Before we delve into the reasons behind all the publicity, here’s the basic skinny on REEs: One, they are rare, at least sort of. Two, they are indispensable to modern technology. Three, the number of active, dedicated producers is tiny, with more than 90% of the world’s supply coming from China.

If you took high school chemistry, you probably remember the periodic table of the elements. But if you’re like most of us, even if you pulled a 95 on the chem final, you may not recall many of the details today. And there’s a better than even chance you never bothered to memorize the names of the REEs. It’s time to get reacquainted.

They’re generally clustered in a separate grouping at the bottom of the table, are known collectively as the lanthanoids, and these are their names, in order of atomic number (57-70): lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, and ytterbium. Yttrium (39) and lutetium (71) are also sometimes included.

Need to Know, Point 1: Rarity

Fact is, we begin with something of a misnomer. These elements are not, strictly speaking, rare. Earth’s crust is full of them. True, they’re not as common as iron, carbon, or silicon, but are about on a par with nickel, copper, and zinc. Even the scarcest is way more abundant than gold, platinum, or palladium.

What is rare about them is that they’re widely dispersed. Very seldom are they found in economically exploitable deposits. Complicating matters further is that there are so many of them, and they clump together. They have to be separated first from the ore and then from each other.

Thus REE production comes primarily from other mines’ byproducts. The miner strips off the metal he’s really after, then sends the REE clusters to a specialty refiner.

Need to Know, Point 2: Applications

It’s safe to say that life as we know it would be very different without the REEs. The more our technological accomplishments pile atop one another, the more crucial these metals become. Because of their unique properties, there are generally no substitutes for them.

Of all the REEs, the one people may have heard of is neodymium. Alloys containing it have revolutionized permanent magnet technology, allowing miniaturization of all sorts of electronic components in appliances, A/V equipment, computers, communication systems, and military gear. Your hard drive probably has neodymium in it. So does your DVD player.

Liquid crystal displays depend on europium. Fiber-optic cables can’t function without erbium. Virtually all specialty glass products, from mirrors to precision lenses, are polished with cerium oxide. Several REEs are essential constituents of both petroleum fluid cracking catalysts and auto emissions-control catalytic converters. Half a dozen REEs go into the manufacture of the energy-efficient fluorescent bulbs that will soon be mandatory. Lanthanum-nickel-hydride rechargeable batteries are replacing older ones based on lead or cadmium. And no REEs, no electric cars. Nor next-generation wind turbines.

That’s only a partial list. But what makes REEs an increasingly sensitive topic is their role in national defense. Here are a few small items that have become dependent on them: jet fighter engines, missile guidance systems, underwater mine detectors, range finders, space-based satellite power plants, and military communications systems.

Think the Pentagon is very, very interested in maintaining a steady REE supply?

Need to Know, Point 3: Supply

95% of the world’s REE production originates in China. If you’re looking for reasons why we’re so nice to the premier Communist power left standing, this is a biggie.

We weren’t always so dependent. Not long ago, mines such as Mountain Pass in California made us nearly self-sufficient in REEs. But in the early ‘90s, China flooded the market with cheaper product, until it had driven all of its competitors out of business.

Today, Mountain Pass is being revived, but the start-up of an old mine is a lengthy and costly process. There are also some from-scratch REE development projects under way in the U.S., as well as Canada and Australia. But for the moment, China holds the hand with all of the high cards in it.

Forget your hard drive. Forget 11th-grade chemistry experiments. This is a national security issue. The American government cannot afford to lose that supply source, period. Maybe someday, but not now.

And that’s what’s behind the recent furor over these obscure elements. Because China threatened just that, a cutoff. The one thing that really gets Washington’s knickers in a twist.

In August, the story broke in the mainstream press. Sources in China leaked news of a draft copy of a report from the Ministry of Industry and Information Technology. It allegedly calls for a total export ban on five of the rare earths, with the rest restricted to a combined export quota of 35,000 metric tons a year, far below annual global consumption of 125,000 tons, and rising fast.

This doesn’t look like a move they’d follow through on, if only because of the lost trade revenues. And it’s only a recommendation; final approval rests with China’s State Council. But consider it an opening shot across our bow, if you wish. Or perhaps they’re telling us they need their REEs for the domestic economy, and we’d best go find our own supplies. Either way, the scramble is on to find alternatives.

That could backfire. REE prices and demand were already dropping last fall as the recession deepened, and China maintains a decided competitive advantage beyond control of supply: lax environmental standards (many REEs are highly toxic). Thus the new companies could spend the fortunes required to come on line, only to find themselves victims of yet another market glut engineered by the Chinese. Still, these metals are so important, it wouldn’t surprise us if the U.S. government subsidized domestic production, rather than risk a squeeze.

The Market

The market took due notice of the China story, driving the stocks of Western REE producers, and would-be producers, nearly straight up. Since late August, Avalon Rare Metals (TSE:AVL) has gained 120%, Arafura Resources is up 75%, Rare Element Resources has added 72%, and Lynas Corp. (ASX:LYC) is 50% higher (China, ever the master strategist, exploited the credit crisis to grab 25% of Arafura and more than 50% of Lynas). Lurking in the background is Molycorp, the private company redeveloping Mountain Pass. It’s planning an IPO that may well come out of the gate red hot.

With market action this frantic, the sector is on the frothy side at the moment. The heady market caps being awarded to these companies are obviously not based on fundamentals, and a savvy investor takes care not to get caught on the wrong side of a bubble.

Even though the Chinese export ban may never materialize, the ever-growing need for REEs is dead serious. And while the current bubble may pop any day, the long-term prospects for successful miners are outstanding.

Regards,
Doug Hornig

Source: Why All the Fuss Over Rare Earths?

China has used depressed commodities prices to stock up on long-term supplies of raw materials such as oil, copper, and iron.  And it’s used structural weakness in the U.S. financial system as justification for replacing the dollar as the world’s main reserve currency.

Now, the Red Dragon is looking to make headway on the highway by winning global market share in the automotive market while U.S. heavyweights spin out.

“We aren’t afraid of the financial crisis,” Zhou Fuquan, vice president of Geely Automobile Holdings Ltd. (PINK: GELYF), told Bloomberg News. “On the contrary, we hope it will penetrate even further as it has provided us with some opportunities.”

Geely is China’s biggest private automaker, but that isn’t exactly saying much. The company’s annual output is just 300,000 units, and its market share in China is a meager 3%. Still, Hangzhou- based Geely is determined to become a global player in the auto industry. It has ambitions to sell 2 million cars a year, including 1.3 million overseas – even though right now the company generates just 5% of its sales from abroad.

Of course, that’s why the financial crisis has been more of a financial opportunity for Geely. In March, Geely bought key assets from bankrupt Australian gearbox maker Drivetrain Systems International – the world’s second-largest maker of automatic transmissions.

“The economic downturn provides us with very good overseas acquisition opportunities,” Daniel Dai, vice president for international business at Geely, told China Daily. “We get the best technology with the best price.”

Geely has also set up a joint venture with Manganese Bronze Holdings PLC (MBH) to produce the TX4 London Taxi in Shanghai. MBH supplies taxis to Saudi Arabia, Turkey, and Spain as well, boosting Geely’s global presence.

For months, analysts have speculated that Geely will continue to its overseas expansion by launching a bid for Ford Motor Co.’s (NYSE: F) Volvo unit. Ford, which is the only “Big Three” auto company to not receive government aid, last December started looking to offload the Swedish car brand in an effort to pay off the debt it accrued when the company borrowed $23.5 billion in 2006.

Geely said on Sept. 9 that it might partner with a state-owned investment company to bid for Volvo. And earlier this week, the company announced that it would raise $334 million in funds from Goldman Sachs Group Inc. (NYSE: GS) through a convertible bond offering to “fund the capital expenditures of the group, potential acquisitions by the group and for general corporate purposes of the group.”

However, some analysts have pointed out that the Goldman capital falls well short of the roughly $2 billion Ford is asking for Volvo. They believe Geely instead will use the money to increase capacity and market the models it already has to buyers outside of its home market.

“The management is planning to expand its distribution channel to foreign countries,” Richard Li, research director at Celestial Asia Securities Holdings, told Forbes magazine. “This deal can provide this company enough funds so that the cash flow will be upgraded long term.”

And if nothing else, Goldman’s investment could be enough to instill investor confidence in the small Chinese carmaker.

Almost a year ago to the day Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) subsidiary MidAmerican Energy Holdings Co. agreed to pay roughly $230 million for a 9.89% stake in Chinese car and battery producer BYD Co. Ltd. Since then, BYD’s shares have jumped more than fivefold in that time.

“A big name investor certainly helps boost stock prices and brand recognition,” Li Lixi, a Northeast Securities Co. analyst in Shanghai, told Bloomberg. “Goldman’s investment in Geely may repeat the impact that [Warren] Buffett had on BYD.”

Geely’s Hong Kong shares yesterday (Wednesday) surged to their highest in more than nine years on the news of Goldman’s investment.

The Race to Build a Competitive Chinese Brand

Geely isn’t the only Chinese companies looking to use the financial crisis as an opportunity to broaden its global reach either. Other Chinese companies, including Beijing Automotive Industry Holdings Co. (BAIC), SAIC Motor Corp. Ltd., and Sichuan Tengzhong Heavy Industrial Machinery Co., are determined take the lead in what has become a race to be the first world-renowned Chinese automotive company.

“It takes decades to establish a recognized, renowned brand,” Jim Hossack, an industry analyst at researcher AutoPacific Inc., told Bloomberg. “China wants to do it much faster, perhaps within as little as five years.”

BAIC on Sept. 9 joined Koenigsegg Group in its bid for GM’s Saab division. Koenigsegg – backed by U.S. and Norwegian investors – in June agreed to buy Saab from GM, but struggled with financing the deal.

SAIC group, the parent of China’s largest automaker, had also considered coming to Koenigsegg’s aid in the Saab bid. But ultimately it was BAIC that came through with the $420 billion in financing needed to close the deal.

“This is a great opportunity for us to partner up with a brand like Saab that we believe has a great future with a new business plan and new ownership,” Wang Dazong, general manager of Beijing Auto, said in a statement posted on its Web site.

Koenigsegg and BAIC will form a joint venture to market Saab cars in China, where the brand has little-to-no presence. BAIC will also gain valuable technology from the Swedish car company.

“Chinese manufacturers are hoping to buy up technology that will help them catch up to world standards on both the product and the development side more quickly than they would on their own,” Christoph Stuermer, automotive analyst at IHS Global Insight Inc., told the Financial Times.

However, not every Chinese endeavor has been greeted with success. Shanghai-based SAIC in 2004 paid $500 million for 49% of Ssangyong Motor Co. just to watch the South Korean carmaker go into receivership in February. And Sichuan Tengzhong Heavy Industrial Machinery’s attempted takeover of GM’s Hummer brand is still being stalled by China’s central government.

“It’s not in coordination with our nation’s industrial policy,” Vice Minister of Commerce Chen Jian said after sending back Sichuan’s application to acquire the Hummer brand for $100 million.

Still, Chinese auto companies won’t be satisfied until they race ahead of their Western counterparts.

“I’m fighting for what’s in overseas automakers’ rice bowls,” Geely founder Li Shufu told Bloomberg. “I want to build Geely into a global first-tier automaker.”

Source: Financial Crisis Gives Chinese Car Companies a Chance to Get Up to Speed

That’s why the greatest inflation fighter in the world is under stress. Of course, we’re talking about gold. Gold is– and always has been– the safest place to put your cash. It has been traded as currency, stockpiled to backup paper money (think Fort Knox), and hedge spend-happy governments. Today, its hedging attribute is important.

Over the past few months, it’s become more and more difficult to buy physical gold. Even if you do locate it, what you actually pay is quite a bit more than its spot price.

In many cases, these buyers were willing to spend up to 25% more for gold than its value. That’s like your broker taking a quarter for every $1 share you buy.

So, if gold is too expensive, where can investors turn? Well, there’s always gold’s little brother…

Silver is not commonly thought of as an inflationary hedging tool. That is, until times get tough. And I don’t think you can find too many times tougher than right now.

Silver is often referred to as “the poor man’s gold”. We call it opportunity. You see, during the 1978-1980 precious metals rally, silver showed up late. Almost all of the large gains in silver came in the last few months.

We see the same events unfolding this time around. As we pointed out in the past, gold has always traded for about 16 times as much as silver, until the past few decades. Currently, the ratio sits around 71. When this number falls, silver booms.

Macroeconomics and ratios aside, there is one final reason we expect an enormous silver rally…

About 3 out of every 5 ounces of silver come from base metal mines. Roughly 28% of all silver comes from copper mines and another 32% comes from lead/zinc mines. Both of these sources are decreasing — and in some cases, completely shutting down — production due to the overall commodity market.

Only 10% of all silver comes from gold mines, which leaves just 30% of the total market to pure silver plays like Coeur d’Alene Mines Corp. (NYSE:CDE), Hecla Mining (NYSE:HL), and Pan American Silver (NASDAQ:PAAS). These serious cuts in production, gives us pure silver investors the inside track to cornering the silver market.

We are seeing a perfect storm brewing in the silver market. If you get in now, you might just beat the rush…

Sincerely,

Jim Nelson

Source: How You Can Win with Silver

Gold fell on Friday as investors sold assets after data showed a much larger-than-expected fall in U.S. November non-farm payrolls.

A sharp dip in the dollar in the immediate wake of the numbers initially sent gold higher, but it quickly gave up gains as the U.S. currency reversed direction.

The precious metal is often bought as an alternative investment to the dollar and tends to move in the opposite direction to it.

Spot gold was quoted at $752.30/754.30 an ounce at 1427 GMT, against $765.70 late in New York on Thursday, having earlier touched a low of $747.20.

“(The data) shows a worsening economic situation, and it is hard for assets to maintain value against that,” said John Meyer, an analyst at Fairfax investment bank.

U.S. non-farm payrolls fell by 533,000 in November, sending the unemployment rate to 6.7 percent, the highest since 1993. Analysts had predicted payrolls would fall by 340,000.

The other main external driver of gold, crude oil, also weighed on the precious metal, as prices dropped nearly 2 percent to below $43 an ounce.

Sharp falls in the crude price this week have sent oil down to a near four-year low. Weaker oil prices can undermine interest in commodities as an asset class, analysts say.

DEFLATION EYED

Interest in gold is being limited by expectations inflation will fall after sharp drops in the price of many raw materials such as crude oil and industrial metals.

Oil prices have shed more than $100 a barrel since they hit an all-time high of $147.27 an barrel in July, while prices of copper, aluminum and tin have also declined sharply.

“Mounting fears over the impact that a potential period of deflation may have on prices, appear to be weighing on sentiment,” said Standard Bank analyst Leon Westgate in a note.

Among other precious metals, silver fell along with gold, and was quoted at $9.22/9.30 an ounce against $9.46 late in New York on Thursday.

Platinum and palladium edged lower but remained rangebound as they consolidated after sharp price falls earlier in the week. Both metals have come under pressure from a spate of bad news from the global auto market.

China posted its third monthly fall in car sales this year in November, official data showed on Friday, setting the stage for a possible double-digit decline in 2009 despite government efforts to pump up consumer confidence.

General Motors said it is eliminating a third production shift at three U.S. plants, leading to almost 2,000 job losses, and will slow production of a range of cars.

Meanwhile BMW said its global sales fell by a quarter in November.

Spot platinum was quoted at $784/804 an ounce, down from $786.50 an ounce late on Thursday. Spot palladium was at $164.50/172.50 an ounce against $166.50.

Jan Harvey, Peter Blackburn
LONDON, Dec 5 (Reuters)

The bid was also partially kneecapped by antitrust concerns raised by the European Commission, which mandated BHP unload assets for approval.

And Rio’s net debt of $39 billion was yet another concern for BHP.

“Recent global events and associated falls in commodity prices have… altered risk dimensions. BHP Billiton is very focused on balance sheet strength. Accordingly, the greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level,” Marius Kloppers, BHP Billiton’s CEO, said in a statement.

BHP, the world’s largest mining company, announced the hostile bid last November. Its first offer allotted three BHP shares for each share of Rio, valuing the company at about $127 billion.

Rio Tinto Chief Executive Officer Tom Albanese rejected it, calling it “several ballparks away” from Rio’s value. BHP returned in February with a sweetened offer of 3.4 shares for each share of Rio. That offer, worth about $147 billion, was also rejected.

Since then, sinking stock markets and commodities prices have dragged down the companies’ stock value, making the value of BHP’s bid was about $66 billion Tuesday afternoon, Reuters reported.

The dropped bid clipped as much as 40% from Rio’s New York-listed American Depository Receipts (ADR) Tuesday, while BHP’s New York-list ADRs moved up a healthy 13% by the end of trading.

Competitors Cheer

Had Rio accepted BHP’s offer, it would have created a resource group capable of holding sway over a considerable portion of the world’s resources, including supplies of copper, aluminum, coal and iron ore.

BHP-Rio Tinto would control 14% of the world’s thermal coal and 13% of the worldwide copper supply. The company would also supply one-third of the world’s traded iron ore and 38% of the world’s seaborne iron ore trade.

Such a tight grip would have forced competitors to slash prices to compete.

“Steel makers around the world will be rejoicing today,” Ian Rogers, director of industry trade group U.K. Steel, told MarketWatch.

Source: BHP Abandons Hostile Bid for Rio

Nickel hit a steep slide early, falling below the $5 mark shortly before New York opened, and staying there the rest of the day to close at $4.9804/lb., down more than 56 cents. Zinc was also off early, but a spirited morning rally propelled it $0.5036/lb., up more than a penny and a half. Aluminum followed much the same path but failed to break even at $0.8964/lb., down less than a half-cent, while lead was modestly lower, ending down just under a penny and a quarter, at $0.6747/lb.

Copper suffered through another down day as steeply rising stockpiles signal the global dropoff in demand.

Inventories monitored by the LME gained 7,275 metric tons (3.2%) yesterday, to 237,925 tons, forging a fresh high since mid-March, 2004. Nickel stocks are at their highest level since May of 1999.

Not only are prices “a bit weak,” said Simon Toyne, an analyst at Numis, but the “copper stock builds that have been going on the LME — the last few days have seen a number of thousands of tonnes … is a bit unnerving.”

On the slightly brighter side, “Copper as with most other spot traded commodities, is now into the cost structure, but probably a lot less deeply than some of the other metals,” Toyne added.

Copper is “looking a bit directionless,” says Gayle Berry, an analyst at Barclays Capital. “When prices are coming off quite a bit, you do tend to see the shorts beginning to look for a bit of cover.”

Berry believes that that “is what you are going to see much more of going forward—these violent swings in prices, given the size of the short positions being built in some of the metals.”

Meanwhile, “Until we either see some further large cuts in production or more importantly some signs of improvement on the demand side, it’s too early to get bullish” on nickel, said Adam Rowley, of Macquarie Group in London.

Some such cuts are already on the way. Nickel producers including Brazil’s Vale will slash production by about 140,000 tons this year and probably another 100,000 tons next year. That will narrow the global supply surplus to 20,000 tons next year from 30,000 tons this year and 95,000 tons last year, Macquarie said.

Source: Base metals mostly lower -  Nickel producers cutting production as demand slows and stockpiles rise

Platinum sank to $760, below the price of gold, in the far East, but rallied from there to a mid-morning high above $820, before finally subsiding to end at $790/oz., down $35. Overnight, platinum is sharply higher.

Silver was the day’s big winner, taking off at the same time as gold and pushing as high as $10.15 before falling back below $10 around noon and trading sideways from there into a close at $9.89/oz., up 70 cents. Overnight, silver has pushed higher. (Click here for charts)

Gold had a solid day yesterday, with silver soaring while platinum continued to bring up the rear. Something of a tailwind was provided by a dollar that slid against the euro and rising oil prices.

The Fed’s rate cut seemed to have little general effect, perhaps because it is widely expected that the European Central Bank, the Bank of England, and possibly even the Bank of Japan will follow suit with rate cuts of their own in the near future.

The Hightower Report wrote of silver’s breakout day: “The silver market mounted a fairly impressive recovery bounce which some players might have attributed to technical short covering. However, with the stock market at times Wednesday adding to the gains from the prior trading session, it would seem like some of the severe deflationary environment was lifting and that in turn helped a number of physical commodity markets like silver rally. It is also likely that strength in gold and copper gave the silver bulls additional confidence during the trade today. Even a slight correction in the stock market after the FOMC rate cut decision failed to severely dent the strength in silver prices.”

As gold rallies, analysts are wondering whether the tipping point is in sight.

“Some are beginning to extrapolate the medium- to long-term consequences of central-bank monetary creation,” said Jeffrey Nichols, of American Precious Metals Advisors. “The flashing lights that they are seeing ahead are the lights of inflation and currency depreciation,” developments which will inevitably push gold higher.

And James Moore, of TheBullionDesk.com, notes that “with the fact gold is considerably lower than at the start of the year and investors may look to further diversify their asset holdings, may allow gold to begin recouping some of its losses.”

Source: Gold rises, platinum falls to near parity -  Silver has a blast-off day

Zinc plummeted in the late morning and never found its way back, ending at $0.4885/lb., down nearly 2 cents. Aluminum had a very strong day, pushing to an intraday high of $0.9402/lb., up better than 4 cents, while lead raced to $0.6402/lb., up just over 7 cents.

Copper led most of the industrial metals higher yesterday as it followed equities markets up in anticipation of a rate cut by the Fed today.

“We’ve seen some signs of life coming back to the market with equities rebounding and commodities rising today across the board,” says Matt Zeman. “Copper could rally pretty hard for a few days if the equities hold up.”

Zeman added that he “wouldn’t be surprised to see it rally higher or for several days in a row, perhaps even testing that $2.00 level again,” but that’s it. “I’d expect it to roll back over from there.”

With copper down 35% in October, and headed for its worst month since trading began in New York in 1988, there is beginning to be some concern that supply will soon be affected.

“When prices fall below the cost of production, high-cost producers shutter projects” and trim expansion plans, said Catherine Virga, an analyst at CPM Group.

Aluminum got a boost for just that reason, as Aluminum Corp. of China (ACH), the world’s No.3 alumina maker, said it will cut capital spending by 20% in 2009.

And Rio Tinto (RTP) CEO Tom Albanese said his company is rethinking its capital investment projects “across the board” to see if it could cut costs or delay them.

Albanese also brushed off the notion that the stock market pummeling of resource companies might force it into the arms of rival BHP Billiton, whose hostile bid is now worth some $70 billion. Rio’s shares have lost 2/3 since May and are down 35% just in October.

Source: Base metals mostly higher -  Producers begin shuttering projects

Zinc moved up, just coming off its intraday high to end at $0.7942/lb., up more than a half-cent. Aluminum’s slump continued, as it sank for most of the day, losing a penny to $1.1896/lb., while lead shot higher from the late pre-dawn hours straight through, adding 2¾ cents, to $0.8748/lb.

Copper edged higher as traders focused on ongoing demand in the emerging nations along with the possibility that the recent selloff may have been overdone.

Continued growth in consuming nations including China will buoy prices for copper, said Evy Hambro, manager of mining and gold funds at BlackRock Inc (BLK).

Investors were also buoyed by the larger-than-expected increase in factory orders for July. But the surprising performance of the US dollar still serves as a brake on any upward momentum.

“If the dollar keeps going up and this deflation idea takes hold, we’ll see prices continue to drift lower,” said Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. “The market is giving off signals that the downside could start to accelerate.”

And already the commodities selloff has begun claiming some high profile victims. New York-based investment firm Ospraie Management announced that it will close its biggest hedge fund after it lost almost 39% this year because of declines in commodity stocks. Ospraie said it will suspend all redemptions and sell all of the fund’s remaining positions to return money to its investors. Lehman Brothers also owns 20% of Ospraie.

The Ospraie Fund, which managed $2.8 billion in assets at the beginning of August, was undone by a “substantial sell-off in a number of our energy, mining and resource equity holdings,” the company said.

Dennis Gartman, editor of the Gartman Letter, termed the Ospraie situation a “sign of the times,” noting that, “So many people jumped on board the supposed never-ending commodity bull market … I’m sorry,” Gartman said “but, all bull markets come to an end.”

Yes, they do. But we doubt that this one has, quite yet, even if Jon Nadler concurs. “Speculators sold everything that even resembled a commodity” in the wake of the collapse of Ospriae,” said Nadler. “One also has to extrapolate that this failure is not going to be a ‘one-off’ event — not when considering the tens of billions that have been thrown at the commodities sector over the past several years.”

Source: Base metals little changed -  Rising dollar cramps demand.

Zinc was off sharply, then up equally sharply, ending little changed at $0.7888/lb., down three-quarters of a cent. Aluminum rallied strongly off its pre-dawn lows, winding up with a loss of less than a penny at $1.1995/lb., while lead was off significantly, shedding 4¾ cents, to $0.8475/lb.

Copper led the other metals downward as traders reacted to the rising dollar, falling oil, and their concerns about lackluster demand going forward.

Bears were crying the blues, for sure. “It’s gloom and doom [out there],” said Sean Corrigan, of Diapason Commodities Management. “The world has woken up to the fact that economies are weakening pretty much across the globe.”

Technicians were peering at their tea leaves, searching for direction as copper hit an intraday low of $7,150/metric ton, its lowest price since August 13. Corrigan said it was vital copper holds at $7,000.

“If it breaks [through that level] then the next move could be to $6,600 and all the way down to $5,800,” he said.

Also factoring in were rapidly expanding stockpiles. Inventories monitored by the LME were up yesterday to 179,800 metric tons, a gain of 6,425 tons since Friday.

And zinc dropped as various supply threats dissipated. Yunnan Chihong Zinc, China’s fifth-biggest producer, said it wasn’t affected by the August 30 earthquake, and Nyrstar NV (NYR), the world’s largest producer, said its U.S. smelter in Tennessee was unaffected by Hurricane Gustav.

Source: Base metals moribund -  Copper stocks continue to climb.