reach excessive levels.

“China has achieved impressive results in reviving economic activities,” Gao Shanwen, chief economist with Essence Securities, told Reuters. “The basic tone of the appropriately loose monetary policy is unlikely to change, but there will be fine-tuning.”

The BOC has traditionally used a quota system to control lending, telling banks not to exceed specific ceilings. It may continue to do so if the central bank does not see a sufficient drop in lending. It may also choose to provide banks with a less stringent lending guidance, or range, rather than an outright ceiling.

“The banks are highly responsive to government policy,” Ha Jiming, of China International Capital Corp. Ltd. (CICC), the nation’s largest investment bank, told The Financial Times.

Punitive bill issuances are another tool in the central bank’s toolkit. In September, the BOC will require banks to buy $15 billion (100 billion yuan) in special bills. The bills will be issued at punitively low interest rates and reduce the amount of money banks have on hand to lend out.

Regardless of what methods it chooses, the BOC is clearly ready to act. But it won’t jeopardize a recovery in a preemptive assault on inflation.

The central bank “will unswervingly continue to apply appropriately loose monetary policy and consolidate the economic recovery momentum,” said Su Ning, vice governor of the People’s Bank of China.

Source: With Its Economy Ignited by Stimulus Spending, China Is Leading the Global Recovery

Nickel also experienced a late-day letdown, but not enough to bleed red as it closed at $5.214/lb., up 2 1/3 cents. Zinc had a modestly positive day, ending at $0.5244/lb., up three-quarters of a cent. Aluminum was steadily higher through most of the day, adding more than a penny to $0.6228/lb., while lead also edged higher, tacking on a penny at $0.5305/lb.

Copper was only a little bit off its highs on Wednesday, as reports of increased Chinese buying and general optimism kept the metal buoyed for a second straight day.

The metal responded positively to reports that China has started buying copper from domestic bonded warehouses and overseas markets, in a move expected to triple its state reserves to about 1 million metric tons.

China’s Purchasing Manager’s Index, a manufacturing gauge, rose in January from the previous month, the China Federation of Logistics and Purchasing said. The index was up to 45.3 in January from 41.2 in December and a record 38.8 in November, the group said. Although a reading below 50 indicates a contraction, the trend is positive.

As analysts at Barclays Capital in London put it, “The improvement versus the previous two months at least offers a sign of some bottoming out.”

Also sounding a cheery note was BNP Paribas, which predicted yesterday that China’s stimulus package will boost copper demand 6.2% this year, while spending in the U.S. will increase use of the metal by 4.1%.

But once again, stockpiles served as an effective cap on any breakout to the upside. Copper inventories monitored by the LME were up yesterday, adding 4,650 metric tons, to 499,950 tons. That’s the highest level since November 2003.

Regarding nickel, warehouse stocks fell 114 tons yesterday, but are still up over 7% for the year.

“Inventories of nickel are not rising as sharply as the other metals, suggesting the supply-demand balance for nickel has stabilized a bit,” said Daniel Smith, of Standard Chartered in London. “We’re not looking for a huge surplus this year because supply has been cut back so sharply.”

On the other hand, Smith conceded that nickel demand is “awful,” with first-quarter stainless-steel consumption expected to decline more than 20% from a year earlier.

Source: Base Metals Little Changed

This from Today’s Financial News:

Thinking of going on a cruise? It is a perfect opportunity to buy tickets at the best prices in decades.  Thinking of investing in a cruise company? Think again. Even with share prices of some lines trading just above ten-year lows, cruise companies are still not as cheap as they will be.

During a day when advancing stocks outnumber decliners by a margin of more than 5 to 1, shares of the nation’s largest cruise operators are barely moving or are deep in negative territory. Royal Caribbean (NYSE:RCL), the hardest hit of them all, is down by double-digit proportions, thanks to a rough analyst downgrade.

Barclays Capital cut the company’s price target from $20 to just $1, saying chances are high it will run into serious liquidity issues as demand for cruises plummet. Shares of the $2 billion company dropped from yesterday’s closing price of $10.40 to an intra-day low of $8.75. Expect even more action when the company announces its latest quarterly results tomorrow.

Consensus estimates show the company should announce per share earnings of $0.08. But Barclays thinks the figure will swing to a loss, a sizeable loss, of $0.10 per share. If anything close to that happens, look for a much larger drop.

A boom-or-bust industry

When consumers lose their jobs, stop spending and start hoarding, it does not take an MBA to figure out cruise demand will drop. Unfortunately, too many investors have underestimated the drop.

Ironically, this issue is very similar to the railroad industry piece I wrote yesterday. Investors are looking at one small chunk of the company’s cost and revenue streams, when they should be looking at much more.

Too many folks cite lower fuel prices for a reason shares should remain steady or even rise. But fuel costs are such a small portion of the company’s business model, they are almost not worth looking at. Besides that, when we look at fuel prices per passenger, the industry is paying just as much , if not more, than last year.

For example, it still takes 3,000 gallons of fuel to get from point A to point B. If there are just 1,000 passengers onboard and fuel prices are just $2 per gallon, the company is still paying $6 per person. But if there are 2,000 people onboard and the company pays $3 per gallon, the per-head cost is just $2 per person.

But like I mention, investors should not even concern themselves with fuel prices. What they need to realize is, just like the railroad industry, the cruise industry has little ability to adjust its short-term operations to meet demand.

The economy has imploded over the last six months and demand has plummeted, but companies like Royal Caribbean can do very little to adjust their “supply” of cruises. Most of their trips are scheduled at least a year in advance and cannot be adjusted. They must wait until next year to lower their production.

That is why we are hearing the news that Royal Caribbean is pulling one of its cruise ships from Alaska, not this year, but in 2010. The cruise season does not start along Alaska’s southeast coast for another 15 months, but that is as fast as the company can react to a changing market. Unfortunately, by the time it fully adjusts its capacity, the market could have staged a turnaround.

Horrible timing

Between 2004 and 2007, North America’s cruise industry has grown from $16.9 billion in revenues to over $22.8. It was an average annual growth rate of over 10%. During those years, cruise lines added all the capacity they could find. Now that the economy has stopped in its tracks and is jogging backwards, the capacity is costing operators dearly.

Royal Caribbean has nearly $2.5 billion in liabilities due over the next twelve months. Unfortunately, it has just $1.05 billion in liquid assets to pay those bills. If the company does not find some cash flow soon, there could be some very stormy seas ahead for the company and its investors.

There is a saying in the industry that says cruise ships are filled with either “the newlywed or the nearly dead.” Risk your money in companies like Royal Caribbean and you certainly will not feel like you are on a honeymoon.

Source: Do the cruise lines need to be “bailed” out?

Schlumberger is pulling back as a collapse in petroleum prices led to a sharp drop in exploration spending by its customers.

Commodity prices have plummeted in recent months, as recessions in some of the world’s largest economies dampened demand. Like all oil producers, Schlumberger has been hurt by the plunge in the price of oil, which has fallen from $147 per barrel in July to about $42 per barrel now. The company has also seen its budget for exploration cut by 40%.

Schlumberger reported net profit of $1.15 billion, or 95 cents per share, down from $1.38 billion, or $1.12 per share, although revenue rose nearly 10% to $6.87 billion.

Schlumberger Chief Executive Officer Andrew Gould told investors on a conference call that the company was cutting 5,000 jobs out of 87,000 worldwide, and did not rule out more cuts in the first half of 2009, if necessary.

“It is a good sign that they’re coming front and center and acknowledging things have gotten a lot worse,” Mark Brown, an analyst at Pritchard Capital Partners in New York, told Bloomberg News. “We had to get this negative news out there.”

Schlumberger’s results echoed the sentiment of energy analysts who have forecast spending by oil and gas producers would drop by one-fifth or more in 2009 as companies move to conserve cash.

Spending by companies around the world on oil and natural gas exploration will fall to $400 billion in 2009, according to a Dec. 19 report by analysts James Crandell and James West of Barclays Capital Research.

The biggest decline in exploration spending is expected to come in North America, where U.S. spending will fall 26% to $79 billion and Canadian spending will slide 23% to $22 billion, Barclays said. By contrast, capital spending outside North America will fall only 6% to $300 billion.

“At current prices, most of the new categories of hydrocarbon resources are not economic to develop,” Gould said in the statement. “We expect 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins.”

Russia is part of Schlumberger’s largest regional market, which includes Europe and Africa.

In Canada, big producers like EnCana Corp. (ECA), Canadian Natural Resources and Husky Energy Inc. (PINK: HUSKF) have cut 25% to 30% from their capital budgets, according to Gary Leach, president of the Small Explorers and Producers Association of Canada.

“Right now it’s way cheaper to buy gas and oil on the market than to go drill for it,” Leach told the Calgary Herald.
But all those spending cuts may soon lead to a significant rebound in prices, Gould said.

Despite heavy spending by producers to develop new resources in recent years, the supply situation is still depressed and the cuts in investments hitting the industry now will “sow the seeds of strong rebound,” Gould said.

That seemed to be reflected in at least one of Schlumberger’s units.

Even though it posted a 68% drop in profit and a 25% drop in revenue in the quarter, Schlumberger’s WesternGeco seismic business – which measures prospective oil and gas reservoirs – is sitting on a record $1.77 billion order backlog.

And the gloomy earnings report from Schlumberger did nothing to dispel the notion among investors that oil prices will move higher.

“The fact that because this wasn’t the quarter that was prophesying the end of the world, it’s causing people to rethink their pessimism,” Bill Herbert an analyst at Simmons & Co. in Houstonsaid told Bloomberg. Indeed, oil services stocks rebounded in trading Friday.

Source: Schlumberger Sees End in Sight for Slumping Oil Prices

Nickel’s chart looked very similar, and it closed barely off its intraday high at $4.8769/lb., up 25½ cents. Zinc had a strong day, ending at $0.5725/lb., up more than 2 cents. Aluminum didn’t recover quite as well from its lows and wound up shedding three-quarters of a cent, to $0.6645/lb., while lead also edged lower, dropping nearly a half-cent, to $0.5138/lb.

The industrial metals were mixed yesterday, with copper setting the pace for the advancers. Analysts said there was a good measure of short covering based on technicals, when the metal rebounded from below its 20-day moving average.

Also helping support copper was an imports report out of China.

That country’s imports of copper and related products jumped 32% in December from November, to 286,576 metric tons, the Beijing-based customs office said.

However, analysts at Barclays Capital threw some cold water on the report, saying that, “These strong import levels are a reflection of difficult supply-side conditions as opposed to an improvement in demand … Lower prices have constrained scrap availability,” forcing a greater reliance on imports.

On the stockpile front, there was no letup in the buildup, with copper inventories monitored by the LME advancing by 5,350 metric tons yesterday, to 374,850 tons, another fresh 5-year high.

In company news, aluminum giant Alcoa (NYSE:AA) posted a bigger-than-expected fourth quarter loss. The company showed a net loss of $1.19 billion, for the three months ended December 31, compared with net income of $638 million, a year earlier.

Alcoa says it is aggressively managing its cash reserves and has scaled back production to meet falling demand. But the company is noncommittal on the question of eliminating its dividend as a way to cut costs.

Source: Base Metals Mixed

Nickel advanced from the pre-dawn hours to noon, then fell off into a close at $4.3643/lb., up 11 1/3 cents. Zinc had a steep drop into the New York open, followed by an equally steep uptrend, ending at $0.4841/lb., up a half-cent. Aluminum had an up day, adding a penny, to $0.6641/lb., while lead was also in positive territory, gaining a half-cent, to $0.4427/lb.

Copper languished near a four-year low in scanty trading, as new data reinforced perception of a global slowdown. Copper supplies outpaced demand by 30,600 metric tons in the first 10 months of the year, the World Bureau of Metal Statistics said yesterday.

“There is no doubt that the outlook for metals demand over the next few quarters is grim,” wrote analysts at Barclays Capital. “Copper is the metal we would identify as having the furthest downside potential from current levels.”

Considering that copper is already down 55% on the year, that’s a mighty grim forecast indeed.

Compounding the gloom is the ongoing stockpile glut. Inventories monitored by the LME shot up by another 3,275 metric tons yesterday, to 321,900 tons, and are now up by 63% in 2008.

And it will only get worse in 2009, the Barclays analysts wrote. They projected that copper demand will lag behind production next year to the tune of a surplus of 144,000 tons of metal. That’s in stark contrast to this year’s estimated shortfall of 60,000 tons.

In company news, Anglo American (NASDAQ:AAUK) announced it is cutting planned investment by more than half as lower prices won’t support its $45 billion expansion program. Anglo joins Rio Tinto (NYSE:RTP) and Freeport-McMoRan (NYSE:FCX), in taking steps to reduce output and trim expansion..

Yet not everyone sees only dark clouds. Bernd Drouven, CEO of Norddeutsche Affinerie, Europe’s largest copper refinery, said yesterday that he expects relatively stable 2009 copper demand, although it will be lower overall than in 2008. He expressed optimism about China, as well as Eastern Europe, where large infrastructure improvement programs are underway.

Source: Base Metals Little Changed

So the question no longer seems to be whether the Fed will ease, but whether the move will make any difference.

The Fed has been hamstrung by a credit-market double-whammy: borrowers who are in limbo due to fears of soaring unemployment, and banks that have turned off the lending spigot. Even so, a U.S. economy facing its worst financial crisis since the Great Depression demands the central bank take decisive action.

That has led to a strong undercurrent of opinion among analysts that the Fed will pursue other measures to spark a moribund U.S. economy.

“We look for the accompanying statement to highlight that the main nexus of policy in the coming months will be quantitative easing operations, and we expect these operations to be aimed at lowering borrowing costs for households and businesses,” Dean Maki, economist for Barclays Capital Management (ADR: BCS), told MarketWatch.com.

In other words, get ready for another attempt to kick-start bank lending by injecting more federal cash into the U.S. financial system.

One move the Fed could make is to buy massive amounts of U.S. Treasuries in an effort to keep yields from rising. Fed Chairman Ben S. Bernanke suggested in a Dec. 1 speech that the central bank might buy “longer-term Treasury or agency securities on the open market in substantial quantities.”

Bond market traders seemed to confirm that notion yesterday (Monday) by driving the price of 10-year Treasuries higher for a third straight day. The yield curve, the difference in yield between two-and 10-year notes, flattened as the difference between the two narrowed.

Driven lately by uncertainty over the Bush administration’s handling of the Big Three automakers’ bailout, investors have pushed yields on Treasuries to record lows. Treasury security yields last week reached the lowest levels since the U.S. started selling two, five, 10- and 30-year securities.

In a report issued last week, JPMorgan Chase & Co. (JPM) predicted the yield on Treasuries in 2009 will be driven as low as 1.65% (from about 2.65% currently) amid “high uncertainty.”
Unloading stocks, corporate bonds and debt from mortgage-finance companies Fannie Mae (FNM) and Freddie Mac (FRE), investors purchased $34.6 billion of Treasury securities in October, up from $20.7 billion in September, according to the U.S. Treasury Department.
“You still have a massive paranoia in the marketplace and you’ve got that safety-at-any-cost mentality,” Jay Mueller of Wells Fargo Capital Management (WFC) told Bloomberg News. “People are not buying Treasury bills because they think the yields are attractive. They are buying them because they are afraid to put money anywhere else.”

According to Merrill Lynch & Co. (MER), U.S. government bonds have returned 12.4% so far in 2008. That’s the best return since 2000, when they gained 13.4%. Meanwhile, the Standard & Poor’s 500 Index is down 40%, and the Dow Jones Industrial Average has lost 35%.

The Fed’s Arsenal

The Fed is pulling out every weapon in its arsenal to avoid deflation.  A sustained drop in asset prices is the central bank’s worst fear since it could lead to more foreclosures and heightened economic chaos.

One undesirable side effect of the numerous economic stimulus packages is the potential for inflation and a decline in the dollar.  Based on its actions, the Fed is apparently willing to take that risk.

In fact, speculation around the probable Fed interest rate cut knocked the greenback down to a two-month low against the euro, touching $1.3703 yesterday, the lowest it’s been since Oct. 14.  With reduced demand for the dollar as a safe haven, the greenback dropped to a 13-year low against the Japanese yen and also lost ground to the British pound.

“We will stay in a low-interest-rate environment for some time,” Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank Ltd. in New York, told Bloomberg. “That will take away interest-rate play, and the dollar will suffer.”

After a four-month rally of 24%, consensus estimates for the dollar issued last week by Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), BNP Paribas SA and Bank of America Corp. (BAC), predicted further weakness against the euro.

After strengthening from July to November, the U.S. currency has retreated by 6.6% from a two-year high on Nov. 21, as measured by the trade-weighted Dollar Index. The dollar has fallen against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona since peaking three weeks ago.

Source: Fed Policymakers to Cut Rates Today … But Does Anyone Really Care?

Zinc also rallied until mid-morning, but then eased for the rest of the day, ending at $0.5256/lb., down more than a third of a cent. Aluminum peaked in the pre-dawn hours but sank through the day, just coming off its intraday low at $0.7759/lb., down three-quarters of a cent, while lead followed aluminum closely, winding up with a loss of a third of a cent, at $0.5259/lb.

Copper rebounded from a fresh 3½-year low to post a day of solid gains amid a great deal of short covering.

Still, most analysts continue to view the demand situation for copper as bearish, considering the extremely weak U.S. housing sector, concern about the possibility that U.S. automakers won’t get the government bailout necessary to avert bankruptcy, and surging London stockpiles.

Inventories monitored by the LME rose again yesterday, gaining another 1,500 metric tons, to 283,125 tons. Stocks are up about 20% already in November. On the other hand, Shanghai copper stocks fell 3,797 tons, or 18%, a drawdown somewhat greater than expected, but not enough to offset rising stocks elsewhere, and a growing international surplus.

Concerning aluminum, traders are “pricing in expectations of further stock builds, which we concur with,” wrote Barclays Capital analyst Gayle Berry in London. LME aluminum levels are at their highest since December 1994.

Meanwhile, prices of nickel and zinc have fallen too low to cover costs for perhaps half of the world’s production of the metals, says Eugen Weinberg, an analyst at Frankfurt-based Commerzbank. Production cuts will help stabilize prices of industrial metals for the next three to six months and “as soon as China’s demand picks up, prices will pick up,” Weinberg believes.

In company news, Canadian mining giant Teck Cominco announced it will slash spending, suspend dividends, sell assets, and withdraw from the Petaquilla copper project in Panama in an effort to ease the debt burden generated by its acquisition of Fording Canadian Coal Trust.

But on the optimists’ side, HudBay Minerals has unveiled a plan to buy Lundin Mining Corp, in a friendly deal that “creates a new Canadian leader in mining.” To replace Teck?  We’ll see.

Source:

The base metals were mixed on Friday. Copper bottomed below $1.48 in the pre-dawn hours, but then pushed higher until the late morning, when it came off its highs to finish at $1.5752/lb., up 5½ cents. Nickel rose from the pre-dawn hours to mid-morning, trailed off, but then rallied late to close at $4.5503/lb., up 9¼ cents. Zinc also rallied until mid-morning, but then eased for the rest of the day, ending at $0.5256/lb., down more than a third of a cent. Aluminum peaked in the pre-dawn hours but sank through the day, just coming off its intraday low at $0.7759/lb., down three-quarters of a cent, while lead followed aluminum closely, winding up with a loss of a third of a cent, at $0.5259/lb.

Copper rebounded from a fresh 3½-year low to post a day of solid gains amid a great deal of short covering.

Still, most analysts continue to view the demand situation for copper as bearish, considering the extremely weak U.S. housing sector, concern about the possibility that U.S. automakers won’t get the government bailout necessary to avert bankruptcy, and surging London stockpiles.

Inventories monitored by the LME rose again yesterday, gaining another 1,500 metric tons, to 283,125 tons. Stocks are up about 20% already in November. On the other hand, Shanghai copper stocks fell 3,797 tons, or 18%, a drawdown somewhat greater than expected, but not enough to offset rising stocks elsewhere, and a growing international surplus.

Concerning aluminum, traders are “pricing in expectations of further stock builds, which we concur with,” wrote Barclays Capital analyst Gayle Berry in London. LME aluminum levels are at their highest since December 1994.

Meanwhile, prices of nickel and zinc have fallen too low to cover costs for perhaps half of the world’s production of the metals, says Eugen Weinberg, an analyst at Frankfurt-based Commerzbank. Production cuts will help stabilize prices of industrial metals for the next three to six months and “as soon as China’s demand picks up, prices will pick up,” Weinberg believes.

In company news, Canadian mining giant Teck Cominco announced it will slash spending, suspend dividends, sell assets, and withdraw from the Petaquilla copper project in Panama in an effort to ease the debt burden generated by its acquisition of Fording Canadian Coal Trust.

But on the optimists’ side, HudBay Minerals has unveiled a plan to buy Lundin Mining Corp, in a friendly deal that “creates a new Canadian leader in mining.” To replace Teck?  We’ll see.

Source: Base metals mixed – Zinc and nickel seen selling below cost of production

Nickel fell as low as $4.50 at the New York open, but about-faced and pushed almost to $5 before easing late and closing at $4.8799/lb., up 25½ cents. Zinc also featured a steady upward progression to its intraday high of $0.5318/lb., up almost 2½ cents. Aluminum had a choppy trading day but managed to push to $0.8502/lb., up a penny and a half, while lead had a very strong day, ending at its intraday high of $0.6149/lb., up nearly 5 cents.

Copper led the industrial metals on a rare concerted upswing as the slippage in the dollar made them more attractive and traders took some heart from equities markets that rebounded from dismal lows to post powerful gains on the day.

News out of China got some close scrutiny.

The Chinese reported that copper output dropped 8% on the year in October, to an eight-month low, as manufacturers cut production in response to weakening demand.

“That’s not a surprise,” said Judy Zhu, an analyst at Standard Chartered Bank in Shanghai. “We’ve heard production cuts by smelters lately and I don’t think it’s going to create tight supply in the international market because the smelters are just trying to keep their inventory in check.”

At the same time, October industrial production rose only 8.2% in China, the statistics bureau said. The year-over-year gain was smaller than any economist had forecast in a Bloomberg survey.

“There has been a significant deterioration in momentum” in Chinese production, wrote analysts at Barclays Capital in London, and that “bodes ill for metals consumption.”

Meanwhile, aluminum inventories monitored by the LME rocketed up by 44,425 metric tons yesterday, to more than 1.56 million tons, a better than 15-day global supply, and the highest level on record for the contract.

Source: Base Metals All Push Higher, Getting a boost from Equities Markets