• Heavy equipment maker Caterpillar Inc. (CAT) said it will offer voluntary early retirement packages to about 2,000 workers. Age and length of tenure will determine who gets the offer. “Our intent is to provide eligible employees the opportunity to retire early as we expect significant declines in all geographic regions,” Sid Banwart, vice president of human services, said in a release.

• Canada recorded its first monthly trade deficit in December, its first in more than 30 years. The C$458 million deficit ($366 million) stems from “collapsing commodity prices and the deep dive in U.S. spending, especially on autos,” Doug Porter, deputy chief economist at BMO Capital Markets in Toronto, told Bloomberg. The country is the No. 1 exporter of oil and natural gas to the U.S., and overall exports fell 9.7% in December.

• Research in Motion Ltd. (RIMM) said its quarterly earnings would meet the low end of expectations. “You probably see big financial institutions cutting costs … and the consumer is just not getting a new handset,” James Cordwell, an analyst with Atlantic Equities in London, told Reuters. “It just shows they’re not immune to the economic slowdown like anybody else.”

• General Electric Co. (GE) said it signed a $1 billion contract to build 30 gas turbines in Saudi Arabia. Demand for power is growing in the Middle East, and GE said it has sold 188 gas turbines in 2008 and may sell about 185 in 2009, Bloomberg reported.

• Investors flocked to the U.S dollar yesterday, as it rose against the yen and euro in volatile trading. The dollar was bolstered by a flight to safety surrounding uncertainty about the final size and scope of the U.S. stimulus package. The general consensus was that the U.S. bank bailout plan unveiled on Tuesday covered the key areas needed to stem the hemorrhaging in the banking sector, Reuters reported.  In late afternoon trading, the dollar was up 0.3% against the yen at 90.53 yen. The euro was down 0.4% at $1.2848.

• General Motors Corp. (GM) is asking Sweden to guarantee $600 million in European Investment Bank loans to keep the Saab Automobile unit operating until it can be restructured for sale, Bloomberg reported, citing an anonymous source. The money, along with about $400 million (3.36 billion kronor) from GM, would allow Saab to introduce new models that would keep Saab competitive, and possibly prevent it from being put into administration or closed down. GM is trying to figure out what to do with Saab by Feb. 17, the due date for a progress report to the U.S. Treasury on how it will become viable so it can repay $13.4 billion in government loans by 2011.

• Gold soared to a 7-month high on Wednesday as investors bought gold and bullion-backed exchange-traded funds.  U.S. gold futures pushed through resistance levels just above $930 and rose $30.80 to $944.50 an ounce for April delivery on the COMEX division of the New York Mercantile Exchange. Most analysts are projecting gold to rise above $1,000 this year, as safe-haven buying and demand for gold as a hedge against inflation are expected to continue, MarketWatchreported.

• China will make its biggest ever investment in a foreign company by injecting  $19.5 billion in cash into mining group Rio Tinto Group (ADR: RTP), the Financial Times reported.  Chinalco, a state-owned aluminum producer will increase its stake in Rio Tinto to 18%, grabbing a minority share in some of its best mining assets and an issue of convertible bonds.  The deal will come under intense scrutiny from Australian politicians, who had imposed a 15% limit on Chinalco’s holdings.

Source:  Global Investment News Briefs Thursday, February 12th, 2009

It does seem unusual for one of the biggest mining companies to sponsor the Beijing Games.

But as it turns out, this massive marketing campaign wasn’t targeted at Joe Sixpack watching the Olympics.

It was payback to Beijing, says Irwin Greenstein, writing for Contrarian Profits.

BHP’s TV play was a not-too-subtle way for the company to get China’s approval for its long-running takeover bid of rival Rio Tinto, according to a Wall Street Journal article today.

Suddenly, you realize that BHP is in the propaganda business.

Well, what’s the difference between advertising and propaganda?

Advertising attempts to elicit a response. Propaganda aims to change your belief system.

As the Wall Street Journal reports, BHP’s ads were a way to build goodwill with the Chinese government and the country’s large steelmakers.

You would think that good, old-fashioned bribery, nepotism and womanizing would be enough. But BHP’s ads bring sugar-coated cronyism directly into our living rooms.

This is not the kind of propaganda you would expect from one of the big oil companies. At least they try to paint a happy face on their own companies with eco-friendly messages.

BHP Billiton is something else entirely. Its propaganda campaign is on behalf of its largest customer, the Chinese government.

Karen Wood, BHP’s chief people officer, told the Wall Street Journal that BHP decided to sponsor the Beijing Games mainly because “we thought that it was very important for us to demonstrate our commitment to China.”

BHP now receives about 20% of its revenue from China, up from 2% in 2000. China’s insatiable demand for raw materials is a reason BHP this week reported record annual earnings for the seventh straight year, with net profit surging 15% to $15.39 billion. Revenue soared 25% to $59.47 billion.

The stakes are certainly high for BHP’s relationship with Beijing, and the company’s proposed hostile takeover of Rio Tinto tacitly needs China’s support.

The Financial Times reported in June that Chinese millers agreed to pay Rio Tinto up to 96.5% for their ore supplies this year, the largest ever annual increase and well above the 9.5% increase paid last year.

Given these dramatic price hikes in steel, China is concerned that a combined Rio Tinto- BHP would further force up prices of commodities. In fact, the merger would give BHP control of nearly half the Asian supply of iron ore, the main ingredient in steel.

But China’s consumption of crude steel in 2008 is expected to rise about 11% — an increase of some 44 to 50 million tons, according to the China Iron and Steel Association. Consumption of crude steel in 2007 was 434.36 million tons, up 11.87%.

China has also emerging as a major steel producer.

The International Iron & Steel Institute said that crude steel output reached 1,343 million metric tons in 2007, up 7.5% from the year before. It was the highest level of crude steel output in history and the fifth consecutive year of growth above 7%.

China’s steel production rose 18.8% to 489 million metric tons in 2007 — 36% of total output. Without China, world crude steel production would have grown only 3.3%.

As the Chinese rapidly move to dominate the 21st century economy, you can expect that propaganda campaigns will start to appear from other critical suppliers. While BHP’s complicity makes for good business, it does not make for a good corporate citizenship.

You can see why… it’s the fastest growing nation in the world. Its building rate is mind blowing. And it’s set to continue – at ALL costs.

Over the next few years it plans to build the equivalent of ten New York Cities!

And since the recent earthquake the Chinese government has promised to rebuild all the damaged cities in Sichuan and the surrounding areas. This will accelerate demand for these products even further.

But China has a problem… and it’s a big fat expensive one.

You see, to make steel you need iron – and China doesn’t have enough high-grade iron ore within its borders…

It means they are at the mercy of the world’s big exporters – BHP Billiton, Rio Tinto and Vale.

These miners charge what rates they like to ship the stuff over… and the cost is phenomenal. China has NO CHOICE but cough up.

But one firm newly placed just outside its borders could be about to save their bacon… and it kicks off as early as next month!

An iron ore miner with an edge over all its competitors – including the Big Boys!

At first glance there’s nothing unique about this company. It’s a miner… it gigs for iron ore… its reserves are sound.

But they have one thing that gives their business the edge over all their competitors: Its location.

Consider this… the current freight rate from Australia (BHP and Rio’s ore) to China is around $50 per tonne. Rates from Brazil (Vale’s ore) to China standing at around $100 per tonne.

This means transport costs to China are many times of the cost of mining the ore.

Wouldn’t it be better for Chinese steel mills if they could get their iron sourced more locally so transport costs were slashed?

Of course it would. If you could offer the mills iron ore or pig iron on these terms the Chinese would snap your hand off…

Well this company is scheduled to produce its first ore for sale THIS MONTH.

I will be recommending this company in the next issue of Smart Commodities UK, which drops on Saturday 22 June. To get all the exclusive details on this as soon as they’re published click here.

You have no obligation to continue subscribing. You have three whole months to see if it’s for you. And even if you decide it isn’t, everything you get is yours to keep no matter what.

Why one broker thinks these shares are 100% undervalued

By 2012, the company plans to produce up to 10.7m tonnes of iron ore concentrate. From that up to 5 million tonnes of pig iron will be produced.

It also recently announced the acquisition of two mining licenses that could DOUBLE the iron resources of the company.

Broker Cannacord Adams recently reviewed all of the company’s projects and came up with a net asset per share valuation that is double the current share price.

With the outlook for ore prices, I reckon this valuation looks pretty conservative, because iron ore prices remain on the up.

Iron ore prices will continue rise China’s voracious demand has caused iron prices to rise significantly. Recently, Rio Tinto managed to secure a hike of 95% for supplies of iron ore to a few small Chinese firms after intense negotiations.

Renaissance Capital estimated that there was a 30m-tonne gap in expected iron ore shipments and actual deliveries in 2007. There have been problems with weather as well, with many mines flooding in Northern Australia and in Vale’s operations Brazil.

Citigroup is also bullish on the iron ore price. In a note to clients last week, the broker said: “The iron ore market remains under-supplied and only a sharp deceleration in Chinese steel production will change this. We expect iron ore to rise by 30% in 2009… but this may be conservative.”

I am very excited about the prospect for this share. I like the location of its mines, the quality of its management and the pricing outlook for its main source of revenues.

The valuation is attractive and the fact production is set to start imminently should secure good news flow in the months to come – but you’ll have to wait a couple of weeks to find out exactly which company it is as I complete my research.

So sign up here to be sure you’re ready!

Regards,

Garry White
Editor
Smart Commodities UK

Please note: Forecasts are not a reliable indicator of future results.

Source: New Iron Ore Discovery to Save China’s Multibillion Pound Building Spree

If you thought the big money in commodities had run its course, think again. Right now, a desperate search is underway to locate supplies of the world’s newest commodity.

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The little-known commodity is vital to many multibillion-dollar corporations’ bottom lines. Names like BHP, La Forge and Rio Tinto all stand to lose billions of dollars each month if they can’t replenish their supply NOW!

The Commodity Crisis You Won’t Hear About on CNBC

You’ve heard about skyrocketing oil prices, and $2,000 gold predictions. In short, we are in the middle of a massive global commodity boom.

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Source: Beat the ‘Black Market Commodity Crisis’ With This Little Known Resource Gem

The $140bn BHP Billiton move on Rio Tinto first appeared on the boards back in February. “Await documents” has been flashing ever since. There is absolutely no hope of BHP’s offer for Rio even reaching official posting stage for months.

Like any frustrated traveller, investors need some idea of what is happening. Actually there is more hope here than with BAA. At last there has been one decisive step. Being loudly broadcast is the fact that a vital regulatory stage has been reached. Permission is being applied to remove a major block from the wheels.

BHP Billiton, the world’s biggest mining group, has at last formally filed with the European Commission for clearance to take over rival Rio Tinto. This showed up in a Commission list of M&A cases last Friday.

The Commission, the European Union’s executive arm and also its antitrust regulator, set a deadline of July 4 for consideration of the deal. By that date the Commission must either approve the deal on competition grounds, open an in-depth investigation, or permit a short extension.

All sorts of points could give the Commission problems. Combining a number of BHP and Rio’s businesses would bring market dominance. So, Competition Commissioner Neelie Kroes is expected to be brought in.

Rio Tinto spurned BHP’s all-share offer very shortly after BHP announced it. The Rio line has consistently been that the bid is “ballparks” away from a fair offer.

The two companies have sparred over who had the better growth rate. Rio maintained that it expected to grow at a compound annual growth rate of 8.6% for the next seven years. BHP countered that it did not believe those numbers. In its view Rio would growth by 6% a year for the next five years. BHP, on the other hand, says it will grow at 6.9%.

Lots of people are unhappy – mainly customers

This, for sure, is no friendly takeover – the atmosphere is strongly hostile. And not just from Rio. All sorts of interested parties are doing their best to block the bid, too.

Major objectors are customers. The fear is that without competition, BHP will be able to charge whatever prices it likes. It would become a super mining major with sway over the global supply of a large number of minerals and metals.

The Chinese have taken their concern as far as buying a chunk of Rio to protect it. Earlier this year Chinalco and the US aluminium giant Alcoa bought 9 per cent of Rio in a $14bn raid. This is the largest single shareholding.

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Things had gone quiet for weeks before the EU story broke. Having started the bid with some pretty public rows, both companies went behind the scenes for the various talks that have been going on non-stop.

Informal talks have been held with regulators, and these had begun to leak out. The EU, for instance, is said to believe that the market strength of the combined company would inevitably lead to price hikes. This would slow economic growth even further. The Wall Street Journal put the cat among the pigeons by saying that the EU was really unhappy.

Both companies have also been going the round of shareholders, putting their cases directly. Some shareholders had been thinking the offer would be increased before now. No sign of any hike yet, however.

A case for asset upgrades here?

The battle moved back into the open last week. Rio held a marathon seminar in London. The aim was to show BHP’s bid as far, far too cheap. Rio wants the market to revalue its assets too, in the light of a forecast that world demand for its metals will double by 2022. Chinese growth is major factor in its new predictions.

Managing director Tom Albanese said that with each passing year “people have been taking what we believe is a more realistic view of the total China story”.

“In that environment, greenfield projects are becoming more valuable. And I think they will continue to be more valuable in the future,” he said.

Rio has been trading at a discount to the bid

His comments come as Rio’s share price traded at a discount of over 8% discount to the implied value of BHP’s offer. Mr Albanese blamed this on uncertainty about when the bid would proceed. But he stopped well short of saying that BHP’s 3.4-for-1 offer was nearing the ballpark in terms of value.

“We’ve said in the past that the board has reviewed the BHP Billiton pre-conditional takeover offer,” he said. “We took it seriously. We rejected it. We rejected it on the basis of value. Rio Tinto as a stand-alone company is worth much, much more than anything that we’ve seen presented to us.”

But he did not succeed last week in propelling the Rio share price to above the bid level.

BHP will probably wait until the regulatory processes are all finished before adding any sweeteners. Anyway, the current view is, it won’t put up its offer until posting formal offer document.

Timing? Probably late 2008 at best!

Keep mining.

Erin and Isabel

Source: Rio Investors Should Continue Waiting in the Hall

Nickel followed suit, sinking below the $10 mark, but recovered slightly to edge back over it and close at $10.0115/lb., down 22 cents. Zinc was pounded, barely coming off its intraday low to end at $0.8951/lb., down 5¼ cents. Aluminum wasn’t spared, shedding 3¼ cents to $1.2899/lb., while lead cratered as well, giving up nearly 4½ cents, to $0.8629/lb.

The base metals took an absolute hammering on Thursday, as traders cast an eye on the relationship between rising stockpiles and potentially diminishing demand, and came away with a lot of negative thoughts.

The stock increases are seemingly happening across the board.

Copper inventories monitored by the LME were up 600 metric tons (0.5%) yesterday, to 126,400 tons. It’s the highest level since March 13, and the metal has gained 14% just this month. Analysts are also expecting Shanghai to report an increase of some 7,000 tons this Friday.

Among the other metals, lead inventories showed an increase of 1,550 metric tons yesterday, while zinc was up a hefty 7,850 tons.

Lead is also “weaker at present in part because demand is seasonally soft,” said Lehman Brothers analyst Michael Widmer.

Factor in currency as well. “The stronger dollar is of course undermining [copper],” said Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. “The bond market is heading down, which means interest rates are going up.”

And Ed Meir, of MF Global, cited “the sluggish pace of recent imports” into China.

In company news, Rio Tinto remained on the offensive against BHP Billiton’s takeover bid. Rio CEO Tom Albanese predicted seven years of near-double-digit annual production growth as he argued that BHP’s bid is too low.

Rio can expect compound annual output growth of 8.6% through to 2015, and the company is well placed to take advantage of an expected doubling of world demand for metals and minerals by 2022, Albanese said.

Source: Base Metals Beaten Senseless – Rising Stockpiles Blamed

Nickel sank steadily through most of the day, closing at $10.2315/lb., down almost 47 cents. Zinc hit the skids, just coming off its lows in the late morning to end at $0.9475/lb., down nearly a penny and three-quarters. Aluminum also halved its losses, winding up at $1.3221/lb., down more than a penny and three-quarters, while lead was down modestly, dropping a half-penny to $0.907/lb.

Copper slid following announcement of a steep rise in stockpiles, taken as a potential signal that demand may be waning. Inventories monitored by the LME were up by 1,400 metric tons yesterday, to 125,800 tons. That marked the highest level since March 13.

But are we entering a full-bore correction?

Metals analyst William Adams, of Basemetals.com, isn’t quick to jump to that conclusion. “In the absence of fresh supply disruptions in the base metals, the path of least resistance seems to have been to the downside recently, however dips have remained well supported as bargain hunters have stepped in to take advantage of these lower price levels,” he said.

In the short term, however, “There is nothing out there to be really bullish about,” said Adam Rowley of Macquarie Bank. “Nickel was looking like it might tighten up a bit, but the stainless steel production cuts that have been announced in China have really put a lid on that,” Rowley added.

And Mining Journal Online reported that, “Low refined nickel prices and stricter government enforcement of environmental standards have cut into profits for Chinese nickel pig iron producers, forcing some to suspend production.”

In company news, the day after Rio Tinto announced it was suing the Indonesian government over the issuance of mining permits to local firms, Rio said that the Sulawesi project at the center of its efforts in the country is a tier-one opportunity.

Rio Tinto Copper CEO Bret Clayton called the 162-million tonne Sulawesi nickel deposit “a substantial resource” that will provide an attractive entry for Rio Tinto into a new metal. Clayton added that “in ten years’ time, Rio Tinto could rank among the top ten nickel producers globally.”

Source: Base Metals Beaten Down Some More

Nickel succumbed to selling after Friday’s rally, but came off its early lows to close at $10.7002/lb., down a bit more than 30 cents. Zinc was in a downtrend most of the day, ending at $0.9654/lb., down more than a penny. Aluminum was up in the pre-dawn hours but gave it all back, shedding a half-cent, to end at $1.3408/lb., while lead bucked the trend, tacking on nearly a penny, to $0.912/lb.

Copper more or less held its ground on falling stockpiles. Inventories monitored by the LME lost 975 metric tons yesterday, to 124,400 tons.

The others were mostly off, leading BaseMetals.com analyst William Adams to comment that, “After the weakness seen last week, the metals are well positioned to see some bargain hunting, but much will depend on how confident the market is.”

Well, isn’t that always the case?

Meanwhile, nickel took the biggest hit in the group. “Nickel prices are likely to continue to trade heavily over the medium to long term,” said JP Morgan analyst Michael Jansen. “This reflects two major price drivers — ongoing substitution towards nickel in pig iron in China (at the expense of cathode) and an acceleration in western world mine supply.”

With a host of new mines expected to come on line in the next few years, the increase in nickel supply from 2010 onwards could be “quite spectacular,” Jansen said.

“We now anticipate that the nickel supply/demand balance will be a significant surplus for 2008 into 2010 at least, and quite possibly for a year or two afterwards,” he concluded.

In company news, the Indonesian unit of Rio Tinto has sued a regional government in Central Sulawesi for issuing a mining permit to local firms while it is still negotiating with the government over the area.

Rio is in negotiation with central and regional governments to obtain a permit to exploit the La Sampala nickel deposit in Central Sulawesi.

And Nautilus Minerals has started a new collaborative exploration program in association with the Australian National University and Teck Cominco, to search for new seafloor massive sulphide systems in the waters off Tonga.

Source: Base Metals Still Floundering

BHP has booked 17 “Capesize” bulk ore carriers to carry its ore from the Pilbara to China next month. Normally, BHP books about 9 bulk carriers per month. But in April, BHP booked 13 and Rio Tinto 16. The armada of iron ore is relentless.

But BHP’s latest big booking may be exploiting a weakness in Rio Tinto’s flank, according to today’s Australian. Remember that last week reports circulated that the semi-official China Iron and Steel Association was calling for a boycott of Rio Tinto by Chinese steel makers. The Association pointed out that Rio was only fulfilling 82.2% of its contract obligations to Chinese mills.

That would matter for a simple reason. Last year’s contract price for ore is between US$60 and US$70. Meanwhile—because China imported a record 42 million tonnes of ore in April—ore in the spot market is going for closer to US$200. Rio said last year it would sell more ore in the spot market to take advantage of the big spread. The move was widely seen as a way of pressuring Chinese steelmakers to accept a much higher contract price for 2008 AND the so-called “freight premium.”

Hmm. If China is punishing Rio, is it rewarding BHP? Or is this a divide and conquer strategy? Either way, we have six weeks to go before a new contract must be signed. The strategies are clear: BHP and Rio want more for ore, China wants to pay less. But the tactics are sure getting interesting.

Either way, shipping rates are going through the roof. There was some anxiety about this in late January of this year, when the average daily rate for booking a Capesize freighter from Brazil to China fell to a paltry $84,000. In a Diggers and Drillers story at the time, we pointed out that this was no cause for alarm.

In our story, “A False Signal in the BDI and Boom Times Ahead for Coal and Iron Ore,” we pointed out that the slump in shipping rates, as expressed in the Baltic Dry Index (BDI), wasn’t an “abandon ship” signal for the resource bull. A harsh winter in China halted exports of coal. The power crisis in South Africa halted South African coal exports. And ships were queued up in Newcastle as infrastructure bottlenecks and flooding in Queensland dropped production volumes at Aussie coal mines.

Those three factors led to the dip in the BDI. But it’s back with a vengeance now. Daily rates are nearing $300k from Brazil, according to the Australian. In 2003, before this resource love affair between Australia and China began, rates were closer to $17k per day. Jeez, that’s barely 340 shares of BHP at today’s price.

“The dry bulk market is officially in riot mode,” says an analyst Norwegian-based Imarex. “Nearly 17 per cent of the 750-strong global fleet of Capesizes were delayed at ports over the weekend, according to the Global Port Congestion Index, which tracks ship delays,” again from today’s Australia. “Of the 129 bulk carriers at anchor, 52 are off Australia, with another 51 at ports in Brazil. Of the ships waiting off Australia, 38 are off Newcastle waiting for coal.”

Want coal, iron ore, or some other dry bulk commodity? Take a number.

Not everyone has their party hats on, though. A new report from Lehman Brothers says the commodity boom will become a commodity collapse at the turn of the year. “Once uncertainty about the physical state of the supply-demand balance clears, in terms of both inventories and spare production capacity, markets may face a sharp correction,” says Lehman analyst Edward Moore.

When predicting the demise of a bull market, it is important to distinguish between real demand and financial demand. If commodity prices were high merely because of financial speculation or foreign money bidding up Australian resource stocks, you bet we’d be concerned. And there is certainly a gathering momentum in the resource market that has just the whiff of a mania to it.

But it’s just a whiff right now. The term “perfect storm” is so overused that we refuse to use it any longer. So instead, you can think of the commodities bull as a positive feedback loop. That’s a situation where the causes of a given phenomenon accumulate and amplify the phenomenon. Boom begets boom.

Higher prices in commodities beget higher prices because they attract both investment demand (hot hedge fund and futures money) and eventually, hoarding. The great unknowns in the market are how much demand is real economic demand and how quickly supply can grow. Many oil skeptics, for example, believe there is plenty of oil in the world and that prices have taken on a fictitious life all their own.

But in the mania state of a bull market, prices become increasingly unstable and volatile as they go higher and higher, more and more removed from real supply and demand. We are clearly nowhere near that stage yet for bulk commodities or, we would argue, for oil. The boom is not yet a bubble.

If the boom goes bust, it will be because demand falls apart in China, or because the housing-related economic woes in America have a much worse second half than anyone is planning for. But right now, the new Silk Road isn’t a land route in Asia. It’s a line of Capesize haulers that stretch from Australia to China and back again.

We’ll have more specifics on oil Thursday and Friday. We’re taking a planned trip back to North America for two weeks and have decided to publish our analysis of the oil market in a two-part essay later this week. Until tomorrow…

Dan Denning
The Daily Reckoning Australia

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Source: Dry Bulk Market in Riot Mode

Nickel had a couple of steep ups and downs, but eased off of both highs and lows, closing at $11.7291/lb., down 6¼ cents. Zinc fell from the pre-dawn hours until mid-morning, then came off its lows to end at $1.0222/lb., down 3 cents. Aluminum was down early but traded sideways for the New York day, eventually losing a penny and a quarter, to $1.338/lb., while lead was off straight through, barely edging above its intraday low at $1.0113/lb., down more than 3¾ cents.

Copper fell off primarily on stock increases. Inventories monitored by the LME gained a healthy 1,500 metric tons yesterday, to 122,725 tons.

Analysts believe that there has been some retracing of speculation as to how much extra demand will emerge from China for reconstruction efforts in the wake of last week’s devastating earthquake.

Some are arguing that that copper demand may not take too much of a boost from reconstruction work, because the worst hit areas were largely suburban rather than industrial.

Likewise, traders were downplaying any effect that earthquake-related smelter closings would have on zinc supply. The shutdown may result in production suspension of 15 days or more, but affects less than 1% of China’s annual output, according to a report from the Macquarie Group.

“This minor cut in supply is unlikely to significantly reduce the surplus that we were forecasting for the zinc market for 2008,” the Macquarie analysts said.

Backing up that view were the latest figures from the LME, which reported that its zinc inventories grew by 5,075 tons yesterday, to 128,575 tons. It was the biggest daily gain since January 18.

In company news, the website metalmarkets reports that Rio Tinto is facing a potential boycott of its iron ore by Chinese steelmakers.

“Problems have arisen because,” the report said, “last year Rio made use of flexibility clauses in its contracts, that allowed the group to charge spot market prices for iron ore, at around 10% above the prices set in its contracts.”

A dicey situation, the report concludes: “While a joint action by the Chinese steel industry to boycott Rio’s spot sales could be deeply damaging to the company it would also put China in breach of World Trade rules.”

Source: Base Metals All Sink