Base metals retreat on profit-taking

Profit-taking and trade selling pressured London Metal Exchange base metals lower across the board Tuesday, but analysts maintain that bullish fundamentals in lead, tin and nickel should keep prices stable over the near-term.

Three-month nickel jumped to a fresh record high of $44,750 a metric ton early Tuesday before traders booked profits across the base metals complex, forcing nickel to give up those gains later in the day.

"The critically low levels of LME nickel stocks continue to highlight market tightness," said Kevin Norrish of Barclays Capital.

LME nickel stocks recorded a drawdown of 72 tons to 3,876 tons Tuesday. Although stocks have climbed roughly 15% from levels at the beginning of March at 3,342 tons, available LME nickel stocks comprise less than one day's worth of global nickel consumption.

Meanwhile, lead posted the largest percentage loss late Tuesday on profit taking, falling over 3% to a PM kerb of $1,845/ton from Monday. Lead jumped 8% Monday due to supply problems in Australia.

Lead shipments at the Magellan mine in western Australia have been suspended on concerns that about 4,000 birds in the region have died of lead poisoning. An investigation is expected to take weeks and will add to supply concerns in an already tight market.

"A significant amount of lead concentrate from Magellan heads to smelters in China and a halt to shipments suggests tightness at least in the near term," said Norrish.

The suspension also follows on from Xstrata PLC declaring force majeure on lead deliveries at its Northfleet refinery in the U.K. due to falling head grades at the Mount Isa mine in Australia.

At the same time, total LME lead stocks are down 23% since the start of the year at 31,550 tons. LME warehouses in Europe are void of lead stocks, resulting in rising lead premiums.

Meanwhile, three-month tin largely consolidated within its recent trading range. The metal fell 0.9% to a PM kerb of $13,550/ton from Monday, but remains within striking distance of its recent record high of $13,975/ton as supply uncertainty continues.

Tin stocks are down roughly 22% since the start of 2007, and indecision by the Indonesian government over whether or not to impose a quota on tin exports is adding to upside momentum.

Last October, Indonesia, which supplies about one third of the world's tin, closed dozens of small-scale smelters that together produce about half the country's annual tin output on allegations they were purchasing tin ore illegally, damaging the environment and evading taxes.

The minor metals such as lead, tin and nickel maintain good fundamentals and should keep prices buoyant, said a London-based analyst.

In other metals, copper fell 0.7% to a PM kerb of $6,220/ton from Monday along with weakness seen across the complex. However, analysts maintain the outlook for further gains is strong over the near-term.

Adding to price support, LME stocks fell Tuesday below the key 200,000-ton level, and are down 6% from month-ago levels.

In addition, 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 tons.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Monday PM kerb
Copper          6220.0-6225.0       Dn  40
Lead            1845.0-1850.0       Dn  69
Zinc            3220.0-3225.0       Dn  65
Aluminium