With a high of just under $1.63/lb.As per usual zinc has been...

With a high of just under $1.63/lb.

As per usual zinc has been drawn down from the stockpile once again but only by 625t.It seems that this draw down may be decellarating(chart flattening a little) reflecting the current high price and how it may now be taking the edge off demand.But this is only a guess at best.If steel use continues to be strong ultimately zinc demand must match the steel use and drawdown will continue.

To make matters worse(or better for base metals holders!)for Copper,silver,zinc Grupo Mexico has closed its mine in the state of Zacatecas(San Martin?) and reduced production at Le Caridad due to the continuing strikes.Chiles(the worlds largest producer) production is also declining which is putting obvious strain on concentrate supply and having the flow on effect to the smelting price as of late.

There are also strong suggestions China will build further reserves of base metals as per the article below.Much may however be in the form of "in ground" reserves".

It appears the rise in base metals is well founded for the moment BUT the move up is still being exagerated by fund involvement.

------------------------------------------------

Copper price hits record high above 8,000 usd/tonne as Grupo Mexico closes

LONDON, May 10, 2006 (XFN-ASIA via COMTEX) -- The price of copper smashed through 8,000 usd per tonne for the first time following the closure of a mine in key producer Mexico.

In morning trade on the London Metal Exchange, three-month copper prices reached 8,010 usd per tonne -- the highest point since the metal was first listed in 1877.

The price of copper, used for electrical wiring and plumbing, has been boosted in recent months by supply problems, limited output and soaring demand from the booming economies of China and India.

Mining company Grupo Mexico said this morning it is closing its zinc and copper mine in San Martin, the country's largest, after the government refused to intervene to end a strike that has affected the site since March.

Zinc, which is chiefly used to galvanise iron and steel, also hit a new record of 3,525 usd per tonne.

Strike action has also hit another of the company's copper mines in Le Caridad, while mining production is declining in Chile, the world's largest producer of the commodity.

The group Antofagasta forecast this week that its Los Pelambres copper mine in Chile will produce 319,000 tonnes of copper this year, 4.4 pct less than in 2005.

ALSO

Thanks to Marcol for his post containing this item

China, Worried About Resources,
To Build Up Its Mineral Reserves

By JAMES T. AREDDY
May 10, 2006; Page A7

SHANGHAI, China -- China says it intends to build strategic reserves of minerals like copper and uranium, in addition to the energy stockpiles it already has said it will amass, in the latest sign of Beijing's concern about ensuring an adequate supply of natural resources.

The Ministry of Land and Resources said in its five-year plan that it will build up reserves over the next four years of uranium, copper, aluminum, manganese and other minerals that the country "urgently needs." The statement follows pledges by Beijing to begin filling four strategic reserves of crude oil as soon as this year.

The ministry didn't say how reserve levels might be managed with stockpiles of some of the same raw materials held by China's State Reserve Bureau, an agency within another government ministry that last year lost millions of dollars trading copper on global markets.

It also isn't clear whether the move will affect commodity prices. Strategic commodity reserves are common for countries to have, and they traditionally serve defensive purposes -- for use by militaries and for helping an economy weather any supply disruptions.

In China, the government's focus on maintaining reserves has taken on extra importance because of its surging demand for many raw materials, which stems from its rapidly expanding economy. The country's insatiable appetite for imported commodities -- from copper to crude oil -- has fueled big jumps in global prices for these materials.

Huge losses in copper trading in London last year by the State Reserve Bureau, and the bureau's trading troubles earlier in cotton and other commodities, have prompted China's government to pledge it will better manage commodities. The government also hopes to temper any price surges in global commodities by more actively trading futures on its domestic markets.

One analyst said China's latest plan for metal reserves reflects how Beijing is reallocating stockpiles in the wake of the copper scandal, not a shift toward new buying.

The Land Resources ministry said it plans to have as many as 10 metal reserves with holdings of 20 million metric tons of copper and 200 million tons of bauxite, which is used to make aluminum. It also said it will have two or three backup stockpiles of oil containing 4.5 billion to five billion metric tons and a similar number of coal reserves with 100 billion tons of stock.

Although analysts said the numbers are high, wording of the ministry's plan suggests some of the reserves will be in proven -- or unmined rather than extracted -- form. The ministry also said it will allocate more money to finding resources while monitoring mining capacity more carefully.

If Beijing attempted to purchase outright the amounts suggested by the Land Resources ministry, "it would drive [prices of] the world's commodities out the roof," said Jim Lennon, an analyst at Macquarie Bank in London. He added, however, that China wants to secure access to these commodities rather than simply stockpile them.


----------------------------------------------------

Once again one wonders about what could only be called either extremely luck or well informed timing of Aim(Barclays) in negotiating their off-take contract with zinc hitting these all time highs.I dont know that it will happen just yet(a bit early relative to the companies last mention of a deal being settled)but with the strong buying in combination with very strong interest in Aim shares in the last few days perhaps something is in the offing.It may mean something or nothing but UK trade suddenly dropped off in afternoon trade.It may just be that the buyers picked up their 4 million share fill for the day.

d.