Nickel plunged from the pre-dawn hours straight through the morning, only coming off its lows late to close at $9.939/lb., down more than 32 cents. Zinc was up and down all day with a slight upside bias, ending at $0.8818/lb., up three-quarters of a cent. Aluminum also pushed higher, adding a penny and two-thirds, to $1.3166/lb., up a penny and a quarter, while lead inched higher, adding a bit less than a penny, to $0.8769/lb.

It was a surprisingly good day for the industrial metals, modestly up though it may have been, considering that the economic numbers point definitively to recession and the decrease in demand that that will bring with it.

However, the upside for the metals is that the plunging dollar makes them cheaper for holders of other currencies, and that provoked a bit of buying in the markets.

On the supply side, copper inventories monitored by the LME were depleted for a change, dropping by 950 metric tons, to 122,550 tons, on Friday That came after they had risen by about 10% since the start of May.

Copper inventories monitored by the Shanghai Futures Exchange were also down, falling 13% to 38,829 metric tons in the week ended Thursday.

From a technical viewpoint, chartists say that copper holding at the key support level of $3.50 is a good sign, and they expect a test of the next level of resistance, $3.75.

And in the latest of a spate of labor problems, BHP Billiton reported that operations at its smallest copper mine in Chile, Cerro Colorado, had been hit by a truckers’ strike. Its larger mines have been unaffected as yet, Billiton said.

Source: Base Metals Mostly Higher

Buenos Aires, Argentina June 5, 2008

In 2007, the strong appreciation of the Chilean peso had been the central preoccupation of the Chilean businessmen. In the last few months, active policies initiated by the Central Bank of Chile, coupled with a fall in the international price of copper and a strengthening in the worldwide value of the dollar have noticeably depreciated the value of the Chilean peso. In fact, the Chilean peso is the currency that depreciated the most against the dollar in the month of May.

This depreciation in the rate of exchange must have created a certain level of calm for Chilean businessmen. But while the exchange rate adjusted to the situation, other negative factors attacked the way in which businesses operate. For this reason, businessmen were unable to take full advantage of the improvement in the rate of exchange.

Inflation is perhaps having the worst effect on the Chilean economy at the present time, with a year-on-year rise of 8.3% for the month of April. Meanwhile, the Central Bank of Chile has as its goal an increase of only 3%, with a margin of 1% either direction. While the rate of inflation has been harming the Chilean economy, it has been partially offset by an improvement in the overall competitiveness of the economy.

The issue of inflation is causing Chilean monetary policy to move in a more restrictive direction for the next few months. This is why on May 8, during the last meeting of the Council of the Central Bank of Chile, it was discussed whether to maintain or raise the interest rate from its current level of 6.25%.

Even worse, the price of fuel has continued to rise and it is effecting the costs of production. The price of fuel is continuing to rise, and has already reached its highest level since 2001. Yesterday 120,000 trucks were lined up on a highway in a show of protest over this increase in the price of fuels. The government of Chile had injected $1 billion to create a Stabilization Fund for Fuels. However this has not persuaded the truck drivers to halt their protests.

Chilean businessmen are pessimistic, and with good cause, for they are finding themselves in a time of inflation while at the same time the Central Bank is insinuating that an increase in interest rates would adversely affect internal demand. And to make matters worse, Chile’s problems regarding power have been aggravated in the last few days by the cancellation of gas shipments from Argentina.

It is for that reason that business confidence finds itself at a historical low point in Chile. In fact, according to the Monthly Indicator of Business Confidence (IMCE), the perspective for commerce, construction, industry and mining fell to 53.4 points in May, the lowest level for that month since this registry was created. Logically, the most pessimistic area is the industrial sector for which indicator IMCE showed a value of 47.2.

Nevertheless, in spite of the general pessimism of businessmen, one can still find companies with good prospects for growth. Such is the case with the Empresa Nacional de Electricidad SA, (NYSE: EOC). During the first quarter of this year, ENDESA Chile reported earnings of $77,649 million (U$S 160 million) which represents a year-on-year variation of 44.5% (although principally due to increases that were not the result of operating costs).

Although the operating costs of ENDESA Chile have been affected by the low water levels and the high amount of fuel purchased in Chile, adequate commercial policies and the emergence of highly efficient stock portfolios have created a situation offsetting the effects of those factors somewhat. And all of this allows ENDESA Chile to be in a suitable position not only to face its next challenges, but also to transform them into opportunities for growth.

ENDESA is initiating diverse projects of investment that are mainly in Chile, Colombia and Peru. Also it has planned investment projects in Argentina.

In the middle of January of 2008, ENDESA Chile’s San Isidro II power station closed its combined cycle with a total power load of 353 MW. In 2009, once liquefied natural gas (LNG) is available in Chile, the plant will reach a total production level of 377 MW. The projected figures for the early portion of 2008 serve as an endorsement of Chile’s local electrical production ability. Another important contribution made by ENDESA to Chile’s power supply for the next few years is the installation, this past March, of the N°1 unit of the Taltal power station. This station has a capacity of producing 120 MW of power, using a diesel engine. Additionally, ENDESA is participating in the initiative of the Government to diversify the electrical grid through a project entitled GNL Quintero.

In January of this year, ENDESA signed a contract in Peru with Siemens Power Generation, to install a turbine that produces 183 MW of power in Santa Rosa plant. This project required an investment of approximately U$S 90 million. In Colombia, ENDESA is considering bidding for a public contract for energy and power programs for this year in that market by means of the development of a hydroelectric power station, capable of producing 400 MW, in Quimbo located upstream from the Betania Station. In Argentina, through its branches, Endesa Costanera S.A. and Hidroeléctrica El Chocón S.A., the company has realized an investment of U$S 160 million, that includes a U$S 42 million loan. This means ENDESA has a participation level of 21% of the thermoelectric societies of José de San Martín S.A. and Termoeléctrica Manuel Belgrano S.A. (with each of them producing combined cycles of 800 MW each).

Additionally, ENDESA Chile is a company that has a strong commitment regarding the environment through its development of projects using non-conventional renewable energies (ERNC) through its ENDESA branch Echo. It has a wind power-generating park named Canela that has been in commercial operation since December of 2007 that contributes 18.15 MW to the Central Interconnected System (SIC), Chile’s national energy grid. Also, ENDESA is committed to the acquisition of adjacent lands for the development of an immediate extension of around 60 additional MW to the park.

ENDESA Chile is a good company to bet on as an investment as a medium to long-term addition to one’s investment portfolio.

We will meet again tomorrow,

Horacio Pozzo

Editor’s Note: in Chile, businessmen seem to have been infected by the same mood as their Argentine colleagues. Although the reasons that affect the growth of both countries are almost the same, the origin of the problems and the search for solutions vary. The recommendation of the week. You can send your comments to me at: paola@latinforme.com

Buenos Aires, Argentina May 26, 2008

Upon my arrival at home last Friday, my wife approached me with the following question: “What is the UNASUR?” Initially, I really did not know how to respond… I already have answers to some of her questions related to domestic issues such as why she cannot spend more money, why I have my clothing all messed up, who ate something, and others … but explaining the UNASUR really left me with no immediate answers at all.

To give you a little background, last Friday twelve South American countries formally ratified the Union of South American Nations Treaty (UNASUR), a regional integrative initiative going back informally to 2004. UNASUR hopes to strengthen Latin American and Caribbean unity by working together to create solutions to persistent regional problems while at the same time respecting the sovereign rights and territorial integrity of the individual member states. UNASUR hopes to achieve these goals through the development and implementation of policies addressing a diversity of issues such as those related to politics, economics, social and cultural issues, the environment, energy, infrastructure development and more. It is hoped that through addressing these concerns, solutions will also be found for the ongoing problems related to persistent poverty, social exclusion and inequality.

The members of UNASUR are Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Perú, Surinam, Uruguay and Venezuela. To give you an idea of the importance of the region constituting this union: it includes 388 million citizens with a combined GDP of $ 1.9 billion, (3.5% of the world’s GDP).

UNASUR will be headquartered in Quito, Ecuador and consist of four main bodies: the Council of Heads of State and Government, the Council of Ministers of Foreign Affairs, the Council of Delegates, and the General Secretariat. It will also create a South American Parliament, seated in the city of Cochabamba, Bolivia.

One of those most delighted by the creation of this new union was Brazilian President Lula who pointed out that: “we shall move forward with innovative projects and will fully attain the goal of financial and energetic integration, as well as that of realizing the improvement of regional infrastructure, and the creation of a social cooperation agenda.” Lula, as always, has in mind ambitious ideas where of course, Brazil takes the lead in initiatives.

In reality, the creation of UNASUR has taken many by surprise as it has happened at a moment in history when the union of so many countries seems unimaginable.

Relating to this idea, we should be mindful that this union was created at a time when many Latin American countries have reached a powerful level of macroeconomic and institutional consolidation; achieving international recognition as having gained the much desired investment grade for many of its countries.

The establishment of regional blocks is more viable now with the consolidation of the economy and institutions within these countries, coupled with a long-term vision. The regional blocks of the past have not reached significant achievements in the long run due to difficulties within their individual countries, recurrent crisis and political instability. Mercosur serves as a prime example of these kinds of problems.

In the instance of UNASUR, there is a political and ideological fragmentation among many of the signatory countries. There are countries with serious internal problems such as Bolivia. Venezuela and Argentina are plagued with internal issues as well, but to a lesser extent. There are also member state conflicts such as those between Colombia, Ecuador and Venezuela. Additionally, there are ideological divisions between several countries that make it very difficult to imagine how those countries could go forward with the successful coordination of policies.

UNASUR’s successful unification of regional forces having benefits realized by all member states will depend in part on the influential leadership of Brazil coupled with the lessening of individual differences between countries.

This brings us to the question: what benefits could UNASUR bring investors in the region? I think that there are no short-term benefits. However, if UNASUR is able to successfully establish itself, it can then contribute to the development of the regional financial market (one of its main stated goals) creating one with stronger depth and liquidity than other financial markets of the region. More importantly, UNASUR can contribute to the strengthening of the regional economies, underpinning their growth and development which will benefit the investor who will then find less risk and more profitability in their investments in the region.

The UNASUR has just been born. It will be necessary to give it time to grow and develop. We hope that the countries comprising this new group allow this to happen.

We will meet again tomorrow,

Horacio Pozzo

Editor’s Note: A new community in South America is born with a variety of diverse and complex objectives spanning cultural, social and economic realms… another aim is the social inclusion, the civic participation, the strengthening of democracy for all… Horacio’s wife is asking questions and Horacio finds he does not know how to respond. If you want to know, keep on reading… Enjoy, and send your comments to the editor here: paola@latinforme.com

The Dow rose more than 90 points yesterday. Oil, gold, the dollar – all held steady.

But here’s some good news.

Last month, the price of gasoline went down 2%, says the Labor Department.

Wait a minute. Do you remember gasoline prices going down in April? We don’t. As we recall, oil prices were soaring…and so was the price of gasoline. We’re beginning to sniff something funny in the air…a rat.

It was largely thanks to this reported drop in prices at the pump that the Consumer Price Index registered a scant 0.2% increase for the month of April. And it was largely because of this low inflation reading that the yield on the 10-year note stayed below 4%, says Gary Dorsch.

Our view is that higher consumer price inflation is in the pipes and will soon be backing up in the bathtub drains. Dorsch says the US money supply is now increasing at a 16% rate; higher inflation can’t be far behind.

Generally, we don’t trust numbers. Who can trust a 5 after all – with a bottom like a communist sickle and its top nicked from a swastika? Who can trust an 8 – wandering back and forth and never getting anywhere? And what about the zero? What does it mean? You put it in front of a number and it means nothing. You put it behind…and all of a sudden you’ve got 10 times as many. So, let’s look a little more at those numbers – that is, at the crooked 4s, the slick 6s, and the empty 0s – put out by the feds.

Getting back to the price of gasoline, we check the records from NY gasoline futures trading and find the price actually rose 12% in April. How come the feds put it down as minus 2%? Turns out, they made a ‘seasonal adjustment.’ But turning plus 12 into minus two sounds like more than an adjustment; it sounds like either magic or major surgery…like turning a prince into a frog or a fat man into a slim woman.

Elsewhere, we find the feds working their magic on all the primary numbers. The IMF, for examples, says food prices rose 43% last year. Yet, after the feds waved their wands, US food costs were up only 5.1%. And import costs rose 15% year to year – according to the numbers when they first got off the boat. But by the time the Labor Department statisticians had finished ‘adjusting’ them, they were down to only 0.2%.

Only investors, of course, are gullible enough to believe the government numbers. Consumers believe the numbers they see at the check-out counters and the pumps. What they see is sharply rising prices. Even newspaper reporters shop…and even they see what is happening.

“Inflation may be worse than the consumer price index shows,” reports a suspicious USA Today.

“Food costs jump most in 18 years,” notices the Washington Post.

Consumers don’t figure out consumer price increases – they pay them. The combination of lower wages and higher prices squeezes them like thumbscrews. What can they do?

Californians may be among the last Americans to wake up in the morning, but they’re the first to spot a trend. And the big trend in California today is recession.

House prices have fallen more in California than anywhere – down 29%, according to the California Realtors Association. A thousand foreclosed houses are auctioned every day in the Golden State. And joblessness hit 6.2% in March.

What are Californians doing to cope? They’re doing just what you’d expect. “Californians are cutting back on spending,” says James Saft in the International Herald Tribune. “Besides causing woes for state and local government, the cutback is giving California’s economy another knock and makes further job losses, home repossessions and banking problems more likely.”

Nordstrom says a third of its sales come from California and sales overall are down 6.5% in the first quarter. Starbucks says it is just not selling as much mocha in CA as before. Jack-in-the-Box, too, says the Californians aren’t buying as much of its dreadful food.

Meanwhile, other towns – such as Modesto, Stockton and Merced – are said to have 60% of their homeowners “upside down,” with more mortgage than house. Their unemployment rates are above 10%. And Vallejo, a city in Northern California, is taking the coward’s way out. It is slashing its wrists – it says it will declare bankruptcy.

Welcome to California, dear reader. Welcome to the future.

*** “The only way to make a real change is to make a real change…otherwise, you’re just buying time. Big problems need big changes…not parametrical changes, but paradigmatic changes. You have to change the system, in other words, not just the details.”

We had dinner with a fellow who made a real change – Jose Pinera. As Chile’s Labour Minister in the ‘80s, he completely changed the system of public pension financing and provided a model for the rest of the world.

We’ll let Jose tell his story as he told it to us last night:

“I was one of the ‘Chicago Boys.’ That is, I studied under the great economists at the University of Chicago…and then I got my Ph.D. in economics at Harvard, which added a little bit of humanism to the hard-edged teaching in Chicago. So, they called me a ‘Chicago Boy’ and a ‘Harvard Man,’ which is the way I like to think of myself.

“Things fell apart in Chile during the Allende years. We had to rebuild the country afterwards. So, I went on TV and I said what I thought…about how to reform the pension system…or what you call in the US, Social Security.

“A little background. You see, almost all the world’s pension systems came from the same source – Otto von Bismarck. He set up the first one in Prussia and it was later taken up in almost all the developed countries. We set it up in Chile in 1925. It wasn’t set up in America until ten years later.

Although gold made a new intra-day high for this move, the price was capped the moment London closed. Only about $3 of gold’s excellent move on Friday was in New York trading. However, it’s nice to see a $900 handle on the gold price once again. Let’s see how long it lasts.

Silver appeared to show little enthusiasm, but it continued to work its way slowly higher from the moment that Globex trading began in the Far East on Friday morning. The three small rallies that occurred in New York trading were all sold down by some not-for-profit seller. According to Kitco, silver made an intra-day high of $17.08…but it got sold hard at the London close, and actually finished lower in price than when it opened on the Comex. The silver price really wanted to break out strongly, but someone (or more than one someone) was there to make sure that that didn’t happen. Can’t have silver strongly confirming the gold price break-out, now can we?

Open interest for Thursday was interesting. In gold, o.i. rose 4,412 contracts, so Thursday’s price run-up was not due to much short covering. It now appears that it was mostly new buyers. Were they the tech funds? Don’t know…but maybe…probably. The price action next week should tell us a lot, as we broke above the 20-day m.a. by a substantial $19 yesterday.

In silver, the o.i. increased a minuscule 8 contracts. Friday’s price close was less than a dime above its 20-day m.a. If the tech funds were responsible for the 3 short rallies in silver on Friday, they got stuffed right away. Heaven only knows how high the silver price would have gone if those previously mentioned non-for-profit sellers hadn’t been lurking about.

The Commitment of Traders report for positions held as of 13 May 2008, didn’t show much of anything in silver. The ‘technically inclined’ in the Non-Commercial category went net short another 1,100 contracts or so…and the Commercials added 191 long positions and covered 688 short positions. Almost a big zero all around. In gold, there was a little more action. The players in the Non-Commercial category added 5,090 contracts to their long position and went short a further 8,119 contracts. The bullion banks (Commercials) added 7,051 longs and 1,920 shorts during this reporting period. It will, of course, be of great interest to see who went long (and short!) in the $35 price increase we’ve had in the last two trading days of this week. Concentrations? Currently, the bullion banks (’8 or less’ traders in the Commercial category) are short 78% (silver) and 76.5% (gold) respectively, of the entire Comex silver and gold short position. The CFTC sees nothing wrong with this at all.

One thing of note in the gold world yesterday…Dennis Gartman has gone long gold once again. He hasn’t always been right about picking tops, but he’s had an uncanny knack for picking bottoms. It will be interesting to see how this turns out. Needless to say, we will all be delighted if he’s right…yours truly, included!

Since today is Friday…as I write this…I’m cleaning out my in-box, and couldn’t resist passing along the following set of pictures. I remember the eruption of Mount St. Helens back in 1980 very well. We even got a little ash as far north as Edmonton, where I live. Another volcano, this one in the Andes Mountains in Chile, decided to erupt two weeks ago…and a dozen excellent photographs are linked here.

As usual, I’ve got two stories today. The first one is from mineweb.net and is a report on first quarter de-hedging by the gold miners. It’s entitled “Global gold hedging declines by 4.8 Moz in Q1/08 to 22.0 Moz”. The link is here.

The second story is somewhat off the beaten track. Actually I was surprised that an article like this would show up at all…especially on Bloomberg. It’s an exposé on Jacob Zuma, who is poised to become South Africa’s next president. Having been in Africa and seen some of the tribal politics of that continent first hand, you’ll excuse me if I have some deep reservations about how his tenure may unfold…think Robert Mugabe in Rhodesia…now Zimbabwe. I have no investments in South Africa…and don’t plan on any…ever. The link is here.

Political language is designed to make lies sound truthful and murder respectable…and to give the appearance of solidity to pure wind. – George Orwell

Today’s fun youtube.com video idea came from another reader of my daily rant. But I found a version that I liked a little better…and that’s the one that’s posted here…but a big thank you to Karen for coming up with the piece in the first place. The link is here. Enjoy!

With consumer confidence reported to be at a 28-year low, the Dow only managed to lose six whole points. If it had been a 35-year low…or greater…without a doubt, the Dow would have been up triple digits. Maybe something like that will happen next week.

Enjoy what’s left of your weekend, and all of us at CDR+ will see you here on Tuesday morning.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And then there’s this…Saturday, May 17th, 2008

For the tale of the tape, the TSX Exchange tacked on another 1.05%, while the TSX Gold Index gained 2.9% and the TSX Venture Exchange, Canada’s largest junior exploration bourse, added 1.37% with the advancing issuers beating the decliners by a 584 to 434 margin on volume of over 223 million shares traded.

Shares of Crystallex International continued to slide after comments made by the Minister of the Environment and Natural Resources of Venezuela that call for a ban on open pit mining in Venezuela. Crystallex maintains that the Minister’s comments “are in conflict with the Las Cristinas environmental impact study approval, construction compliance guarantee bond request and environmental tax request issued by the same ministry.” Welcome to Venezuela. Crystallex ended the day flat at C$0.84.

Sprott Inc’s second day of trading proved to be similar to the first as shares in the well-known resource investment firm fell C$0.14 to close at C$9.70. The company, whose mutual funds and hedge funds made C$42.3 million last year, completed its $200 million initial public offering at C$10 each.

Shares of Southern Hemisphere Mining got a modest boost after reporting a 78 metre drill intercept running 0.96% copper and 0.4 grams silver per tonne at its El Arrayan project in Chile. Southern ended the day up C$0.035 at C$0.25.

Beleaguered Southwestern Resources has inked a deal to sell its troubled Boka gold project in China to Hong Kong East China Non-Ferrous International Mineral Development Co. for $9.4 million and a 2.7% net smelter return on production is excess of 6.5 tonnes. Southwestern ended the day down C$0.02 at C$0.53.

Rumours are circulating that Hathor Exploration is about to table some good news for shareholders. No word on what that news is. The company recently discovered the Roughrider zone on its 90% owned Midwest NorthEast uranium property in Saskatchewan’s Athabasca Basin. Hathor ended the day up C$0.16 at C$2.76.

Given the strong run up in Canadian equities, the Monday holiday in Canada may well give investors pause and a correction may be in the offing. We will see what Tuesday trading has in store.

Source: Resource Stock Roundup: Saturday, May 17th, 2008

Nickel rose slowly but steadily until mid-morning then went flat, closing at $12.1899/lb., up 15¾ cents. Zinc broke past $1 in the pre-dawn hours and continued higher, leveling off around noon at $1.0378/lb., up more than 6 cents. Aluminum had some sharp ups and downs to little ultimate effect as it gained less than a tenth of a cent, to $1.31/lb., while lead continued its comeback for a second straight day, adding 2¾ cents, to $1.0399/lb.

Copper traders continued to schiz out, vacillating between concerns over the stronger dollar on the one hand, and potential supply disruptions on the other.

Even though a nationwide miners’ strike in Peru was postponed for 15 days in order to allow for further negotiations, the market is still casting a wary eye on developments in that key metal producer.

“[Peru] is the world’s largest silver producer, and produces significant amounts of zinc and copper, consequently strike action could lead to higher prices for these metals,” said Fairfax analyst John Meyer.

To the south, in Chile, fears that recent strikes at Codelco plants could be resumed have been stoked after the Supreme Court ruled the state mining giant does not have to offer thousands of subcontractors full-time positions.

Subcontractors had agreed to end their 3-week strike on May 5 after a pledge from Codelco to make many of them full-time, and to pay a bonus.

Union leaders have already begun a hunger strike, saying that Codelco still has not acted upon the pledges it made last week.

Meanwhile, zinc’s gain yesterday was the steepest in 2½ months, as speculators placed bets that that the earthquake in China, the world’s largest producer of the metal, might put some curbs on production. As much as 11% of the nation’s smelting capacity, or some 500,000 tons, was probably affected by the quake, Reuters reported.

Disruption in China came on the heels of a strike at Skorpion’s zinc mine in Namibia, Africa’s largest. “The strike at the Skorpion mine and uncertainty over zinc production in China’s Sichuan province are now adding a new facet to what is becoming a very interesting story,” wrote RBC Capital Markets analysts.

Still, Max Layton, an analyst at Macquarie Group in London, isn’t pushing the panic button. Any impact from the earthquake “would be very small,” he said. The bank forecast a zinc surplus of 88,000 metric tons this year, rising to 202,000 tons in 2009 as new mines come on line.

Source: Industrial Metals Mostly Higher

Nickel hit the skids, falling throughout the day and closing at $12.3362/lb., down more than 48½ cents. Zinc dropped back below $1, ending at $0.9901/lb., down nearly two cents. Aluminum was weak, shedding better than a penny and three-quarters, to $1.2821/lb., while lead tumbled off a cliff in the late morning, plunging to its intraday low of $1.0486/lb., down 4 1/3 cents.

Whatever expectations of economic turnaround may have been generated by the Fed’s most recent rate cut seem to have evaporated from the industrial metals market, at least for the time being. The bears are fully in charge right now.

“Metals seem to be caught among various crosscurrents for the moment, but having moved up so quickly when the dollar was weakening, a re-surging greenback seems to be working its magic in reverse,” said Ed Meir, of MF Global.

The metals took their cue from the buck’s morning strength, rather than the weakening in the afternoon hours. Chinese buyers also appear to be sitting on the sidelines for a while, hoping to help drive prices lower before jumping back in.

But conflicting factors remain.

“The internal fundamentals for copper and a number of the metals remain bullish, but not bullish enough at present to counter the selling as commodity trades are closed as hedges against dollar weakness are unwound,” said William Adams, an analyst at BaseMetals.com.

Supply problems are still out there, even after this week’s settlement of the copper strike at Chile’s Codelco mines.

In the offing are more potential walkouts. Next up, Peru, where union workers at mines throughout the country are ready to strike next week to demand better labor benefits.

“We have 33 unions supporting us,” said Luis Castillo, leader of Peru’s biggest mining union federation. “We will go on nationwide strike on May 12 no matter what.”

Peru is the world’s leading silver producer, ranks second in copper and zinc, and fifth in gold.

Nickel fell from the pre-dawn hours through much of the day, breaking back under the $13 mark and closing just off its intraday low at $12.8866/lb., down 30 2/3 cents. Zinc fell to its intraday low of $1.0043/lb., down 2¼ cents. Aluminum sagged to $1.3238/lb., down 2 cents, while lead barely scraped itself off its intraday low at $1.2209/lb., down nearly 2½ cents.

Copper led the industrial metals lower as the strengthening dollar sapped their appeal as a hedge against currency losses.

“A lot of it is dollar related,” said Kevin Tuohy, of MF Global in London. “It basically stopped any flow of fresh fund money into the market.”

As Bloomberg pointed out: “Copper had a correlation of 0.63 to the dollar in the past month, more than triple the reading for last year. A figure of 1 would mean the two moved in lockstep. The dollar headed for its first monthly advance against the euro and yen since December.”

Nevertheless, stockpiles continue to dwindle. Inventories monitored by the LME dropped by 675 metric tons yesterday, to 109,650 tons. Adding in Shanghai and New York, global inventories are at their lowest level in a year and a half.

“Metal availability right now is extremely poor,” said Dan Brebner, an analyst at UBS AG in London.

BHP Billiton said its copper production fell 8% in the first quarter, year over year, because of declines at Escondida, the world’s largest copper mine, and Olympic Dam.

And the current unrest in Chile is also affecting the amount of metal coming to market, as state-owned Codelco closed its Teniente mine which had been re-opened over the weekend. Andina and Salvador remain shut.

“This is not called a strike, it is called violence,” said Codelco CEO Jose Pablo Arellano. “We have lost a total of around 19,000 tonnes in production due to this, and that has a cost of around $100 million.”

That comes on top of a decline in first quarter output of 3.9% from the year-eariler period, a shortfall Arellano attributed to a drop in ore grades at Codelco’s flagship Norte division.

However, “We are supplying our clients normally within the lower production that has been registered,” Arellano said.

Nickel traded very erratically, although within a fairly tight 12-cent range, closing at $13.1927/lb., down more than 5¾ cents.

Zinc also traded narrowly, ending at $1.0261/lb., down three-quarters of a cent. Aluminum pushed slightly higher, adding two-thirds of a cent to $1.3436/lb., while lead also tacked on two-thirds of a penny, to $1.2452/lb.

Markets were quiet in thin trading ahead of this week’s Fed meeting.

Supporting copper was a further stock drawdown. Inventories monitored by the LME fell by 1,875 metric tons yesterday, to 110,325 tons.

Copper also had a firm floor beneath it because of the ongoing strike by contract workers at three of state-owned Codelco’s mines in Chile.

Codelco’s Andina and Salvador divisions have been shut down for twelve days and the Teniente division, one of the company’s largest and the world’s biggest underground operation has been shut, re-opened, shut again and was running again as of Saturday, pending any further violence.

The concern is that the strike, and perhaps violent confrontation, could spread to Codelco’s two other copper divisions—Ventanas and Codelco Norte, the largest producer. Union leader Cristian Cuevas has said that, “We are calling from this moment onward for subcontract workers across Codelco divisions to take to the streets until this conflict is resolved.”

Teniente remains vulnerable to further disruption, as well. It is key, as it produces 400,000 tons of copper a year, nearly a quarter of Codelco’s total.

There is also growing sympathy among other Chilean unions, and if they walked out in solidarity, the entire company could be shut down.

In retaliation, local news reports say, Codelco is hiring some 1,500 workers prepared to cross the union picket lines, and is ready to fire some 600 subcontractor workers at Andina. Such actions could escalate tensions dramatically. Things could easily get much worse before they get better.