LME base metals down on profit-taking

London Metal Exchange base metals fell Friday on general profit-taking and liquidation of long positions, with some market participants saying the downtrend may continue into next week.

"I think we saw a continuation of long liquidation with little trade buying interest to get in the way of it," said a base metals trader. "Overall, the rallies that we have seen have been short and sharp but do not last very long so I don't see any reason why the general downward trend will not continue next week," the trader added.

Three-month copper prices fell roughly 2% on the back of long liquidation, ending its recent rally. Three-month aluminium also cut short its recent rally to finish at a PM kerb of $2,695 a metric ton, over 1% lower from Thursday.

LME tin prices fell on news that eight of the more than 20 Indonesian smelters shut down in October will be relicensed, said Barclays Capital. But, the re-licensing only applies to eight of the smelters which were in operation up to last October and the timing of the reopening is unclear, Barclays added. Barclays forecasts a small deficit of 3,000 tons for tin in 2007.

Meanwhile, three-month nickel gave up earlier gains on long liquidation. However, analysts said the metal should remain well supported over the longer-term due to tight supplies.

LME uncut cathode nickel stocks have dropped by 2,000 tons to 318 tons from 2,300 tons on Jan. 2, pushing premiums on the product up by $50 to $100 in just a week, a base metals analyst said. The tight nickel situation explains the increase in nickel's cash-to-three-month backwardation this week, the analyst added. LME stocks fell 384 tons to 5,916 tons Friday, with canceled warrants at 29% of total stocks.

Alongside nickel, zinc prices also fell roughly 2% from Thursday to a PM kerb of $3,770/ton.

Trading in both nickel and zinc has been extremely volatile this week due in part to the rebalancing of the Dow Jones-AIG commodity index fund. The rebalancing will be fully implemented Jan. 16.

Rebalancing and reweighting means that, in general, the index may reallocate out of commodities that have appreciated in value and into commodities that have underperformed.

But, "fresh investor inflows, largely absent so far this year, may emerge given attractive supply/demand fundamentals and the conclusion of the index reweighting," said Robin Bhar of UBS.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Thursday PM kerb
Copper          5750.0-5755.0      Dn  149
Lead            1605.0-1610.0      Dn   24
Zinc            3770.0-3775.0      Dn  103
Aluminium       2695.0-2700.0      Dn   40
Nickel         32445.0-32450.0     Dn 1005
Tin            10550.0-10600.0     Dn  130