Nickel falls on LME but outlook strong

London Metal Exchange tin and nickel gave up earlier gains Wednesday but remained buoyant over the near-term as supply concerns continued, analysts said.

Three-month tin maintained gains but fell to a PM kerb of $12,225 a metric ton from an earlier fresh record-high of $12,500/ton due to profit-taking.

With prices so high for nickel and tin, it's not surprising to see some profit-taking, said Michael Skinner of Standard Bank. Nevertheless, their prices should remain well-supported due to ongoing supply concerns and low stocks, he added.

Tin prices set a fresh high Wednesday as uncertainties regarding supply from the independent smelters in Bangka, Indonesia continue to provide prices with firm underlying strength, said Barclays Capital in a research report.

The combination of efforts made by the Indonesian government to restrict refined tin exports, as well as the ongoing closure of small-independent smelters, are fueling concerns over a shortage of supplies later in the year.

In addition, officials at PT Koba's parent company said Wednesday that police are investigating smelting operations at PT Koba Tin, one of Indonesia's largest tin producers, for legal violations. Nevertheless, tin production isn't expected to be affected as the company's smelter remains in operation.

Adding to price support was a drop in stocks Wednesday. Tin warehouse stocks fell 200 metric tons to 12,180 tons Wednesday, down roughly 25% from year-ago levels.

Three-month nickel was the other leading star earlier Wednesday, hitting a fresh record-high of $38,502/ton before retreating to a PM kerb of $37,400/ton.

"The LME nickel stocks situation continues to be very tight with stocks falling from already critically low levels," said Barclays Capital.

Nickel stocks dropped 48 tons to 5,016 tons Wednesday, with canceled warrants – or metal accounted for and about to be drawn down – jumping to 37% at 1,902 tons.

Stocks are down over 80% from year-ago levels and the 3,114 tons available in warehouses comprise roughly one day's worth of global nickel consumption.

In addition, the market awaits results of labor contract negotiations between Xstrata PLC and union workers at Xstrata's Sudbury nickel mine, with a potential strike next week if talks fail.

Last week, more than 1,000 unionized workers voted 98% in favor of a work stoppage if a new labor agreement isn't reached. Both sides began negotiations on Dec. 11 with hopes of a resolution ahead of the expiration of the current labor contract on Jan. 29.

While negotiations are stuck over the contract's "language" about job postings and vacations, the union remains optimistic of a resolution by the month-end deadline, a union official told Dow Jones Newswires Wednesday.

Moreover, given better-than-expected U.S. economic conditions and continued physical deficits over the next two years, "we don't see a significant (price) correction even as Xstrata's labor issues are fully resolved," said BMO Capital Markets.

Meanwhile, aluminium prices were also well supported Wednesday, hitting a session high of $2,847/ton before retreating to a PM kerb of $2,803/ton.

"The recent firming in alumina prices ahead of the Chinese Lunar New Year, disruption to bauxite output and exports in the world's largest producer – Guinea – coupled with recent power outages at aluminium smelters in South Africa have all supported prices," said Barclays Capital.

Four metric tons of bauxite make two tons of alumina, which in turn is smelted to produce one ton of aluminium.

In addition, "the aluminium cash to three-month backwardation continues to be hefty, staying above $100/ton," Barclays Capital added.

Copper prices remained well supported throughout the session, rising roughly 1% to a PM kerb of $5,715/ton.

Signs that Chinese demand for copper is rebounding, stronger-than-expected economic numbers in the