Base metals up; Traders look for price direction

London Metal Exchange base metals climbed Tuesday as global equities markets rebounded, but traders said market participants may continue to stand on the sidelines awaiting clearer price direction.

"It was a reasonably quiet trading session (Tuesday) as the markets bounced back across the board," said one LME trader.

U.S. stocks rebounded after solid gains in European and Asian markets. Precious metals also benefited from the rebound, with gold edging back above $640 a troy ounce.

"However, many market players will continue to stand aside waiting for a clearer direction" as markets have been so volatile of late, the LME trader noted. "Hedge funds are long and hoping to see a market recovery while the trade is too scared to get involved," the trader added.

Analysts said base metals will continue to look toward equities for price direction, with any major jump or fall having a large impact.

Three-month nickel was well supported late Tuesday, rising back above the $40,000/ton price level after falling roughly 5% Monday, as concerns continue over low stock levels. Current available LME inventories comprise roughly one day's worth of global nickel consumption.

Three-month lead and zinc were also strong gainers Tuesday after both metals recorded drawdowns in LME stocks. Zinc stocks fell 1,950 metric tons to 90,575 tons Tuesday, with inventory levels steady compared with the start of 2007. Lead stocks fell 325 tons to 31,975 tons with general stock levels down over 20% since the start of 2007.

In other metals, copper hovered around the key technical level of $6,000 a metric ton, boosted by bargain hunting.

"We expect support for copper to emerge on the back of the pick-up in stock outflows and the strength in China's refined copper imports," said Kevin Norrish of Barclays Capital.

A sharp drawdown in copper stocks by 1,125 tons to 206,050 tons Tuesday helped boost copper prices.

Three-month aluminium traded around $2,700/ton, and because of options declaration Wednesday, should be quiet early Wednesday before seeing a pick-up in business once the U.S. comes in, said the LME trader.

However, analysts said it has the weakest fundamentals among the complex and may decline in the coming sessions.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Monday PM kerb
Copper          5975.0-5980.0      Up   86
Lead            1820.0-1825.0      Up   10
Zinc            3309.0-3310.0      Up   69
Aluminium       2694.0-2695.0      Up   18
Nickel         40400.0-40405.0     Up 1100
Tin            13275.0-13300.0     Up  175