Nickel was shoved down below $8 for most of the New York day, but a spate of late-day buying pushed it back to $8.108/lb., up 10 cents. Zinc was also in the black at mid-morning, then slumped to its intraday low of $0.7277/lb., down two and two-thirds cents. Aluminum fell later and less precipitously, ending $1.2376/lb., down less than 2¼ cents, while lead plummeted to its intraday low of $0.7734/lb., down better than 9 cents.

Except for nickel, it was another grim day in the base metals markets, with copper leading the charge lower. Copper is now 20% below last month’s highs, and zinc cratered to a 2-year low.

As some analysts consider that a 20% drop defines a bear market, the reinforcing negative sentiment could build upon itself in the coming days.

And the doom and gloomsters are out in force at the moment. Typical is Michael Widmer, an analyst at Lehman Brothers Holdings (NYSE:LEH) in London, who forecasts copper to drop to $7,000/metric ton in August (yesterday’s close was $7,160).

“The wind is probably out of the base metals,” in Widmer’s opinion.

$7,000 may not be bottom, either, says Robin Wilkin, of JPMorgan Chase (NYSE:JPM) in London. Copper may fall to $6,400 by the end of the year, Wilkin says.

Stockpile changes are driving sentiment to a large degree. Whereas copper inventories monitored by the LME dropped 45 percent between the beginning of the year and May 7, they have surged since, adding 16% in July.

There are always, however, supply issues. Yesterday, for example, Southern Copper (NYSE:PCU)—one of the world’s leading producers—said it expects to produce 550,000 metric tons of copper in 2008.

That’s far below earlier predictions for output of 650,000 tons, and would even trail last year’s total of 592,000.

Labor problems in Peru and Mexico, the company’s two focus areas, were blamed for the shortfall.

Source: Base Metals Mostly Hammered Again

Nickel fell off its peak around the noon hour, but remained in positive territory at $9.2238/lb., up 4 2/3 cents. Zinc bottomed at mid-morning, but took off strongly from there, ending at its intraday high of $0.8371/lb., up nearly 2½ cents. Aluminum traded very jaggedly, to little eventual effect, closing at $1.3615/lb., up three-quarters of a cent, while lead was up straight through the day, just coming off its intraday high at $0.9295/lb., up 4 1/3 cents.

Copper was strong on the rise in crude, and the associated strength in the broader metals complex.

“With oil bouncing back to $130 after inconclusive Iran talks and gold inching back over $965, the ’safe haven players’ may be adding back some metals longs recently liquidated,” said analysts at RBC Capital Markets.

There were also supply concerns. Inventories monitored by the LME have bumped up by 5% so far this month, to 128,725 metric tons, the highest since March 12, but there are worries related to who’s in control.

Since those stocks are held by “only a few market participants,” availability is limited, Norddeutsche Affinerie AG, Europe’s largest copper refiner, said.

Traders ignored news that a strike planned to start yesterday at Southern Copper’s (PCU) Cuajone mine in Peru has been suspended by the labor union. Cuajone, which produced 148,939 tons of copper in 2007, is Southern’s biggest Peruvian mine.

Nickel also rebounded on supply shortages. LME inventories have fallen 6% this month, to 43,728 metric tons, the lowest level since November 23. BHP Billiton Ltd. has shut its Kalgoorlie refinery in Western Australia through June 2009, cutting sales of the metal by 25,000 tons, or about 57% of existing LME stocks.

“You probably started to see the impact from supply disruption in Western Australia,” said Max Layton, an analyst at Macquarie in London. However, Layton said, “It may be short-lived,” adding that “overall we see a small surplus this year.”

Meanwhile, Aluminum Corp. of China (ACH), the nation’s biggest producer, said 2008 production may decline by 30,000 tons after it reduced capacity at two ventures in Shanxi province because of the winter power shortage.

And Shanxi Huaze Aluminum & Power Co. suspended 25% of its 280,000-ton annual capacity as of July 18, while Shanxi Huasheng Aluminum Co. announced that it is trimming 22% off of its 220,000-ton capacity.
Source: Base Metals Rise, Supply Worries Rule the Day

Mix this in with sporadic strikes that cut back copper production and you have a clear cut case for higher copper prices in the future.

Just take a look at a chart of copper to see what I’m talking about…

As you can see, the price of copper has been rising since late 2001. But since 2007, copper prices haven’t passed the 400 level. Even with that happening, copper continues to make higher lows.

This forms an inverted triangle pattern. Over time, we should see copper not move under the blue line and continue to rally back up to the red line.

But if copper can manage to breakthrough 400, then we should see copper rally hard.

The best way to take advantage of this is to buy Southern Peru Copper (PCU) as soon as you see the copper prices break through the 400 level.

And if you want an option to play, you can be sure that I’ll be recommending one to readers of IDE’s Global Profits Hotline.

Good trading,

Charles

And while some of the more-timid investors are already retreating from the region, the actual panic some are experiencing is premature, as Latin American economies are demonstrating a much stronger ter resilience than they’ve been given credit for.

A report from the International Monetary Fund, released Friday, noted that “the region’s banking systems have so far remained largely immune to the financial stresses in the United States,” but financial conditions are “beginning to show some signs of tightening.” Ultimately, the IMF expects the turmoil in the United States to start catching up with Latin America.

U.S. economic growth is expected to fall to 0.5% this year and be just 0.6% in 2009. The IMF sees growth in Latin America slowing as a result. After regional growth hit 5.6% last year (2007), the IMF thinks growth will fall to 4.4% this year and 3.6% in 2009.

History supports the IMF’s position. An economic slowdown – or worse, a recession in the United States – was once the death knell for Latin American economies, which rely heavily on America as a market for their exports. When the United States, the leading importer of Latin American goods, struggled through a recession in 2002, six of Latin America’s most prominent currencies dropped by 20% or more.

But the story for 2008 has been very different.

Brazil’s currency, the real, hit a nine-year high Friday, climbing 0.3% to 1.6577 per dollar, Bloomberg News reported. Earlier, the currency touched 1.6530, its strongest showing since May 1999. The real has gained about 23% over the past 12 months, the best performance among the 16 most-frequently traded currencies tracked by Bloomberg.

The Colombian peso has jumped more than 17% over the last 12 months, reaching 1,792 versus the dollar. It’s now trading at its highest level since July 1999, as foreign investment has rushed into the Andean country. Colombia’s economy expanded 7.5% in 2007, the fastest pace since 1978. Foreign direct investment (FDI) rose 40% last year, reaching $9.03 billion. In the year through March 19, it had increased 25% to $2.16 billion, according to the central bank.

“I would be very critical of the IMF,” said Money Morning Contributing Editor Horacio R. Marquez, an emerging-markets specialist and Argentine native. “The IMF said growth in China was going to slow down in response to the U.S. and you saw its first quarter.”
China’s economy expanded by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year, and the worst ice storm the country had seen in decades.

Marquez also pointed out that Latin American economies have been bolstered by huge trade surpluses – a lingering result of the commodities boom. Countries like Chile, Brazil, and even Mexico are sitting on huge caches of foreign reserves that will offer substantial support should conditions in the U.S. continue to deteriorate.

Emerging markets have an estimated total of $4.1 trillion in central bank reserves, The Wall Street Journal reported. That includes a cushion of $185 billion in Brazil, $49 billion in Argentina and $80 billion in Mexico.

“This time, we have something of a vaccine when the U.S. sneezes,” said Claudio X. Gonzalez, chairman of Kimberly-Clark de Mexico SA.
Mexico’s economy expanded by an unexpected 3.8% in the fourth quarter, as U.S. growth slowed to a paltry 0.6%.

“This is going to be the first time in many years in which Mexico is going to move in the opposite direction as the U.S. business cycle,” Alfredo Coutino, senior economist for Latin America at Moody’s Economy.com (MCO), told Bloomberg in an interview.

Latin America’s New Best Friend

Even as Latin America’s trade with the United States slows down, China has been quick to grab the baton and pick up the import-export slack with the Latin American region.

Trade between China and Latin America surpassed $100 billion last year, a milestone the Chinese government didn’t expect to reach until 2010. Commerce between the two regions totaled $102.6 billion in 2007, a 46% increase from 2006, according to Chinese government data.

Brazil sent 6.7% of its goods to China last year, double the level of 2001. Chile, Peru and Argentina exported to China twice what they imported from their Asian trade partner. Mexico exported $3.2 billion worth of goods to China last year.

Speaking to bankers in Acapulco last month, Mexican President Felipe Calderon touted last year’s increase in his country’s exports to non-U.S. markets: Goods sent to the Middle East increased 48%, while goods shipped to Europe jumped 30% and those to Asia rose 25%.

The United States now absorbs less than 20% of the exports coming out of Brazil, Argentina, Chile and Peru.

Brazil President Luiz Inacio Lula da Silva predicted that his country’s economy would grow at least 5% annually through 2010.

“People are buying more and exports are growing because we don’t depend on the United States, and Europe alone,” he said. “Now we’re exporting to many more countries around the world, and this leaves us calm in the face of an American crisis.”

The government of Brazil recently made plans to establish a permanent commercial center in the United Arab Emirates to promote investment between the regions. The U.A.E. is home to the Abu Dhabi Investment Authority, or ADIA, a sovereign wealth fund with an estimated $875 billion in assets. Brazil is the world’s sixth-largest economy and home to an internal market of approximately 190 million consumers.

The new center will serve as a permanent exhibition of products from Brazil and Latin America, and tap developing investment and marketing opportunities between the regions.

It will also enhance Arab-Brazilian relations through the presence of future Gulf investments in Brazil, Ahmed Yassine, president of the Trade Exterior Chamber of Brazilian-Arabian Gulf and North Africa, told the Emirates News Agency. Yassine led a delegation of Brazilian businessmen on a tour of the region.

“An estimated 20 million people of Arab origin live in Latin America and 7 million of them are in Brazil,” Yassine said.
In 2007, Gulf countries imported $4.6 billion in goods from Brazil, an increase of 4.8% from 2006.

The amount of the region’s debt denominated in foreign currencies fell to 24.7% of gross domestic product in 2007, down from 44.1% in 2002, according to the International Monetary Fund.