After an interview this week for Reuters Investment Summit,  Brian Fabbri, chief U.S. economist at BNP Paribas said he did not think gains in base metal prices over the last 3 months accurately reflect how weak fundamentals are, especially in the economies of major users U.S., Europe and Japan, adding that industrial metals prices would need to correct lower.

Asked whether growth in emerging economies would be enough to compensate for slowing in the U.S., he said: “No.”

Fabbri pointed out that emerging economies accounted for only about 25 percent of global growth and would not be sufficient to take up the slack in the sagging U.S. economy.

“Contrary to some people’s thinking at the start of the recession who thought there would be a decoupling of the U.S. from other economies like China that has not been the case,” the economist said.

So while infrastructure spending in countries like China might lift metals demand, its growth pace will be limited without the support of robust industrial and economic output in developed countries.

Furthermore, while China, India and Brazil may continue to grow during the current global recession, he noted that not all emerging markets are alike, citing faltering economies in Eastern Europe and parts of South America as examples.

 Global miner Rio Tinto said it had an excellent relationship with Chinalco, despite a decision to scrap a proposed $19.5 billion tie up with the Chinese firm on Friday.
    The failed link up between China’s Chinalco and Rio Tinto in Australia was thought by many observers to be at least partly due to shareholders’ fears that Chinalco was trying to increase its leverage in iron ore deals with Rio.
    Now that the tables have turned, and Rio announced a proposed iron ore joint venture with BHP Billiton in Western Australia the Aussies could get the upper hand in determining prices in negotiations with Chinese steel makers, analysts said.
    If the deal goes through, Damien Ma, political risk analyst for Eurasia Group said BHP and Rio would supply roughly 3/4 of China’s iron ore. “That’s enormous.”
    The deal comes amid very contentious iron ore negotitions with the price down sharply in the last six months.
    The Australians’ proximity to China, and therefore greatly lower freight costs, and the significant operating cost reductions from the planned joint venture would certainly give Brazil’s VALE, the world’s largest iron ore producer, “some competitive issues,” as one analyst put it.
    If Rio and BHP  are able to meaningfully reduce their operating costs at a time when they are already competitively advantaged by the proximity to China and the rest of Asia, analysts said it could force VALE to lower their iron ore prices to remain competitive.

On Alcoa’s quarterly conference call this week, CEO Klaus Kleinfeld pointed out that there is currently a 1.4 million tonne aluminum surplus in the world outside of China, and therefore to expect more production to come off line in coming months above the already-announced 1.6 million tonnes of production that has yet to be implemented.

Source: Alcoa

Both Alcoa, as the world’s largest aluminum producer, and China, producing more than 13 million tonnes in 2008, have idled substantial percentages of their output.

Russia, however, with about 4.2 million annual tonnes of capacity, has not curtailed any production, said Kleinfeld.

He said he thought political factors centered around maintaining employment levels have kept Russian smelters running.

“Many of the smelters are in regions where there is nothing else, in very remote areas, and are an anchor for the area. When Springtime comes and there are new opportunities to shift (workers) into, farming or construction, it will probably be  easier to cut production there,” he said.

As for Alcoa’s own operations there, he said Russia had been affected by the economic slump more than they or Alcoa had thought last November.

“But what we’re seeing now, is that Russia is starting to stabilize and seems to be starting to come out of it,” he said.

After the Federal Reserve said last week it would buy about $1 trillion of long-term U.S. debt, copper rallied to price levels seen in November.  Other base metals followed higher. 

Technical analysts at RBC Capital Markets referred to current metal action as “jobbers markets and not trends,” warning bulls “to beware of getting married to their positions in these choppy and uncertain times.” Others chartists said they were looking for confirmation of the price rally from demand indicators and would not recommend buying metals until the had clearly turned bullish.

The only analyst I spoke with willing to set specific upside targets was Barclays Capital technical strategist MacNeil Curry. He thinks London Metal Exchange copper can reach $4,300 to $4,500 a tonne, with possible scope above $5,000 a tonne. Specifically, Curry said he sees initial targets at $4,366 to $4,547 a tonne. He called short-term support at a trendline and recent low of $3,725 and $3,671. A move below that area would signal a bigger decline than previously forecast.

While LME aluminum has come off a two-month peak, it was trading in a new higher range above $1,400 a tonne. Curry said, “the path of least resistance is still clearly higher given the bullish divergences and weekly momentum indicators and given the strength in other commodity metals.”

A definitive break above that level would add to evidence that aluminum had completed an eight-month downtrend, the Barclays analyst said.

Curry sees zinc, currently trading at $1,280 a tonne, getting dragged higher. But it would need to break above January 7 high at $1,365 to really take off. A breakout puts in sight the 200-day moving average at $1,445 a tonne.

“I think it’s going higher with copper, but it may take awhile,” he said.

 Despite their calm assurances, executives at the world’s biggest gold miner Barrick Gold must be at their wits’ end over their stalled Pascua Lama project.

    For two years, Argentine and Chilean officials have been bickering over how to share the lucrative tax proceeds from the cross-border mine, which has been poised for construction to start since late 2006.
    One government official after another  has suggested the green light is imminent. But after making some impatient noises last year, Barrick seems to be biting its lip — resolved for an even longer wait.
    When Barrick reported fourth-quarter results last week, new Chief Executive Aaron Regent put on a brave face about the delay, but his pledge to give an update on the progress in the second quarter suggested a solution is still some way off.
    It is ironic that a diplomatic spat over sharing the spoils of the mine has put the ambitious and controversial project on ice.
    Pascua Lama straddles a freezing, inhospitable spot high in the Andes and faced a storm of protest from Chilean environmentalists before President Michelle Bachelet finally gave it the go-ahead.
    Late last year, an Argentine law protecting Andean glaciers looked like it might be the nail in Pascua Lama’s coffin until a surprise presidential veto kept it off the statute books.
    But none of that matters while the tax row drags on, and the harsh Andean winters mean construction is unlikely to be able to start now until September 2009 at the earliest.
    Company officials have declined to say how much it is costing to maintain the site. Some industry analysts have even hinted Barrick might abandon it altogether.
    But it will take a lot more for the Canadians to lose interest in Pascua Lama. One of the world’s largest untapped gold fields, the site will become even more appealing as prices for the metal nudge up to above $1,000 per ounce again.

Investors had their eyes keenly trained on New York copper’s $1.50 per lb. level before it broke down last week. On the COMEX exchange, copper teetered above the psychological $1.50 threshold before diving through on Thursday, triggering stop-loss sell orders on the way down. Then on Friday,  shockingly dismal U.S. jobs data shoved copper down to $1.3560 a lb, its lowest point since February 2005.
Copper had at that point lost two-thirds of its value off its record high set in July.
Investors saw March copper as oversold and sent it back above $1.50 on Monday. But some technical analysts caution against celebrating the upswing too soon. They viewed Monday’s advance as a bear market rally and a short-selling opportunity.  “It may be an opportunity to sell short, because the trend is down. It’s certainly overdone, but it had fallen to a significant downside target,” said technical analyst Hans Kashyap, president of Analytics Research Corp in California.
Some participants took advantage of the gains and grabbed short-term profits on Tuesday.
Looking at a monthly chart and using basic technical analysis, Kashyap projected copper’s downside objective in the $1.40 to $1.35 a lb area, precisely where it stopped on Friday.
To find that target, he took a measurement off the 2006 high at $3.99 a lb down to 2007’s low at $2.3980. He explained that for the last two years copper had made several attempts at the $4.0 level, actually flitting above it several times. But the $4.0 resistance level failed repeatedly to definitively give way, despite numerous forecasts earlier this year for $5 or $6 copper.
Though the $1.35 downside target has held since Friday, Kashyap said he would need to see a protracted period above that band to think a bottom had been established.
To think copper had turned a corner, Kashyap said he would need to see it hold above the $1.40 to $1.35 area for several weeks. Though a brief break beneath $1.35 would not be significant.
“To have any confidence in the upside, I would need to see at least a couple of weeks basing and holding that area and then pushing through the next step at the $1.77 area.”
If $1.35 support breaks, and if the current economic downturn persists that may well happen, Kashyap’s next projected downside target lies at $1.0660.
“We could get down to that swing low. But that would be a worst case scenario.”

    Environmentalists have long disparaged the evils of hydroelectric dams in Brazil: they flood large swaths of forest, displace indigenous groups and wildlife, increase water evaporation and salination, as well as emit methane from decaying submerged forests — a particularly bad greenhouse gas.
    But, while it hardly deserves consideration in the more important environmental debate, hydroelectric reservoirs are a fantastic resource for the sports fisherman and the beautiful and aggressive tucunare, more widely known as the peacock bass.
    Seven varieties of the colorful fish, which is really a cichlid and not a bass, inhabit the waterways of Latin America’s tropical and subtropical zones. Several large-scale sport fishing outfitters cater to American, Japanese and European fishermen, bringing them to remote tributaries on the Amazon. But these trips are logistically difficult, often involving a complex combination of planes, taxis and boats. They also often run several thousand dollars for a week.
    But fishing on the reservoirs along several of waterways outside of the Amazon region and only a few hours drive from Sao Paulo or Rio de Janeiro are much cheaper and less complicated, while still offering many exciting hits.
    The fish, also known in Portuguese as pavao - peacock because of the big eye-like dot on its tail to confuse predators, thrives in the warm fresh waters of the reservoirs, which are fecund with surrounding plant and animal life. The tucunare grow to more than 20 lbs (10kg) in some cases, feeding on young piranha and other fish. They are super aggressive and an superb sport fish. If you don’t enjoy fishing peacock bass, you probably aren’t made out for the sport.

Only the brave or the foolish would make predictions about the future amid the biggest market upheaval in three generations. But it is already clear the crisis is profoundly reshaping the commodity trading industry. 
 
Our commodities and energy columnist John Kemp, formerly an economist for RBS Sempra in London, lays out his thoughts on how the industry will be remade over the next few years. Click here to read. 

Nearly 20 foreign correspondents showed up this week to a meeting at the Chilean Copper Commission (Cochilco) to hear the world’s top authority on copper give guidance on where prices were headed.

Maybe copper has not been the sexiest story.  But as a mining correspondent based in Santiago, it must be the first time I’ve attended a news conference where most of the reporters had absolutely no clue about the metal.

Maybe copper has been taken for granted here. For as the copper futures price halved in a matter of months, the news corps is suddenly very interested in a metal that is central to Chile’s economic future, accounting for over 50 percent of exports and the lion’s share of government revenue.

As a regular at the commission over the past three years, I can say most of the other correspondents had never before set foot in the Cochilco building in downtown Santiago.

“It’s that everybody wants to know where the economy is going,” one correspondent said when I asked if she was now covering copper.

Copper prices are falling due to slowing demand in a world economy where fewer cars are being built and construction activity is declining …  good for consumers perhaps but bad for producers and a worrisome indicator of the global economy.

High copper prices made possible Chile’s record government surpluses in recent years and also helped the government sock away $21 billion for a rainy day in sovereign wealth funds.

With signs of a slowdown in No. 1 consumer China, the destination for  much of Chile’s copper exports, the burning question for reporters here is whether copper has lost its sheen for good.

CANCUN - Usually chummy executives were playing duck and cover at this year’s Latin American steel conference, as markets spiraled out of control and companies consider cuts in output to combat falling steel prices.  Had the conference been held at the beginning of the year when steel prices were reaching record highs, it would have been another story. Today, instead of back-slapping and champagne glasses there are a lot of furrowed brows and pointed avoidance of journalists.

This reporter experienced a flurry of calls from otherwise friendly and enthusiastic PR people cancelling interviews that were arranged before the conference. Among the litany of reasons: “blackout period before earnings,” “times of uncertainty,” or simply “he didn’t show up.” Many of the top CEOs on the agenda decided to stay at home and work out their strategy in the face of falling world demand for steel amid a global recession.

At the opening cocktail reception, I overhead two company executives discussing the sighting of “one of those” from the AP – as if reporters were circling vultures, trying to pick the bones of the executives.

And chasing after CEOs as they slip behind closed doors, it was hard not to feel that way.  When I was lucky enough to corner them, they joked about how they will only answer questions about the weather, or they just smiled and said nothing.