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

Copper continues to meet serious resistance at $4, as it fell short of that mark again yesterday, primarily on nervousness about the economy.

The unease wasn’t helped any by some disappointing quarterly results. Goldman Sachs analysts noted that first-quarter U.S. earnings reports got off to an “awful” start last week, with GE stunning investors as it posted a decline in profit, and Alcoa reporting that earnings plunged by 54%.

“Poor equity-market performance” is behind copper’s listlessness, wrote Michael Jansen, a London-based analyst at JPMorgan Securities. “Demand continues to remain weak, especially in the U.S.”

With the exception of nickel, the sector was off yesterday, leading Michael Widmer, metals analyst at Lehman Brothers, to say that, “Base metals are pretty weak, though they recovered some since this morning. Macroeconomic data that wasn’t as bad as many had thought may have contributed to that.” Widmer cited data showing industrial output in the eurozone increased more than expected in February.

And Ralph Preston, of Heritage West Financial in San Diego, California, said that, “The recovery from the overnight spike to $3.8155 is very bullish for the metal … As long as the copper stays above $3.85, the bulls are still in control.”

In company news, Teck Cominco made a complex move, reporting that it will pay $425 million to acquire Global Copper, in order to gain control of the Relincho copper/molybdenum mine in northern Chile.

Global’s copper assets in Argentina, however, will be spun out as a new TSX-listed mining play, to be called Lumina Copper, which will also hold a royalty in the Chilean mine. Global Copper has agreed not to solicit rival bids and there’s a $12.5-million break fee due to Teck if a better offer is received.

A: This is the billon-dollar question when it comes to commodities. The United States is far and away the largest economy in the world, so of course, a severe recession would dampen demand for oil and other raw materials.

On the other hand, China and India are cramming decades of industrial revolution and massive infrastructure expansion into the next five to 10 years. From what we’ve seen so far, this build-out (which requires awesome amounts of raw materials) is offsetting the decline in U.S. demand.

However, speculating on demand is more like gambling than investing. We’ve got to consider supply constraints…The mining industry survived on such low prices for so long that now very few new projects are in the pipeline. In addition, some of the industry giants are in decline. For example, metal production from Chile’s Codelco, the world’s largest copper miner, has fallen for three straight years… and 2008 doesn’t look any better.

And new giant projects are suffering from the same higher costs hitting everyone…

The construction estimate to build the Galore Creek mine (NovaGold and Teck Cominco’s giant copper and gold project in British Columbia) escalated from $2.5 billion in 2006 to over $5 billion in late 2007. Most of that increase came from the rising price of basic materials like fuel and steel. Also, the cost of Canadian labor rose dramatically on the strength of the Canadian dollar.

However, I think the market is giving us an opportunity. I think we should own the companies that own the best new projects – ones that won’t produce anything for the next year or two. Those projects, because of the risk of development and the state of the market, are essentially free right now. (You can read about one of my favorite projects here.)

Q: What is the deal with the “Toronto” and “Venture” stock exchanges? I don’t know how to buy stocks on those things. – B.W.

A: I get this question a lot, because many of the world’s top mining companies are listed on foreign exchanges. Resource investors who limit themselves to the NYSE, Nasdaq, and AMEX are putting large shackles around their ankles. I often recommend stocks on the Toronto (TSX), Toronto Venture (TSX-V), London Aim (AIM), and Australian (ASX) exchanges.

But few discount brokers will buy these stocks directly on the exchange. While you can work your way through the deal, you often wind up paying huge fees for the service. Starting a position down 25% because of fees is a lousy way to speculate.

If you want to buy stocks on these exchanges, you’ve got to be prepared to elevate your game. If your regular broker can’t execute the trade without gouging you, I know of three brokers who can buy and sell international stocks with ease:

Global Resource Investments Ltd.
(800) 477-7853
www.globalresourceinvestments.com

Jeff Winn – International Assets
(800) 432-4402
jwinn@iaac.com

Dave Sjuggerud – Key Investment Group
(877) 539-1004
dsjuggerud@lasallest.com   

These brokers have provided honest, solid service to many of our readers in the past. They have excellent reputations for a reason. Neither Stansberry Research (publishers of Growth Stock Wire) nor I receive any kind of compensation for mentioning these guys. This is simply a short list of reputable brokerages that can buy these stocks.

If you want to use an online broker, I believe E*Trade and Interactive Brokers both trade stocks on foreign exchanges. But I’ve never tried either one myself.

And if you want to trade these stocks online, I recommend doing some research into the rules, tax laws, and currencies of each country. A good place to start on the currency research is EverBank’s currency research portal.

There are pitfalls out there for the unwary international investor. I actually found a company that U.S. investors were not legally allowed to own. It was a Canadian Trust that had my mouth watering… but it was for Canadians only. That’s why I recommend using a qualified broker to buy foreign stocks.

Good investing,

Matt Badiali