LME nickel, tin end higher; Aluminium steady

The bulk of the large net short position in the London Metal Exchange aluminium market has been rolled forward Wednesday and traders said the backwardation in the nearby spreads looks set to continue in the near-term.

This tightness will likely mean that metal will continue to flow into LME warehouses, as has been the case in recent days. A total 12,625 metric tons of stocks came into LME warehouses Wednesday, and 10,050 tons Tuesday. Traders say that further deliveries are likely to have been made against open short positions that will show up in Thursday's LME inventory report.

But some argue that these deliveries aren't unusual for January, a traditionally slower month due to the holiday period. Barclays Capital analyst Kevin Norrish notes that in January 2006, LME aluminium stocks rose by almost 60,000 tons, a lot higher than current stock gains.

The nearby tightness in aluminium has been building for several months. Back in September, and while all eyes were on the action in the bull runs of copper and nickel, the fund began "hoovering up" LME aluminium warrants in an attempt at a squeeze on the market. Much of the material is located in warehouses in Europe, market sources say.

And the same fund built a large net short position on the LME, opposite to its physical long.

The LME short has shown up in data released by the exchange, which reveals a player or consortium of players has a dominant short position of over 40% for the January prompt date.

But LME data also shows that there are short positions on the February and March prompt dates, which LME traders said "aren't unrelated." If the same LME short holds the February and March positions, the spread position gives them "a place to bail out if needs be."

Trade sources say that the LME aluminium short has also been an active borrower of the forward copper spreads. These trade sources say that profits from the aluminium market activity is likely helping to finance the same player's copper business.

Outright three-month aluminium was steady above $2,600/ton, with tommorow-next aluminium trading steadily around $8-$10/ton back through most of the session.

Elsewhere, lower oil prices weighed on LME copper with prices confined to a narrow range either side of $5,600/ton. Rising LME inventories have taken stocks to just below the psychologically important 200,000 tons level, and concerns about the U.S. economic outlook.

But on the flipside, demand from China appears to be picking up and a large commercial net short copper position remains, traders said, suggesting further upside to come.

LME nickel edged briefly higher as positive fundamentals were reinforced by news that workers at Xstrata's Sudbury had voted in favor of a strike mandate.

Prices hit a new high of $35,700/ton with the market ending the session at $35,500/ton.

In contrast, LME zinc was lower as LME stock increases weighed on sentiment, although analysts say the market is seen higher as the fundamentals remain very tight and the threat that China would export more metal has receded.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Tuesday PM kerb
Copper           5649.0-5650.0      Dn 61
Lead             1559.0-1559.5      Dn 23
Zinc             3619.0-3620.0      Dn 100
Aluminium        2678.0-2680.0      Dn 2
Nickel   &