Base metals rebound on LME

London Metal Exchange zinc and nickel led the base metals in a recovery driven by technical buying and short-covering Wednesday, with price volatility to remain a key feature for the next week, said analysts.

The markets are showing signs of stability, said Robin Bhar of UBS. After being hammered relentlessly by selling over the past few days, the smaller-liquidity markets are rebounding, Bhar said, adding that technical-related consumer buying and short-covering drove the bounce.

Three-month zinc and nickel were the strongest performers Wednesday, with zinc regaining all of Tuesday losses to hit a session high of $3,760 a metric ton, while nickel jumped to a three-day high of $33,470/ton.

Over the past few days, these two smaller-liquidity metal markets have fallen sharply as a consequence of speculative selling triggered by the rebalancing of the Dow Jones-AIG Commodity Index Fund. The index rebalancing will be completed Jan. 16.

Adding to price support for the two metals are bullish fundamentals. A tight supply-demand situation as evidenced by record-high physical premiums supporting zinc while supply-side concerns continue for nickel, said analysts.

The outlook for nickel's fundamentals looks supportive as supply-side concerns continue and LME stock levels remain low, said Tony Warwick-Ching, consultant with CRU.

French nickel producer Eramet SA said Wednesday it has so far lost around 5,000 tons of metal output at its production site in New Caledonia due to a strike and other disruption.

The strike, ongoing since Sept. 25, isn't directed at Eramet but instead started as a general action by the New Caledonian Confederated Union of Workers in protest at living costs.

Elsewhere, three-month copper pushed to a one-week high just ahead of the LME kerb close, driven by technical-related buying.

Corporacion Nacional del Cobre de Chile, or Codelco, the world's biggest copper producer, is working to avert a new rockslide at its key Chuquicamata mine. Analysts said they will continue to keep a close eye on the situation and that the uncertainty may be providing some underlying price support.

Kevin Norrish of Barclays Capital in a note said: "High levels of volatility in all base metals markets look likely over the remainder of this week."

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Tuesday PM kerb
Copper           5879.0-5880.0       Up  254
Lead             1599.0-1600.0       Up   49
Zinc             3740.0-3745.0       Up  225
Aluminium        2710.0-2711.0       Up   55
Nickel          32500.0-32600.0      Up 2300
Tin             10400.0-10500.0      Up  305