LONDON (Commodity Online): The metals rallied yesterday with everything closing up on the day. Zinc was the strongest performer rising 2.5% but it has been aluminium’s performance over the past week which has been most impressive. After a brief period of weakness prices have steadily risen to trade back at $2,650/t.

The robustness in prices is impressive and although we believe there is support at these levels we doubt there is much more fundamental fire power to take prices much higher from here. Copper prices have been firm, but it’s surprising that they haven’t been stronger in the face of a calamitous supply picture. The world’s largest copper mine, Escondida (905Ktpy), which supplies 7% of the world’s copper is still closed due to ongoing labour strikes.

The strike action has now entered its sixth day with no immediate resolution in sight. The majority-owned BHP Billiton mine refused to meet with government mediators on Tuesday taking a hard line with the unions on the basis that the strike is illegal and that it would only talk with the workers once they returned to work. In the absence of a compromise the strike could drag on.

Production at the mine already massively underperformed expectations in H1 (dropping 17% y/y) and each day the strike stops production we estimate that a further 2.5Kt of output is lost. On top of the troubles witnessed elsewhere in the world of Copper mining the concentrates market looks set to tighten further. In other markets, Japanese shipments of Aluminium products fell 0.8% y/y in June illustrating that the post-tsunami weakness has been far shallower than the market had originally anticipated. Shipments increased 7% m/m.

Finally, physical Tin premiums in the US are reported to be steadily rising, to $650-750/t, due to steady demand and flat supply (Reuters). There are growing concerns among market participants about the ability to secure volumes in H2 and in 2012 given the empty supply pipeline. Globally the tin market is struggling to bring on new mine supply so, in our view, it’s not going to take much of a demand push to tighten the market, which is why we see a big move up in prices in H2 to over $34,000/t and in 2012 to $37,000/t.

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