Base metals retreat on LME

Base metals across the London Metal Exchange complex fell under the weight of long liquidation Monday, but traders say the downside should be limited due to strong support at the lower price ranges.

Activity was relatively quiet with no major news to weigh on prices except for long-liquidation, said an LME trader. However, the decline has been very orderly with speculators comforted by the fact that there is support at the low price levels, the trader added.

Copper prices gave up a lot of last week's gains to fall roughly 3% to an afternoon kerb of $5,585/ton.

Analysts have become more upbeat regarding copper demand in China. In news, destocking of copper inventories in China has "run its course," with strong consumption growth expected in the country in 2007, U.S. producer Phelps Dodge Corp. said Monday.

After 5% growth in consumption of refined copper in 2006, Chinese copper demand is expected to grow 7% or more in 2007, the company said on a conference call.

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

If BHP Billiton doesn't seek a five-day goodwill mediated negotiations period, stipulated in local labor laws, the strike would start on Feb. 2. Cerro Colorado produced 90,464 metric tons of copper in 2005, according to data provided by the Consejo Minero mining trade group.

Three-month nickel prices fell under long-liquidation Monday, down nearly 2%, along with the rest of the complex, said the LME trader.

But the market continues to watch the developments at Xstrata's Sudbury nickel mine. The company is currently in ongoing negotiations with unionized workers looking to avoid a potential strike there this week.

According to analysts, the Sudbury operations comprise roughly 4% to 5% of global nickel supply.

In addition, nickel stocks continue to dwindle, dropping another 600 tons, of which 360 tons came out of Busan in South Korea. With canceled warrants at 1,620 tons, this leaves just 2,658 tons available to the market – below one day's worth of global consumption.

In news, Russian mining giant OAO Norilsk Nickel said Monday its output of nickel in 2006 was 244,000 metric tons, up from 243,000 tons in 2005.

The company said it produced 62,000 tons of nickel in the fourth quarter, meeting its full-year target despite damage to mine equipment in an accident in the middle of the year. But, it's output of copper dipped slightly to 425,000 tons, from 427,000 tons a year earlier.

Three-month tin prices bucked the trend and pushed up modestly to a PM kerb of $12,250/ton as tin stocks fell 375 metric tons to 11,555 tons Monday.

"(Tin's) price strength continues to be driven by the uncertain supply situation following the closure of independent smelters on Indonesia's Bangka island in October 2006," according to Barclays Capital in a research note.

"Recent changes in regulations regarding tin exports by the Indonesian government coupled with the crackdown on the independent tin smelters has led to uncertainties regarding the future of Indonesian tin supply from Bangka," said Barclays Capital.

In news, Indonesian Mining Association Executive Director Priyo Pribadi Soemarno said Monday that the country's new ban on exports of metal ores will likely deal a hard blow to the troubled mining sector.

Three-month aluminium also fell under the weight of long-liquidation, the trader said, adding that spreads have eased. Aluminium traded to a Monday high of $5,848/ton before retreating to a PM kerb of $2,709/ton.

Prices in dollar a metric ton.
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