Nickel hovers below highs as copper falls

LONDON, Jan 29 - Copper fell by nearly 4 percent on Monday and nickel closed below record highs on the London Metal Exchange with most eyes on a looming strike at major nickel producer Xstrata , analysts said.

Labour negotiations at Xstrata's nickel operations at Sudbury, Ontario, accounting for just above 4 percent of the world's smelting capacity, broke down ahead of the weekend.

On Monday a mediator was attempting to set up a meeting between the London-listed producer and the union. [ID:nN29175596]

"Nickel ... will be something of a wild card, as strike prospects at Sudbury still loom over the complex," analyst Edward Meir at Man Financial said in a report.

Nickel for delivery in three months closed at $37,400 per tonne, up some 13 percent since the start of the year.

On Friday it hit a fresh high of $38,950 before closing at $38,100.

LME copper ended at $5,590, down 3.8 percent from Friday's close, after stocks jumped 5,975 tonnes to 213,675.

"LME 3-month copper futures were a little lower amid rising inventories that hurt sentiment in the metal," LME ring dealer Sucden said in a note.

Prices have fallen 10 percent since the start of the year as stocks have risen at the same rate.

In New York, U.S. copper futures settled at a one-week low as concerns over rising supplies and softer demand growth attracted further speculative liquidation, holding the early-year downtrend in place.

Copper for March delivery ended down 9.50 cents, or 3.6 percent, at $2.5420 a lb on the New York Mercantile Exchange's COMEX division, its cheapest close since Jan. 22.

NICKEL SUPPLY FEARS

The nickel market was sensitive to news about disruptions at production sites and inventory levels, LME broker Triland Metals said in a note.

"The potential for substantial moves either way is almost guaranteed by current fundamental influences," it said.

Nickel stocks in exchange-registered warehouses fell 600 tonnes to 4,278 on Monday, down 31 percent since the start of the year.

"The market is waiting at the moment for Sudbury to reach an agreement and more material is leaving the warehouses than is coming in," analyst Michael Widmer at Calyon said.

At Sudbury, more than 1,000 mine, mill and smelter workers could walk off the job if Xstrata and the union fail to reach a new deal before the current contract expires Jan. 31.

Widmer forecast a roughly balanced market in 2007 with a surplus of 20,000 tonnes, down to 9,000 in 2008. [ID:nL29930854]

Such a small surplus could easily take prices higher if there were any supply disruptions or production delays, he said.

Aluminium was down 3 percent at $2,710 versus $2,795.

Production operations by Compagnie des Bauxites de Guinee (CBG), the world's biggest bauxite exporter, restarted on Saturday after a deal ended an 18-day strike that had paralysed the West African country. [ID:nL29203379]

Bauxite is the ore from which aluminium is extracted.

Zinc was down $135 at $3,505 and lead was down $25 at $1,650.

Tin was last quoted at $12,250/12,255 versus $12,200, supported by the uncertain supply situation following the closure of independent smelters on Indonesia's Bangka island in October 2006. The sluggish performance in metal prices weighed on Kazakhmys and Xstrata down by 2.42 percent and 0.98 percent respectively.