US industrial production expanded 0.4 percent in December. The Empire State Manufacturing Survey showed that manufacturing advanced this month. There are more reports this week that should show positive developments in the US economy.

Futures for delivery of copper in three months advanced 1.6 percent to $8,372 per metric ton on LME, the highest settlement since September 21, before trading at $8,332.50. That was the fourth day of gains.
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Zinc was falling in three of the last four years on the London Metal Exchange, showing the worst performance among the six major industrial metals. The slowdown of the global economy contributed to the decline. Another reason for the bad performance was overproduction of the metal.

But market analysts began to view zinc in more favorable light. The rapid economic growth in Asia, particularly China, increase demand for industrial metals. Production of rust-proof steel reached the record high of 31.7 million metric tons in the second quarter of this year, according to estimates of Macquarie Group. About 50 percent of zinc is used to produce the alloy. Morgan Stanley predicted the expected production surplus of 270,000 metric tons in 2011 would fall to 130,000 in 2012. Experts forecast supply to drop as prices fell below production costs of some mines.

There are reasons to be optimistic for zinc, but also there are reasons to be cautious. The world economic recovery is encountering problems and may even falter, at least according to forecasts of most pessimistic economists. Such worries aren’t good for industrial metals. The International Monetary Fund cut its global growth forecasts to 4 percent for 2011 and 2011, compared to the previous estimates of 4.3 percent and 4.5 percent respectively.

Zinc rose today from $94.60 to $95.10 per kilogram on MCX, following the previous advance to the daily high of $96.10.
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The Fed left the federal funds rate near zero and announced the plan to buy $400 billion of long-term securities. The central bank said “there are significant downside risks to the economic outlook”.

The Standard & Poor’s 500 Index slumped 2.9 percent, while the Standard & Poor’s GSCI Index dropped 1.6 percent to 628.17, the lowest intra-day level since August 19. The MSCI Asia Pacific Index tumbled as much as 3.2 percent.

The contract for delivery of copper in three months dropped 3.2 percent to $8,036.25 per metric ton on LME, the lowest price since November 17. November futures for delivery of crude oil slid $1.77 to $84.15 per barrel in electronic trading on NYMEX.
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Europe with all its problems is the main source of market pessimism. Finance ministers of Finland, Germany and the Netherlands will meet today to discuss Finland’s demand for collateral in a bailout for Greece. The Italian Senate will discuss the austerity plan, while the nation’s biggest union has called a strike.

The Standard & Poor’s GSCI Index of 24 commodities fell as much as 2.1 percent.

Some analysts think that copper may still rebound as supplies decline amid strike at mines and other problems.

December futures for delivery of corn dropped as much as $0.1325 (1.7 percent) to $7.4675 per bushel by 10:00 on CBoT. Futures for delivery of soybeans in November slipped $0.2775 (1.9 percent to $14.18 per bushel in Chicago. Futures for delivery of wheat in December subtracted 0.1775 (2.3 percent) to $7.5775 per bushel. Contract for delivery of copper in three months fell 1 percent to $8,870 per metric ton, the lowest intra-day price since August 25, before trading at $8,890.25 at 15:32 on LME.
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Germany’s gross domestic product, according to the preliminary estimate, rose 0.1 percent in the second quarter of 2011, compared to the increase by 1.3 percent in the first quarter of this year. The GDP of Eurozone advanced 0.2 percent in Q2 2011, while in Q1 the advance was by 0.8 percent. The trade balance deficit of the euro area increased to €1.6 billion in June from €0.8 billion in May on the seasonally adjusted basis, while market analysts expected a surplus of €0.3 billion.

Futures for gold delivery in December advanced $29.30 (1.7 percent) to $1,787.30 per ounce as of 10:45 on COMEX, following the 0.9 percent gain yesterday. September futures for crude oil delivery fell $1.05 (1.2 percent) to $86.83 per barrel by 13:55 on NYMEX after yesterday’s jump by 2.9 percent to $87.88. Contract for delivery of copper in three months traded at $8,917.75 per metric ton on the LME, erasing the previous gain of 0.5 percent.
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Moody’s downgraded the credit rating of Portugal from Baa1 to Ba2 and issued a negative outlook yesterday. The agency explained this decision by concerns that the nation will require another bailout, but hasn’t achieved the target of deficit reduction and debt stabilization set by the European Union and the International Monetary Fund.

Demand for industrial metals and fuel also declined after China increased its interest rates.

August contract for gold delivery gained $16.50 (1.1 percent) to $1,529.20 per ounce as of 13:43 on COMEX. August futures for crude oil delivery dropped $0.24 to $96.65 per barrel on NYMEX. Contract for delivery of copper in three months fell 0.5 percent to $9,493 per metric ton before trading at $9,514.5 per ton on LME.
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The MSCI All-Country World Index of stocks reached the lowest level in more than two months. The Standard & Poor’s 500 Index was falling for six consecutive weeks.

Contract for delivery of crude oil in July dropped $0.66 to $98.63 per barrel in electronic trading on NYMEX. August futures for gold delivery retreated $13.60 (0.9 percent) to $1,515.60 by 13:53 on COMEX.

Nickel fell today on the speculation that the metal may have a biggest surplus in four years. Bank of America Merrill Lynch predicted that nickel’s surplus may reach 60,000 metric tons in 2012 from 12,000 tons this year. Nickel traded at $22,283 per metric ton as of 16:46 on LME. The metal dropped 10 percent this year and analysts think that it may fall by another 10 percent to $20,000 per ton.
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Gold metals fell as the euro gained, reducing demand for safer assets, after the European Central Bank supported plan for rollover of the Greek bonds. August futures for delivery of gold slipped $3.20 (0.2 percent) to $1,544 on COMEX. July silver futures advanced $0.264 (0.7 percent) to $37.046 per ounce.

Oil jumped on the speculation that increasing production quotas in the Organization of Petroleum Exporting Countries will reduce spare capacity. The US Energy Department revised its forecast for the global usage of oil this year to 88.43 million barrels per day from 88.08 million in May. July delivery for crude oil traded at $99.09 per barrel on NYMEX. July futures for Brent crude delivery rose $2.30 (2 percent) to $116.78 per barrel on ICE.
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Copper dropped as trades were taking profit from the biggest advance in two months. The contract for delivery of copper in three months dropped 0.2 percent to $9,046 per metric ton on LME after it jumped 3 percent on the previous trading session, posting the biggest gain since March 17.

Gold rose on signs that the global inflation accelerates, lead by food prices. The rally of other commodities also helped the yellow metal. The Thomson Reuters/Jefferies CRB Index of 19 raw materials climbed as much as 2.6 percent. June futures for gold delivery gained $15.80 (1.1 percent) to $1,495.80 per ounce as of 13:43 on COMEX.
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The number of housing starts in the housing starts declined to 523,000 in April, while it was 585,000 in March. Forecasts predicted an increase to 580,000. The New York Manufacturing Index slumped to 11.9 in May from 21.7 in April, while it was expected to stand at 20.7.

The reports hit hard commodities across the board. The Thomson Reuters/Jefferies CRB Index of 19 raw materials dropped for the third consecutive day.

June contract for delivery of crude oil went down $0.46 to $96.91 per barrel on NYMEX. Futures for delivery of gold in June dropped $10.60 (0.7 percent) to $1,480 per ounce by 14:00 on COMEX. Delivery for copper in three months slid $40 (0.5 percent) to $8,799 per metric ton on LME as of 18:05.
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Slower economic growth also means lesser inflation pressure and that lead to decline of gold as an inflation hedge. June futures for gold delivery slid $14.50 (1 percent) to $1,453.60 by 13:50 on COMEX. May contract for silver delivery subtracted as much as $0.546 (1.3 percent) to $40.066 per ounce.

Still, there are investors who expect strong growth of the global economy and their positive outlook allowed copper to rebound. Copper for delivery in three months added 0.3 percent to $9,658 a metric ton on LME.
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The International Copper Study Group estimated that the global consumption will rise 4.5 percent to 19.7 million metric tons this year. At the same time, the output will increase only 1.1 percent to about 19.3 million tons. That means a deficit of 435,000 tons.

Yingxi Yu, a commodities analyst at Barclays Capital, said:

We’re still positive on the economic recovery. We don’t think the events in the Middle East and Japan will derail the global economic recovery so anything that’s leveraged to economic recovery will still be relatively attractive.

Contract for delivery of copper in three months advanced 0.7 percent to $9,450 per metric ton on LME. The metal gained 0.6 percent to $4.2985 per pound on COMEX. Copper traded at $9,435 in Singapore, while it fell 1.5 percent to 70,230 yuan ($10,721) per ton on Shanghai Futures Exchange.
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