Nickel followed copper, though it had a sharper late-day selloff, ending at $6.3722/lb., down 15½ cents. Zinc was weak, closing at $0.6852/lb., down more than a penny and a half. Aluminum had a good day, adding more than 2 cents, to $0.7194/lb., while lead was lower, dropping more than a penny, to $0.7437/lb.

Copper led the industrial metals generally lower, although aluminum was an exception, as traders reacted primarily to the dollar’s rally.

However, some analysts believe that decent underlying support kept copper from falling even farther.

“Copper’s downside was limited with investors choosing to focus on the positives — most notably the surprisingly strong U.S. unemployment data on Friday and strong Chinese demand signals,” said Michael Gross, a futures analyst with Optionsellers.com in Tampa, Florida.

Gross added that, “You may be getting a little pressure from the dollar, but a lot of traders seem to be looking at the glass as more half full right now.”

Stockpiles prolonged their freefall. Copper inventories monitored by the LME dropped by another 2,125 metric tons yesterday, to 297,050 tons.

In company news, OZ Minerals, the Australian mining company seeking to refinance A$1.1 billion ($865 million) of debt, said two unsolicited recapitalization proposals—from institutions including RFC Group and Royal Bank of Canada–were “inferior” to an offer from China’s Minmetals Group.

“In the Minmetals transaction, we have a proposal to resolve OZ Minerals’ refinancing issues that is both highly certain and offers value to our shareholders,” Chairman Barry Cusack wrote in a statement. The alternatives don’t offer a “complete solution,” Cusack said.

Source: Base Metals Mostly Lower

Treasurer Wayne Swan surprised everyone and rejected China Minmetals’ bid for OZ Minerals in its current form. Nothing like a little Friday afternoon bombshell.

The Treasurer said that Prominent Hill-OZ’s major copper and gold asset in South Australia-is too close to the Department of Defence’s Woomera Testing Facility. It’s about 160km away. Swan said, “The Woomera Prohibited Area weapons testing range makes a unique and sensitive contribution to Australia’s national defence,” and that, “It is not unusual for governments to restrict access to sensitive areas on national security grounds.”

That means you China. Stay away, sort of. That is, Swan did not rule out an alternative bid for OZ that does not, presumably include Prominent Hill.

This is no laughing matter for OZ or its shareholders. The company has $1.3 billion in debt it must refinance by Tuesday. The $2.6 billion bid from Minmetals would have solved that problem. But now the question is whether OZ’s bankers will give it more time, or pull the plug.

Part of this problem is of the company’s own creation. As of August last year, it classified the $1.3 billion in debt as a “non-current liability,” assuming, we presume, that it would be able to refinance that debt easily enough. That was obviously not the case. And now the clock is ticking.

But would the Treasurer make a decision on Friday night that would put the company in receivership by Tuesday? Is the government convinced that OZ is being run by the gang that couldn’t shoot straight and is better off being cut up into parts and sold rather than delivered into Chinese hands whole?

Maybe we’ll never know what the Treasurer is thinking. But it may not matter. The Australian Financial Review reports this morning that Minmetals revised its offer over the weekend. The offer excludes Prominent Hill but includes the Sepon gold mine in Laos and the high-cost but massive Century zinc mine in Queensland. More on this story tomorrow. OZ is currently in a trading halt.

The big G-20 meeting gets going later this week. Stocks in New York were down Friday but have enjoyed a pretty good month so far. Here in Australia, stocks are up 16.75% since the ASX/200 closed at 3,145 on March 6th. Does this rally have legs?

If the market is channeling the market from the Great Depression, then yes, the rally could last months and recoup as much as 50% of the losses since it peaked at 6,828 in November of 2007. It’s hard to say what kind of economic news might come down the pipe to cheer investors that much.

Investors are currently a pretty gloomy bunch. But perhaps the aggressive monetisation of debt by the Fed will drive institutions out of bonds and into stocks. There is a lot of cash in money market funds that could get back into the market and send stocks up quickly.

Or perhaps not to all of that. The Economist Intelligence Unit has just released a report that predicts a 40% chance of global depression. The report is called “Manning the Barricades: Who’s at risk as deepening economic distress foments social unrest.”

To be fair, it also says there is a 60% chance the various stimulus efforts in the developing world successfully stabilise the global economy and share markets. But it says there’s a 30% chance of global depression and a 10% chance of global depression with massive social upheaval.

Magazine cover contrarians know that any time a big claim is safe enough to put on the cover of a mainstream publication, the trend behind it is probably over. If this is the case, the Economist article is a massive buy signal. But it’s also possible the Economist has gone as far as it can without terrifying its readers and more importantly, its advertisers.

In other words, it’s possible that things are a lot worse than the Economist is willing to say, which is not exactly a comforting thought. More on this tomorrow as well.

Amidst all these dire forecasts comes another prediction of higher oil prices. In a Wall Street Journal article on Friday, Richard Jones, the deputy director of the International Energy Agency, said the oil crash of 2008 may prevent around 8 million barrels of oil per day from ever reaching the market.

The oil price crash has caused so many projects to be deferred or cancelled that Jones says, “Unless sufficient companies have the will and financial ability to invest through the downcycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases — possibly as early as this year.”

We sent a longer letter out this weekend about the oil markets. Please note, if you’re already a Diggers and Drillers reader, you have already read our full reports on the stocks mentioned in “The Coming Oil Supply Crunch.” If you’re not a D&D reader, this report contains our analysis of the oil market and three of our favourite Aussie energy recommendations.

Source: Swan Rejects China Minmetals’ Bid

Nickel declined from the pre-dawn hours until the noon hour, rallied into the afternoon but not enough to take it back to break-even as it closed at $4.5888/lb., down just under 7 cents. Zinc pushed slowly northward throughout the day, ending just off its intraday high at $0.5603/lb., up more than three-quarters of a cent. Aluminum peaked in the late pre-dawn hours, then dropped straight through the day, just coming off its intraday low at $0.7935/lb., down a third of a cent, while lead traded flat until the afternoon, during which it lost a penny and a quarter, to $0.5295/lb.

Copper’s modest uptrend failed to hold, as traders’ pessimism evidently reasserted itself and they sold into the one-week high established a day earlier.

Obviously, “The boost to sentiment by the Citigroup news proved to be short-lived,” said Wang Lei, an analyst at Haitong Futures Co. in Shanghai. “Fundamentals are still bearish for industrial metals as the global economy slows.”

The volatility in the stock market also factored in.

“As soon as the stock indices turned around, we saw the turnaround in the metals. The correlation between the two is getting tighter and tighter,” said Rob Kurzatkowski futures analyst with OptionsXpress (NASDAQ:OXPS) in Chicago. “Barring the unforeseen, it should closely trail with what the equity markets are doing.”

Also weighing on the market was a World Bank forecast for 2009 gross domestic product (GDP) growth in China, the world’s biggest consumer of industrial metals, cutting it to 7.5%, which would be the slowest pace since 1990.

Zinc managed to hold up after OZ Minerals Ltd., the world’s second-largest zinc mining company, said it will defer $318 million in project spending and cut output because of turmoil in debt and metal markets. The Melbourne-based company will also announced it will slash production at its largest zinc mine by 20,000 tons.

In major company news, BHP Billiton (NYSE:BHP) announced it is abandoning its attempt to take over rival Rio Tinto. Billiton had announced the bid during the commodities boom last November, but wrapped it up in the midst of sliding prices worldwide.

One measure of how drastically things have changed is the fact that at its peak, BHP’s the all-share offer valued Rio at about $193 billion. As of yesterday, by contrast, the bid was worth little more than a third of that, around $66 billion.

And in Antofagasta, the heart of Chile’s crucialcopper mining industry, mine workers demonstrated this week to demand government aid. Upwards of 2,500 jobs have been lost in the region as copper prices cratered.

Source: Base Metals Tread Water