Analysis

The Times May 29, 2006

Base metals demand rational thinking Anatole Kaletsky

WHO would have imagined at the beginning of this decade, when the internet mania was still in full swing, that by the second half of the decade most of the stories dominating business headlines would not be about nano-electronics or quantum-computing, but about global consolidation in such quintessentially old-economy businesses as steel, copper and oil? Or that most of the new entrants into the global billionaires league in the early years of the 21st century would not be technology entrepreneurs or software designers, but Indian ironmasters, Texan oil speculators and Russian commodity oligarchs?

But what will happen to the small investors, pension funds and charity endowments who have decided to make their fortunes by buying up copper, steel, oil and other commodity assets, belatedly inspired by the sensational riches accumulated by the likes of Roman Abramovich, T. Boone Pickens and Lakshmi Mital? The chances are that these recent passengers on the commodity bandwagon will do no better than the tardy followers of Bill Gates, Michael Dell and Chris Gent.

The fact is that commodity prices many of which have risen fourfold since 2003 and have doubled during this year alone are rising on several false assumptions. The first is that the world economy will continue to grow very rapidly, as it has done since 2003. The second is that rapid global growth will cause demand for commodities to outstrip supply. The third is that even if demand growth did slow, commodity prices would be supported by the geopolitical and inflation risks created by President Bushs confrontation with Iran.

I have written in previous columns about my reasons for believing that the world economy would suffer what I call a mid-cycle slowdown, though probably not outright recession, in the year ahead, so let me concentrate on the other two arguments. The idea that even 5 per cent global growth would deplete global supplies of base metals such as iron ore, zinc or copper completely contradicts the experience of the past 50 years, which shows that the world economy can grow rapidly for decades while commodity prices have declined steadily in relation to other goods and services (see charts). Of course, this downward trend could not continue forever and a gradual recovery in commodity prices made good sense from the start of this decade onwards. But to rationalise the price explosion of the past 12 months would require a very dramatic change in supply and demand prospects and there has been nothing of the kind.

For example, the International Copper Study Group last week published global demand and supply estimates, suggesting that the copper market would end 2006 with a modest supply surplus, after an essentially balanced market at the end of 2005. Given that this balanced market triggered an unprecedented 150 per cent four-month price increase, some other forces must have been at play and the nature of these forces is fairly clear. Financial investors have been buying up oil, gold, copper and other commodities with little or no regard to the underlying supply-and-demand relationships, in a feeding frenzy very reminiscent of the 1990s technology boom.

In the case of oil and gold, there are at least some rational grounds for such speculation. Even if liquidity is drained from the global economy, if interest rates rise further than expected and if growth begins to slow around the world, oil and gold could easily remain in a powerful bull market for reasons that have nothing to do with the economic outlook. Oil and gold prices now incorporate a significant risk premium, reflecting the serious possibility of major supply disruptions connected with geopolitics. Suppose that America or Israel decided to bomb Iran. Without trying to speculate about the full geopolitical implications for example, whether such an event would deter or encourage Irans nuclear programme we can focus on one simple and predictable consequence of an attack on Iran. Iran would probably retaliate by closing the Straits of Hormuz, the shipping channel that carries 40 per cent of the worlds oil exports. In consequence, the price of oil would presumably shoot up to $100 or even $150. Gold would quite rationally jump in sympathy maybe to $800 an ounce or even $1,000 since the world economy would face a risk of stagflation and geopolitical conflict greater than at any time since the Yom Kippur War of 1973.

But how would copper, zinc and other industrial commodities respond? To judge by the behaviour of the markets, base metal prices would be expected to rise in parallel with oil and gold maybe even more steeply. That, after all, is what has been happening since early 2005. Whenever oil has risen in response to some new geopolitical threat or potential supply shock, the gold price has moved in tandem and other commodities have also jumped. But does this make sense?

A war or embargo in the Middle East or a revolution in Nigeria or Venezuela would certainly cut oil supplies and therefore boost the oil price, but such geopolitical upheavals would do no damage at all to the supply of copper or zinc. It would take revolutions in countries such as Chile, Australia and Russia to interrupt base metal supply. And even if such revolutions did happen, they would have only a marginal impact on global copper or zinc supplies because these minerals are much more evenly distributed around the world than oil. Yet while political upheavals in the Middle East would have no effect on global supply of base metals, they would have a very big effect on demand. Another oil shock would devastate industrial production and therefore commodity demand.

With industrial demand dropping, while commodity production remained unaffected, the market price of copper, zinc and other base metals would collapse. If the Straits of Hormuz were closed tomorrow, the price of oil would probably soar from $70 to $150 and gold might jump from $650 to $1,000 but the price of copper would plunge from $8,000 to $4,000 a tonne.

Todays unpredictable geopolitics may justify a supply-risk premium for oil and gold. Base metals, by contrast, should suffer a discount for demand-risk and they will when investors start to think more rationally about commodities and global shocks.

Don't bet the farm on the mine. Commodity stocks like copper are through the roof -- but don't count on them staying there.

FORTUNE Magazine By Nelson D. Schwartz, FORTUNE Europe editor
May 26, 2006: 6:51 AM EDT

LONDON (FORTUNE) - Like the teenagers who favored Benetton shirts and Jams shorts in the 1980s, individual investors can fall for fads whose appeal seems scarcely understandable after the fact.

I'm not just talking about obvious examples like Pets.com, I'm referring to whole classes of investments - remember when ads on the radio said you just had to be in CMOs (collateralized mortgage obligations) or emerging markets or telcos? I do - and I remember the pain when those bets came a cropper.

Right now, there's a fierce debate going on in the markets over commodities, which have enjoyed an incredible run-up this year.

Proponents say we're just in the early stages of a long-boom driven by China and other newly industrializing countries that will mean high demand for copper and other basic commodities for years to come. Bears, who've watched commodities pull back sharply in recent weeks, argue that we've finally peaked and more pain is on the way.

What no one disagrees about is the power of the nearly vertical rally in base metals - copper, zinc, nickel, aluminum, lead - and in the shares of the companies that extract them from the ground. Since the beginning of this year, copper has gone from $4,400 per ton to $8,075. Zinc has done even better, rising from $1,910 to $3,537, according to Barclays metals analyst Ingrid Sternby.

"Fundamentals and speculative factors have gone hand in hand," says Sternby. "If the fundamentals weren't supportive, we wouldn't have seen higher prices."

Maybe so. In any case, I'm not going to make a call on commodities - if I were that good, I'd be sitting on my own island in the Caribbean and not writing this column. But what I will say is that individual investors should proceed with extreme caution, both in terms of investing in commodities themselves and in buying newly popular metals plays like Phelps Dodge (Research), Freeport-McMoran (Research), Southern Copper (Research), BHP Billiton (Research), and Rio Tinto (Research).

This doesn't mean they'll go down - heck, they might keep heading straight up - but it won't be a smooth ride in either direction.

Copper looks especially vulnerable. Along with wiring and other industrial uses in places like China, copper also goes into new home construction in the United States. If the U.S. homebuilding market slows (not unlikely in view of higher rates) or economic growth drops from its currently blistering 5.3 percent rate, copper demand could certainly ease.

That would hit shares of Phelps Dodge hard. A smarter, more diversified play for cautious investors is Australia's BHP Billiton. As London-based metals hedge fund manager Keiron Mathias notes, BHP is strong in iron ore and coal as well as hot base metals like zinc and copper, while shares of Phelps Dodge are much more correlated to volatile copper prices.

The last time around we had a fad like this, individual investors who got burned on Internet stocks claimed they were misled by the Henry Blodgets and Mary Meekers of the world. And many strategists and analysts remain bullish on metals now. They argue that even if prices decline a bit more, high-quality companies like Phelps Dodge will continue to make big money. That's true - but that doesn't mean even higher metals prices aren't already priced into the stocks.

If you don't believe me, check out the drop in oil-related shares recently. Energy companies are still on track for multi-billion dollar profits this quarter, gasoline is still at $3 a gallon, but the modest pullback in oil prices has pulled shares of even the best-managed companies like Exxon Mobil and BP lower.

So if copper comes a cropper, don't say you weren't warned.

Daily Telegraph (Filed: 29/05/2006) Ambrose Evans-Pritchard

Ignore the world's biggest central banks at your peril


Round one to the Bank of Japan, ultimate cause of the violent sell-off in stocks, commodities, and riskier bonds across the world over the past three weeks.

Governor Toshihiko Fukui has bled more than $140bn (75.3bn) from his banking system since March 9 to reduce a menacing overhang of liquidity left from the battle against deflation. He is halfway through.

No longer buying fistfuls of US Treasuries with printed money to hold down the yen, the Bank of Japan has been the silent force pushing up global bond yields this year by 0.8pc - the jump that really lies behind the market rout.

Or rather, it has stopped holding yields down to the lowest levels in a century. Japanese holdings of US Treasuries have fallen by $74.5bn since December. "We are reaching an inflection point in monetary policy," said Mr Fukui.

Inflection to some, bloodbath to others. The first casualties began to emerge on the fringes of the "yen carry trade" earlier this spring.

Hedge funds that had borrowed for zilch in Tokyo, to lend for a fat premium to overheating Iceland and New Zealand, began rushing for narrow exits.

The storm has since swept up much of the globe, setting off the steepest falls in emerging market stocks and bonds since the Russian default in 1998.

"Most people underestimated the effects of monetary tightening in Japan," said Phillip Poole, an economist at HSBC. "The liquidity that has driven these markets is being withdrawn."

The next Japanese spanner in the works will be the end of zero interest rates, or zirp as it is known. Bank-watchers have pencilled in July or September for the moment of reckoning.

Few investors lose sleep worrying about life after zirp, but our guardians at the Bank of International Settlements view it as the greatest imminent risk to global markets.

The Japanese have built up net foreign assets worth $2,500bn, investing abroad what they refused to spend at home during their 15-year slump.

Now they are buying again. Tokyo and Osaka land prices are ticking up smartly after falling 57pc since 1990. The IMF forecasts 2.75pc growth this year

"We are all going to have to look over our shoulder when Japan raises rates because nobody knows what is going to happen when all this money goes back home," said a BIS official.

Even so, round two may yet go to the European Central Bank on June 8 as Frankfurt's hawks lose patience with exploding M3 money growth, and a housing bubble threatening the viability of monetary union itself.

Housing loans (ex Germany) grew 19.4pc in the year to March, on top of the 17pc surge the year before. Spain is a disaster waiting to happen. In Portugal it has already happened.

Judging by the apocalyptic tone of the Bundesbank's May report, Europe is on the brink of a monetary shock going far beyond the mincing half-measures trickled out until now by Jean-Claude Trichet, ECB chief and French "soft euro" inflationist.

"There are immediate inflationary risks emerging," said the bank, citing monetary growth of 10.5pc as a "serious warning sign" that policy was too lax. The eurozone's HCIP inflation is now 2.5pc.

Mr Trichet - and his Club Med allies - can ignore the Bundesbank, as he did earlier this spring, reneging on a quarter-point May rate rise (to 2.75pc) already signalled to the markets.

But that way lies perdition, for the ECB has no more credibility than the Banca d'Italia without Buba's reflected glory.

On the warpath, the Teutonic-bloc is now trying to shame Mr Trichet's doves into doing their monetary duty. "There is no dispute that a further tightening of monetary policy is needed," said Austrian governor, Klaus Liebscher.

We have been warned. The ECB is about to bare its fangs for the first time since EMU. Germany is back, and a reawakened Buba is snorting with the same bloody-minded determination it displayed before causing the 1987 crash and the 1992 bust up of the ERM.

Yet round three must surely go to the US Federal Reserve with a 17th consecutive rate rise to 5.25pc - if we get that far.

Ben Bernanke was back-peddling fast in a letter to Congress last week, pleading that core CPI inflation "overstates" price rises. "Monetary policy must be forward-looking," he said.

Has the Fed already gone too far, baking a recession into the pie? Will the delayed effects of past tightening kick in, with mounting ferocity, just as the housing boom plummets into bust?

"Housing mayhem seems unavoidable. The US hard landing begins now," said Charles Dumas, global strategist at Lombard Street Research.

Mortgage applications are down 17pc in a year. House sales are down 5.7pc, and inventories of unsold new houses are at their highest since 1996. The central prop holding up the US consumer boom is crumbling, leaving behind record household debts equal to 127pc of disposable income.

"As the hard landing/recession arrives, it is the Asian exporters, the commodity markets and currencies, and especially the base metals that are likely to crash over the next year. The game is up for assets that have gone way too high on the basis of cheap funding and optimistic delusions," said Mr Dumas.

Teun Draaisma, Morgan Stanley's chief European equity strategist, had a warning for bargain hunters, even after the 8pc fall in European stocks and 15pc fall in the MSCI emerging markets index. "Do not be tempted to buy. The first violent part of this correction took nine trading days: the second part may well take several months," he said.

The world has enjoyed a magnificent boom for 24 years, punctuated only by light downturns along the way. The cycle has been kept alive beyond its natural life by ever-laxer monetary policy, feeding ever bigger asset bubbles and encouraging ever-higher levels of debt.

Central banks can draw down prosperity from the future for a while. In the end - now? - the future arrives.

Market watcher believes prices near cyclical peaks: Natexis

Source: Mining Weekly 26 May 2006


London-based commodity specialist Natexis Commodity Markets believes that further upside price potential is limited for most base metals, despite the persistently low level of inventories globally.

The company writes in its May report that it has a somewhat cautious attitude towards the booming sector, and believes that prices are at, or close to, cyclical peaks.

With regard to aluminium, Natexis states that new cycle highs are possible for this commodity. The supply side of the aluminium market is not encouraging, though, notes the report.

According to the latest data from the International Aluminium Institute, production (excluding China) increased by 4,6% year-on-year in the January to February period.

If the sharply higher production in China is taken into consideration, global output has increased by 7,7% so far this year.

Higher production in China is maintaining the country's position as a net exporter of aluminium a trend Natexis expects to continue.

"The much-vaunted curbs to primary aluminium output have yet to emerge, while there are significant increases to aluminium in the pipeline.

"Although prices may go higher in the short term, we believe that prices are close to the peak.

"We are projecting an average annual price of $2 600/t for 2006, followed by $2 200/t in 2007." As for copper, Natexis reports that the combination of fund activity and supply disruptions against a background of low inventories has pushed prices to levels that were unthinkable just a few weeks ago. The commodity specialist states that high copper prices will accelerate the substitution pressures that are already curbing demand in some applications. It is also apparently leading to a reduction in Chinese imports. In the first three months of this year, Chinese imports of copper cathode registered a 37% decline.

As a consequence, Natexis Commodity Markets has scaled back its consumption projections and, despite the recent production losses, projects a surplus in 2006 and 2007.

"Given that price levels in April are massively above the marginal cost of production, we believe that it will only take a modest increase in inventories to trigger a significant decline in prices.

"We are projecting an average annual price of $5 000/t for 2006, followed by $3 750/t next year." Natexis notes that lead has underperformed the rest of the base-metals sector in recent months as inventories climbed, with the expectation that they will trend even higher.

Once it becomes clear that the extreme tightness is behind the market, the commodity specialist expects even further price declines. "We forecast an average annual price decline to $1 100/t in 2006, followed by $900/t in 2007." As for nickel, Natexis reports that the price recently increased to a new cycle high of above $20 000/t as demand from the stainless steel sector has improved.

"High nickel prices have prompted a shift towards grades of stainless steel which contain lower amounts of nickel, such as the 200 series or ferritic grades that contain no nickel.

"The recent surge in nickel prices will soon begin to have an impact on the stainless steel market through higher alloy surcharges. "We believe that this will affect both stainless steel production and nickel consumption later in this year. "Natexis expects a correction in prices from mid-April highs, and forecasts that the average annual price will be $15 000/t from 2006. The prospect of higher production towards the end of 2007 should see prices retreat to an average of $12 000/t.

The company also reports that the tin market will be in modest surplus for 2006 and 2007.

"Once some of the speculative buying activity has abated, we expect prices to retreat.

"From a historical standpoint prices should remain at elevated levels and we project an annual average of $8 000/t for 2006, followed by $7 500/t next year." With regard to zinc, Natexis reports that many of the aspects that are currently supporting the price will remain relevant for some time.

It projects an annual average of $2 600/t for 2006, followed by $1 800/t in 2007.

Thanks. Sobering but very interesting articles. Rather than metals I believe the best value are medium cap oil shares with a North Sea production base which funds overseas exploration.These companies can expand rapidly without incurring large liabilities on the balance sheet.

Apart from unpredictable geopolitics justifying a supply-risk premium for oil it will be differcult to alter a mindset that requires a five litre wagon to take the kids to school.

Source: Dow Jones 2 June 2006

Copper fabricators seek alternatives after rally


European copper fabricators are putting a renewed emphasis on research and development to come up with new products that either reduce the use of copper or replace it altogether, industry participants said Tuesday.

Copper prices have more than doubled on the London Metal Exchange since the start of the year, prompting the move away from the metal in products used in a variety of industries including plumbing and electrical transmission.

Fabricators are turning instead to commodities such as aluminium and plastics, and work is even underway to try to eliminate copper's natural advantage in conducting heat and electricity.

That R&D has already led to a variety of new products.

One example is the emergence of a new innovation for the plumbing sector using copper in panel heating systems, cooling panels and radiator connections.

Known as Q-Tec copper tube and developed by German copper fabricator KM Europa Metal AG, the product is far easier to install and costs a lot less because its thinner walls, which are covered in protective plastic, require much less copper than traditional tube.

And KME has also developed TECU, a product used in roofs and facades that is 40% to 50% thinner than its traditional, copper-based counterpart.

It's already been used for buildings such as the Israeli embassy in Berlin, the Hamburg city warehouse in Germany, the De Young museum in San Francisco and the harbor control tower in Lisbon.

"Whether or not copper products are substituted depends on the individual products and length of the supply chain," said Simon Payton, secretary-general of the International Wrought Copper Council. "Plumbing tube, for instance, has a short supply chain, from a building merchant to a plumber, so there's far less room for a price increase to be absorbed."

According to Bob Oakley, a consultant for the Institute of Plumbing & Heating Engineering, copper's "very expensive" installation cost means it is being increasingly replaced by plastics in this sector.

"There have been a number of new plumbing developments using plastic, such as pipe flooring and hot- and cold-water cylinders, although these are also using stainless steel," he said.

"Plumbers quote for jobs and then several months later when they go to buy the materials, they find that copper prices have doubled. And if they have a contract with a client for a fixed price, then they are forced to either accept it or breach the contract. It's a very serious situation," he added.
Copper still vital

Yet Oakley thinks there's still no ideal replacement for copper. "Plastic is not the answer copper is still the best available option for plumbing. If it was my house, I'd have copper. But the high copper price is hitting everybody," he said.

"Carbon steel is sometimes used as an alternative to copper but it can leak. And while developers are using plastic, it is not as durable and can damage during installation. Some manufacturers have changed their designs three times because plastics aren't effective," he added.

Frank Jones, director of the Plastic Pipes Group, the U.K. trade association representing manufacturers and material suppliers of plastics piping systems, begged to differ.

"There's been a steep increase in plastic used in hot- and cold-water central heating. Higher volumes are related to new house starts and are gaining continuously due to the benefits such as cost advantage," Jones said. "We're benefiting from consistent growth in the use of plastics as an alternative to copper, and we expect this to continue," he added.

Winchmore Hill Plumbing, a London-based building merchant, said speed-fit plastic has barely risen in price over the last six months, while the equivalent in copper has more than doubled. So plumbers who are often shocked at how fast prices are rising have started to buy plastic instead.

Independent metals consultant Simon Hunt said the situation with copper is similar to that seen in the mid-1960s, when substitution studies for Western Europe show that the region lost 18% of its copper markets to alternative materials such as aluminium.

"I estimate it will lose this again, slowly, over a five-year or more period. The sector needs to retool, and consider its options with research and development," Hunt said.

Copper is even losing out in industries in which it was long considered irreplaceable. Johnson Controls' (JCI) air-conditioner manufacturer York, for example, has started to market an all-aluminium unit.

"This could be very serious for copper, with that industry consuming over one million tons a year," said Hunt. "The risk is that Chinese air conditioning makers are looking at similar alternatives," he added.

And now that high-electrical voltage transformers are being made from aluminium instead of copper, industry participants believe it's only a matter of time before a similar scenario is seen in the full range of transformers.

"Aluminium is much more end-use driven and manufacturers view current copper prices as a generational opportunity to increase their market share," Hunt added.

London Metal Exchange copper traded at a contract high of $8,825/ton on May 11 and traded around $8,400/ton Tuesday. This is up from around $4,000/ton at the start of 2006.

I don't think we've seen the end of the metals boom just yet, OK plastics are cheaper but designs and fashions favour natural products at the moment. Also lets not forget that metals are high in demand especially within technology which plastics being an awfull conductor can not compete against.

BHP Billiton, the worlds biggest mining group, has postponed the A$900 million (360 million) expansion of its Worsley alumina refinery in Western Australia, citing soaring labour and material costs.

biased thread,put arguments up for bulls,theres plenty around.

like???

due to the low prices for many base metals in th 1980's and 1990s there was a severe lack of new mines being commissioned during the period. This has resulted in the surge in, for example, the copper price over the last few months.

The increase in the copper price will make it attractive for new mines to be commissioned where it was previously uneconomical. However production will still be a few years away.

Therefore the current demand, especially from China and India, should ensure that the price remains historically high as current production is unlikely to satisfy demand for the forseeable future.

On this basis I am still of the opinion that the likes of Kazakhmys and Antofagasta represent extremely good value (even compared to the diversified giants such as Billiton and RTZ).

Both are awash with cash with Antofagasta giving special dividends and Kazakhmys looking for suitable acquisitions.

All IMHO of course !!!!

Ian

7 June 2006
Southern Copper: Output may fall substantially on strikes

Source: Dow Jones


Copper Concentrate Catalog

Southern Copper Corp. (PCU) Chief Executive Oscar Gonzalez Rocha said Tuesday that copper production could fall substantially this year due to strikes at its Mexican mines at La Caridad and Cananea.

Workers at La Caridad, Mexico's second-largest copper mine, have been on strike since March 24. Disputes have more recently led to work stoppages at the Cananea site, which is Mexico's largest copper mine.

Gonzalez Rocha said the company has "no idea how long the strikes could last."

"Production at Southern in Peru and Mexico is some 700,000 metric tons, and with these strikes it could drop substantially, depending on how long they last," he said, adding that the losses over three months could be some 80,000 tons.

The company has said it hopes to make up some of the shortfall with production at its Peruvian units.

Gonzalez Rocha also confirmed that the company will make an offer on Wednesday for the Toromocho copper project in southern Peru, owned by Peru Copper Inc..

"They should receive from an investment bank an offer from Southern tomorrow, as the deadline is midday," he said, calling it an "important" project.

The company had said earlier it could present an offer for the Toromocho project, located 142 kilometres east of Lima in the central Andes.

On March 6, Peru Copper said the Toromocho project has 1.26 billion metric tons of proven and probable reserves at an average copper equivalent of 0.68%.

Southern Copper has also started talks with several other major mining companies about a possible merger or other sort of joint venture or sale. The company had earlier named Phelps Dodge Corp., Xstrata PLC, Rio Tinto PLC, and Anglo American PLC as companies of interest.

Gonzalez Rocha said that the number of interested companies had narrowed.

"We still haven't visited the companies," he added.

Southern Copper operates mines, smelting and refining capacities in Mexico and Peru.

7 June 2006 Copper rebounds on hedge fund driven trade: LME

Source: Dow Jones


London Metal Exchange three-month copper rebounded in illiquid, hedge fund-driven trade to end the afternoon session higher on the day, after coming precariously close to a critical move below key technical support, traders said.

LME copper had earlier teetered around $7,245 a metric ton, the recent May 22 low, but support held. After an illiquid afternoon session, LME copper resumed its rise and hit an intraday high of $7,825/ton before closing the kerb session at $7,780/ton.

This is up 8% on the day's lows but still down 12% on the all-time high of $8,825/ton, hit May 11.

Traders attributed the rebound to covering from one or two large U.S. hedge funds whose bearish stance had led them to go short in anticipation of much lower prices.

"The lows haven't materialized so these players are having to come back in as buyers to cover positions in the short term," a trader added.

Another U.S.-based hedge fund that is active in copper and holds a generally bullish view of the market in the long-term was also said to be buying the metal during the kerb.



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DJ Comex Copper Review:Trimmed Losses, Reversed To End Higher

NEW YORK (Dow Jones)--Comex copper futures trimmed their losses on the day to
settle higher Wednesday at the New York Mercantile Exchange as buyers emerged
at the lows, trader sources reported.

The benchmark July copper contract settled 9.45 cents higher at $3.5840 per
pound. At the open the contract ignored bullish fundamental news and dropped to
a session low of $3.3550 per pound.

Traders at Triland Metals noted that copper traded lower despite news that
producer Grupo Mexico SA (GMEXICO.MX) declared force majeure on June and July
copper deliveries as a strike at its Cananea copper mine entered its sixth day.

"The strong dollar and weakness in the precious metal and falling stock
markets were the main influence," the traders said referring to copper's drop
in price.

Amid that news, speculative liquidation and short selling ran copper to its
lows of the day before trade buying appeared.

Scott Meyers of Pioneer Futures said he remains bullish on metals despite its
recent corrective patterns.

"Copper is trending back up and these pauses seem to refresh the market,"
said Meyers.

Other traders noted that New York copper rebounded as the London market also
moved off its lows in illiquid, hedge fund-driven trade.

Strong demand to keep copper prices high Thursday Jun 8 19:49 AEST


Strong demand from China and supply bottlenecks could keep copper prices high for a number of years, a top Rio Tinto executive said.

"We see a robust outlook from the demand side," Tom Albanese, Rio Tinto's chief executive for copper and exploration, told reporters at a conference.

"And it will take, probably, a number of years before we see some of these constraints from the supply side beginning to be taken out of the system."

There is a shortage in everything from equipment to engineers to ballbearings, which combined with stricter environmental regulations worldwide is slowing the development of new mines and keeping prices high, Albanese said.

Grupo Mexico Warns of Closing Copper Mine



MEXICO CITY, Jun 08, 2006 (AP Online via COMTEX) -- Mexican mining giant Grupo Mexico announced Thursday that it will be forced to close one of the country's largest copper mines if workers continue striking.

Grupo Mexico issued a news release stating the company would "be forced to close the mine and concentrator" at La Caridad copper complex in northern Sonora state if strikes continue at La Caridad mine and the nearby Cananea mine.

Workers at Cananea, Mexico's biggest copper mine, walked off the job June 2, saying the company had refused to give half of the workers the day off to celebrate the 100th anniversary of a historic 1906 strike at the mine when it was owned by a U.S. company.

The strike at the Cananea mine added to the supply problems already caused when workers at La Caridad, the country's second largest copper mine, went on strike March 24, demanding government support in their ongoing dispute with the mining union's leadership.

Mining workers across Mexico have demanded government recognition of Napoleon Gomez Urrutia as the leader of the miners union, but the government has instead maintained that dissident Elias Morales is the new leader of the union, despite a number of union meetings in which Urrutia was ratified.

Gomez Urrutia is accused of misappropriating $55 million in funds paid into a trust by Grupo Mexico in relation to the 1990 privatization of La Caridad and Cananea, and a judge in Sonora last week issued a warrant for his arrest on fraud charges. He was in Canada last week.

The growing dispute has already escalated into strikes at a number of key mining and steel operations.

Grupo Mexico has said that Mexican copper production in 2006 could drop as a result of the prolonged strike at La Caridad, after the company earlier in the year forecast production to rise.

La Caridad produces about 150,000 metric tons of copper concentrate a year and 250,000 tons of different refined copper products. Cananea produces about 140,000 tons of copper concentrate and 50,000 tons of refined copper.

Branding the ongoing strikes as "illegal activities," Grupo Mexico said that not only the Caridad mining complex, but also the Cananea mine would be closed if a lasting solution wasn't reached promptly.

Daily Telegraph June 9

Workers at Anglo American's Kumba Resources unit, the world's fourth-largest iron ore producer, declared a dispute with the company after pay talks failed, clearing the way for a strike, a union said.

Copper Futures in Shanghai Tumble as Rate Rises Spur Fears of Lower Demand

June 9 (Bloomberg) -- Copper futures in Shanghai declined after central banks in Asia and Europe raised interest rates to curb inflation, threatening to slow economic growth and demand for commodities. Aluminum also dropped.

The European Central Bank, the Reserve Bank of India, the Bank of Korea and the Reserve Bank of South Africa increased benchmark rates yesterday, sending copper down in London and New York. The slump may signal the end of a five-year commodity rally fuelled by demand from China and increased investment by hedge and pension funds.

``The rate increases will slow down economic growth,'' said Li Rong, copper analyst at Great Wall Futures Co., by phone from Shanghai today. ``Copper has been declining from records since mid-May on expectations of such rate increases.''

Copper for delivery in August fell 2,730 yuan, or 3.9 percent, to 66,620 yuan ($8,316) a ton on the Shanghai Futures Exchange at the 3:00 p.m. close. The metal, which earlier dropped by the daily limit of 4 percent, has slumped 22 percent since it reached a record on May 15. It fell 4 percent this week.

``Investors are selling commodities to avert risks,'' said Shen Haihua, vice president of Maike Futures Co.

Slower growth prospects may prompt investment funds to reduce stakes in commodities. Pension and hedge funds had helped to fuel the rally in copper and other metals as they sought better returns than stocks and bonds.

Higher Risks

``The risks are higher for funds to continue to invest in commodities,'' said Maike's Shen, who believes the U.S. dollar is a better investment than commodities.

Copper for delivery in three months on the London Metal Exchange rose $65, or 0.9 percent, to $7,375 a ton at 3:29 p.m. Shanghai time. It closed 6.2 percent lower at $7,310 yesterday.

Commodities: Gold keeps sliding

Fri 09 Jun 2006
LONDON (SHARECAST) -

There were further losses on the gold market, with a stronger dollar continuing to erode the yellow metals bumper gains built up earlier this year.

Thursdays losses take golds slide to $120 from the 26-year high seen at $730 on 12 May as it loses its attraction as a hedge against a weak US currency.

Traders are now bracing themselves for a possible move below $600, which they say could spark off a round of technical selling sending prices south towards $540.

Meanwhile silver tumbled to a 10 week low at $11.18 an ounce, while July platinum was more than $41 adrift at $1,190.10 an ounce. Copper for July delivery was 22.7 cents worse at $3.3570 a pound.

Copper Heads for 2nd Weekly Drop on Concern Rate Increases Will Curb Usage

June 9 (Bloomberg) -- Copper headed for a second consecutive weekly decline in London after central banks in Europe and Asia raised borrowing costs, fueling speculation that demand for the metal used in wiring may be curbed.

The European Central Bank yesterday lifted its benchmark interest rate for the third time since December. South Korea's central bank and the Reserve Bank of India were among banks that also increased rates. Copper yesterday tumbled the most in a week on the London Metal Exchange, and shares of mining companies also slumped.

``Speculators have had a bad week,'' said Kevin Tuohy, a trader in London at Man Financial Ltd., one of the 11 companies trading on the floor of the LME. ``Everyone wants a little bit of rest.''

Copper for delivery in three months on the LME fell $85, or 1.2 percent, to $7,225 a metric on as of 10:13 a.m. local time. A close at that level would represent a weekly drop of 8.2 percent. The metal dropped 4.4 percent last week.

Investors are betting that higher efforts by central banks to control inflation may bring to and end a three-year rally in commodity prices. In that period copper has risen more than threefold, and traded on May 11 at a record $8,800.

``Interest rates are weighing on all the metals,'' said Paul McLeod, vice president of precious metals at Commerzbank Securities in New York. ``The increased real rate of returns is going to be detrimental to all hard assets.''

If copper closes below $7,245 a ton, traders who use so- called technical charts may sell more metal next week, Tuohy said.

Aluminum lost $1 to $2,501 a ton and nickel declined $550 or 2.7 percent, to $19,275 a ton. Lead dropped $2 to $1,007. Tin gained $100, or 1.3 percent, to $8,000 and zinc rose $50 to $3,350 a ton.

Iran could change everything, $100 + oil, Gold price will rocket and with gold & silver being a bye product of copper mining so will copper followed by Zinc.