LME nickel drops on profit-taking

London Metal Exchange nickel fell sharply under the weight of profit-taking Tuesday as short-term price direction remains focused on ongoing labor negotiations at Xstrata PLC's (XTA.LN) Sudbury, Ontario, nickel mine, analysts said.

Nickel prices pushed to a high of $37,490 a metric ton Tuesday before retreating to a PM kerb of $35,700/ton.

Nickel prices were driven down by profit-taking amid market talk that Xstrata may come to an agreement with its union members, said one LME broker.

However, no word of an agreement has come from either the union or Xstrata Tuesday. Instead, negotiations remain ongoing, with the union saying a meeting over the labor contract may take place later Tuesday.

Union workers will go on strike if a new labor agreement isn't reached before the current labor contract expires Wednesday. The Sudbury operations account for about 4% to 5% of global nickel supply and have contributed to keeping prices near their recent record high of $38,950/ton.

In other metals, three-month copper prices held up well Tuesday, triggered by a drop in copper stocks and by a lack of selling, the LME broker said.

Copper prices rose roughly 1% on the day to a PM kerb of $5,639/ton as stocks fell by 3,275 tons to 210,400 tons Tuesday, according to LME data.

Analysts added that over the longer-term copper looks well-supported, especially from bargain hunters.

In fundamental news, Chile's government statistics agency said Tuesday that its copper production fell by 4.5% on the year in December to 528,591 metric tons from 553,452 MT in the same month in 2005.

Over the full year, Chile's copper production totaled 5,374,555 metric tons, a 0.8% increase from 5,330,415 MT in 2005, INE added. Chile is the world's largest copper producer, accounting for about 37% of global output.

In other news, unionized workers at BHP Billiton Ltd.'s (BHP) Cerro Colorado copper mine in Chile will hold a strike vote Tuesday where they'll likely vote in favor of a walkout, union leaders said Monday.

"In general, the other markets saw a sell-off on the back of a lethargic market," said the broker. The recent rallies have not produced much follow through and have caused prices to fall back, the broker added.

Three-month zinc prices fell roughly 3% to a PM kerb of $3,900/ton while tin prices fell over 1% to a PM kerb price of $12,055/ton.

The tin market continues to watch closely the uncertain supply situation in Indonesia – the world's largest tin producer – following the closure of numerous independent smelters in October.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Monday PM kerb
Copper          5639.0-5640.0       Up   54
Lead            1658.0-1660.0       Up   18
Zinc            3390.0-3395.0       Dn  111
Aluminium       2695.0-2696.0       Dn   14
Nickel         35700.0-35750.0      Dn 1650
Tin            12055.0-12060.0      Dn  195