Nickel climbed, and hung precariously in positive territory at $5.0175/lb., up less than 2 cents. Zinc traded mostly sideways, ending at $0.4924/lb., up just under a penny. Aluminum pushed higher and held its gains, closing at $0.607/lb., up a penny and a half, while lead sank to $0.501/lb., down three-quarters of a penny.

Copper failed to hold its early gains as the December decline in spending on construction projects dampened hopes for any kind of economic revival.

“The basic fundamentals and pressure of the economy are still negative, and there’s nothing that’s really going to drive this price higher,” said William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey.

With US construction spending falling 5.1%, the most since records began in 1993, O’Neill added that, “I don’t see anything within the housing sector, autos or manufacturing in general that points to any imminent turnaround … There’s not going to be any rush of copper demand anytime soon.”

On the stockpile front, however, there was surprising news. They declined for the first time since December 10! Granted that they didn’t subside by much, but any halt to the flood into warehouses is sure welcome. By the numbers, copper inventories monitored by the LME dropped by 325 metric tons yesterday, to 491,200 tons.

Sounding a mildly optimistic note was John Gross, publisher of the Copper Journal, who said that, “Benchmark March copper’s ability to remain buoyed above the $1.40 a lb level is an encouraging sign.”

Yesterday also marked the day that Chinese markets reopened after the week-long Lunar New Year holiday. While they ended lower on the day, analysts expect that the return of Chinese traders will help to paint a clearer picture of market direction going forward.

Finally, there was potentially significant supply news from way down South. Peru’s largest federation of mining unions said over the weekend it has agreed to call a nationwide strike starting on March 15.

Source:Base Metals Spin Wheels

Nickel prolonged Wednesday’s slide, briefly falling below $10 before recovering to close at $10.0259/lb., down 39 2/3 cents. Zinc was off during the pre-dawn hours and never recovered much, ending at $0.8586/lb., down 2¼ cents. Aluminum was down for most of the day, but edged back to wind up essentially unchanged at $1.3794/lb., while lead sagged through the whole day, eventually shedding 3¼ cents, to $0.8051/lb.

Copper held up, on a mostly down day for the industrial metals, due to the labor unrest in Peru. A strike at Southern Copper’s Cuajone mine in Moquegua province has severely curtailed output, while the company’s Ilo smelter will have to close soon if supplies can’t get through roadblocks in the area. Strikes and protests have also broken out at other mines in Peru.

In addition, Norddeutsche Affinerie, Europe’s largest copper producer, said that China may have recently responded to high prices by selling part of its strategic copper stocks. That would account for diminished Chinese import demand for the metal in recent months.

Meanwhile, nickel oversupply grew in April to the widest in eight months as demand receded for the third month in a row, according to the International Nickel Study Group.

Supply exceeded demand by 13,700 metric tons in April, the INSG report said. Production increased 6.1%, year over year, while consumption was 112,800 tons, off 0.9% from March.

Zinc struggled as stockpiles of the metal jumped to a 21-month high. Inventories monitored by the LME rose 5.8% yesterday, to 152,175 tons, the highest level since September 20, 2006.

Zinc production outpaced demand by 64,000 tons in the first four months of this year, the World Bureau of Metal Statistics said.

Lower zinc prices have led to production cutbacks at smelters in China, according to researcher CBI China Co. The average operating capacity of the country’s 28 largest zinc smelters dropped from 83 to 78% in May year over year, CBI China said.

Source: Copper Rallies on Peru

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

Nickel traded up and down within a 15-cent range, closing near the bottom of it at $12.0312/lb., down 3 cents. Zinc came well off its intraday highs, but managed to end in positive territory at $0.9764/lb., up a penny and a quarter. Aluminum rode a slow but steady updraught through the day, winding up with a gain of 2½ cents, to $1.3093/lb., while lead finally had an up day, adding just over a penny, to $1.0123/lb.

A desultory day in industrial metals trading was marked by a slight gain for copper, which observers said had little to do with fundamentals.

“After the large systematic selling seen last week, traders have started to buy back some of their short positions, causing prices to edge higher,” said analysts at RBC Capital Markets.

However, Matt Zeman, of LaSalle Futures Group in Chicago, says it’s all about the dollar. The copper market will continue to be “shaky,” Zeman said, as traders keep one eye on the buck. “People are in a wait- and-see period and are looking to the currency market for direction,” he said.

Meanwhile, Chinese demand continues strong. The country imported 246,119 metric tons of copper in April, the Beijing-based customs office said yesterday. That compares with 240,634 tons in March, although it’s down from the 304,672 tons of a year earlier.

The lead price, which has been on a steep down trajectory for some time now, briefly fell below that of zinc in the morning hours, for the first time since August of last year, before recovering.

Analysts at BaseMetals.com attributed the dip to a loosening of the supply and demand balance for lead, and a market that is moving towards surplus.

But, “Rising stocks and lacklustre demand are keeping prices under pressure, but given the vulnerability of the supply side of the lead market and the potential for a rebound in Chinese demand during the summer, we view this recent sell-off (in lead) as overdone,” analysts at Barclays Capital wrote.

Among broad market measures, the Reuters/Jefferies CRB Index climbed to a record yesterday, and the UBS Bloomberg Constant Maturity Commodity Index is showing a 21% percent rise so far in 2008.

“In the base metals and other commodities, the market still does not fully appreciate the underlying demand coming from a strong global economy,” said Chip Hanlon, of Delta Global Advisors Inc. in Huntington Beach, California.

In labor news, Peru’s Mining Federation, which represents 28,000 workers, said over the weekend it is suspending a planned strike to give the government time to pass legislation that would provide miners with the benefits they’re seeking. However, workers did walk out at Namibia’s biggest zinc producer, Skorpion Zinc, on Saturday.

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.

Times of crisis such as these provide some choice examples; HBOS plc, one of the UK’s largest banks, for one.

The banking and financial services giant, with some 72,000 souls under its wing, saw its shares crippled one morning in a bear raid stoked by rumours of funding problems. Those behind the whispering were deemed to have a cynical vested interest at heart. No, really? It certainly riled the regulator against the short sellers. Whatever the motive the impact of rumour on professional market minds turned feverish in mad markets was briefly impressive. A 20% fall at one point in a morning.

Fear got the better of Bear Stearns too thinks CEO, Alan Shwartz. He laid the blame for the sudden demise of 85 years of investment banking on “short sellers and “market manipulators” as it “suffered an evaporation of confidence fuelled by falsehoods,” according to a Guardian report. Though some, ourselves included, might point to the fact they were up to their necks in the subprime swamp might have had something to do with it. Whatever the reason, the Bear died on a single fateful day when the lifeblood was leeched out of it. On March 13, $10bn was sucked from the company by panicked investors. At the end of the raid over $12bn in cash resources had dwindled to $2bn. It proved a mortal blow.

“As an observer of the markets, it looked like more than just fear. It looked like people wanted to induce a panic,” Schwartz told a senate finance committee in Washington.

So there’s fear…and there’s its exaggerated form: panic. I guess it’s one grade of emotion to see a tsunami coming from a distance. A more intense one when it crashes on the beach and you’re still in the sun lounger. The fight then is not one of rational avoidance but visceral survival. At such times the pin stripe suit and the Ivy League finance MBA provide little protection as normally civil behaviour reverts to something more primal.

Continues below …

Recommended

Five ‘Power Trends’ to Buy into Now

One ’secret line’ has pinpointed every major stock market trend of the last 207 years…

If its next call is correct – and you have exposure to the five specific ‘power trend’ investments detailed below – your wealth could multiply for the next 20 years… recession or not!

Click here to find out more

Past performance and forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd.
Customer Services: 0207 633 3600.

Even the proverbial Man on the Clapham Bendy Bus has noticed. Mortgage and remortgage deals are either getting more expensive and restrictive or, worse, disappearing altogether. The Bank of England warns that almost half of the UK’s lenders are preparing to “ration” mortgage deals over the next three months, reports the Telegraph. Middle England is cutting back on spending as recession fears take hold, reports a survey by insurance group Axa; as credit reference agency, Experian, warns more than 5m people could run into serious financial difficulty.

But as the UK consumer braces for hard times, the clouds seem to be lifting a little for some in the more forward looking financial markets. Edward Menashy, economist at Charles Stanley, feels “definitely less gloomy” as credit markets have “recovered somewhat”. Well, LIBOR has now dipped a bit under 6%, according to Bloomberg, but there looks to be some way to go…

*** Back to basics. Commodities. That commodity prices have continued to rise as the US has headed into recession “makes no sense to me” said Unicredit economist Marco Annunziata yesterday. He sees prices stabilising from here. Meantime the long commodity price boom for everything from industrial metals to agricultural staples is giving rise some quirky economic side effects.

“Some homes are worth less than their copper pipes”, reads a Reuters headline. It reports an emerging trend of thieves ripping up the plasterwork in derelict homes to steal the valuable metal.

Closer to home, a new kind of robber alchemist (turning lead into gold?) appears to be at work on English churches. With the price of lead having risen sevenfold in the last six years, the churches’ lead roofs have become popular targets for thieves. One church in Leicestershire found itself with 100sq ft hole in the roof, reports the International Herald Tribune.

Meanwhile for resource-rich countries, the bounty of ‘Chindia’s’ industrialisation is helping transform economic fortunes. One time banana republic Peru has just had its foreign currency debt rating upgraded by Fitch to investment grade on a par with India and Croatia, as commodity exports including oil, copper, gold, zinc and coffee boost revenues and strengthen its ability to repay debt. Peru’s improving fortunes are old news to any adventurous investor who has been keeping tabs its stock market in recent years. The Lima General stock index has risen about ninefold in the three years to mid 2007.

Finally, ex-media mogul and so called “Mouth of the South” Ted Turner, who set up CNN, knows how to make the news.

If we don’t get a handle on global warming says the billionaire “we’ll be eight degrees hotter in 30-40 years and basically none of the crops will grow. Most of the people will have died and the rest will be cannibals.”

And there we were worrying about a trifling credit crunch.

Regards,

Rob Mackrill
The Daily Reckoning

Be the first to comment on this article! Now you can post your thoughts, reactions and views on the topics we talk about.
To comment, click here.