LME nickel, copper pare earlier losses

London Metal Exchange nickel, zinc and copper recouped some of their recent losses on scale-down buying Tuesday, but traders say they will keep a wary eye on aluminium prices Wednesday due to options expiration.

"We saw nickel and zinc and copper bouncing back after their recent big sell-offs but because of options expiry Wednesday, the markets are very nervous with most of the open interest lying in aluminium," said one LME trader. Options activity in aluminium is centered mainly on the $2,850 a metric ton strike price.

The markets were squaring their positions Tuesday in anticipation of any major activity Wednesday and were relatively quiet, the trader noted. Three-month aluminium prices traded down roughly 0.3% to a PM kerb of $2,703/ton from Monday.

Zinc's recent losses were overdone and good scale-down buying has pushed prices higher Tuesday, said William Adams of BaseMetals. Moreover, there's good forward buying into price weakness, he added.

Three-month zinc rose roughly 3% Tuesday to a PM kerb of $3,220/ton from Monday as zinc stocks fell 400 tons to 97,475 tons Tuesday, according to LME data.

Zinc prices have fallen nearly a third since the start of 2007, driven mainly by hedge and commodity fund liquidation.

In news, zinc and lead miner Zinifex Ltd. said Tuesday that an explosion has caused the temporary shutdown of its Port Pirie smelter in south Australia, which is expected to cut full-year profit by less than A$4 million.

Meanwhile, nickel prices were largely unchanged from Monday but held above the recent two-week low of $35,600/ton. According to LME data, nickel stocks Tuesday fell 240 tons to 2,982 tons, equal to less than one day's worth of global nickel consumption.

The nickel cash to three month backwardation has continued to widen, according to Barclays Capital in a report.

Three-month copper prices rose over 2% to a PM kerb of $5,470/ton on short-covering driven by a fall in stocks Tuesday. Copper prices have dropped over 10% since the start of the new year on fund liquidation.

"However, it appears that sentiment towards copper remains uncertain despite the strong rise in China's refined copper imports and still positive global macro-economic conditions," Barclays Capital said.

In other metal markets, three-month tin prices fell to a session low of $11,650/ton driven by news that eight privately owned smelters at Indonesia's biggest tin deposit qualify for operating licenses under strict new regulations.

Indonesia's recent shut down of private mining and smelting operations on Bangka island, where the country's largest tin reserve is located, had pushed LME tin prices to record highs of $12,500/ton.

The South Asian country produces around one-third of about 360,000 tons of global tin output annually.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Monday PM kerb
Copper           5470.0-5472.0       Up  135
Lead             1571.0-1572.0       Dn   29
Zinc             3220.0-3222.0       Up  130
Aluminium        2703.0-2705.0       Dn    8
Nickel          35750.0-35800.0      Up   95
Tin             11900.0-11925.0