Base metals end higher; Lead up on supply worries

Further upside is expected for London Metal Exchange lead if the lead shipment problems which helped to trigger the 8% jump Monday continue to deteriorate, said analysts.

Three-month lead posted the largest percentage increase, jumping 8% to a two-week high of $1,920 a metric ton on fund and local buying as news of lead concentrate shipment problems in Western Australia circulated.

Ivernia Inc. was notified earlier Monday by the Esperance Port Authority in Western Australia that its shipments of lead concentrates have been suspended pending the outcome of an investigation into recent bird fatalities.

Toronto-based Ivernia said it was recently made aware that testing to determine the cause of bird fatalities in the Esperance area suggests that two of the four birds tested died of lead poisoning.

Ivernia is the sole owner and operator of the Magellan lead mine in western Australia. Currently in the ramp-up phase, Magellan is expected to be one of the top five lead-producing mines in the world, yielding close to 3% of total world mine production.

"If this Ivernia news turns out to be worse than what's been reported thus far, lead prices could definitely hit and surpass the recent all-time high of $1,955/ton," said Michael Cuoco, research analyst at Mitsui Bussan Commodities (U.S.A.) Inc.

Adding to bullish sentiment, LME lead inventories are down 14% from levels one month ago, creating a tight market vulnerable to supply disruptions.

However, trading activity was very light, said one LME trader, and added to the ease with which prices rose.

The illiquid market conditions helped exaggerate the upside moves and now make it vulnerable to a bit of profit-taking, said Michael Skinner of Standard Bank in London.

Meanwhile, three-month nickel rose 3% to a fresh record high of $43,900/ton on fund and local buying. Nickel has climbed roughly 12% from last Monday's low of $39,000/ton.

The jump has surprised some market players as it flies in the face of the recent increase in LME stocks. LME inventories rose 78 tons to 3,948 tons Monday, a roughly 18% rise from stock levels at the beginning of March at 3,342 tons.

Nevertheless, with canceled warrants – or material accounted for and to be drawn down at a later date – at 32% of global LME inventories Monday, available nickel stocks comprise less than one day's worth of global consumption.

However, "now, it's just a matter of when the funds want to sell to help send prices back down," said one London-based trader.

In other metals, copper recovered all of Friday's losses rising 2% on the day to around $6,265/ton as general sentiment across the base metals improved.

The metal was boosted by another drawdown in LME copper stocks and strength in China's refined copper imports, said Kevin Norrish of Barclays Capital.

"China's preliminary metals trade data was positive, showing continued growth in China's refined copper imports for a fourth-consecutive month," Norrish added.

China's imports in February rose on month despite the Lunar New Year holiday and together with January's imports, were up 56% on year at 468,849 metric tons. Meanwhile, LME data on Monday shows copper stocks fell 1,550 metric tons to 201,025 tons and down 7% from stock levels one month ago.

Traders in Asia said they expect Chinese buying to continue to increase now that copper consumers have resumed full production following the Lunar New Year break.

In looking ahead, key U.S. economic data this week should also help to provide near-term price direction for the complex. Traders said the market will keep a close watch on Friday's February core consumer price index and industrial production data as concerns linger over the health of the U.S. economy and its appetite for base metals.

Prices in dollar a metric ton.
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