Base metals close lower on LME; Nickel up

London Metal Exchange base metals were modestly weaker Wednesday but market sentiment remains nervous with traders wary of any further fund sales.

LME prices have generally fallen driven by a lack of major trade support, said one LME trader. "It's been difficult to sustain any price trend because the market is nervous about fund positions," the trader said, adding that markets are likely to remain volatile in the near term.

Three-month aluminium prices fell nearly 2% to a PM kerb of $2,655/ton from Tuesday. Aluminium prices fell on speculative selling driven by technicals, but the metal found good CTA and consumer buying at the lower price ranges, said one LME aluminium trader. Nevertheless, the mood of the market remains very tense, the aluminium trader added.

Options expiry Wednesday didn't attract the major activity that was expected, but "once the $2,850/ton strike price was hit, many traders were looking to get out and pushed prices lower," said the aluminium trader. "If aluminium prices fail to hold $2,640/ton, prices could fall sharply to the $2,560/ton support level," trader noted.

Meanwhile, three-month nickel recouped earlier losses and traded to a PM kerb of $35,850/ton virtually unchanged from Tuesday.

Fund selling earlier in the session pressured prices lower but consumers who had been looking to buy nickel at price dips helped push it higher, said a New York based nickel trader. Despite critically low LME stocks, which stand at less than one day's worth of global nickel consumption, the material is not that difficult to come by, the trader added.

Nickel stocks increased 138 metric tons to 3,120 tons Wednesday.

In news, BHP Billiton Ltd.'s Chief Executive Chip Goodyear said Wednesday that the company's $2.2-billion Ravensthorpe nickel project in Western Australia is progressing within its new schedule. In November, BHP upped development costs for the 50,000-ton-a-year Ravensthorpe project to $2.2 billion and delayed the target date for first metal to the first quarter of 2008 instead of the second quarter 2007.

BHP's Ravensthorpe project as well as other delays to new mine supply have helped push LME nickel prices to a record high of $38,950/ton in January.

One metals analysts said base metals prices should find support from the release of BHP's staggering earnings as mining stocks are still doing well. The company's net profit rose 41% to US$6.17 billion from US$4.36 billion in the first half ended Dec. 31.

The fact that BHP increased its buyback plan to US$10 billion – about 3 times up from expectations – should also support a bullish argument for base metals prices, the analyst said, adding that BHP doesn't see major mining opportunities to put its cash.

Meanwhile, three-month zinc prices fell nearly 2% to a PM kerb of $3,190/ton from Tuesday, continuing to digest the sharp losses seen last week due to fund liquidation.

In news, Australian base metals miner Zinifex Ltd. said Wednesday that its vessel MV Wunma, carrying 5,000 metric tons of zinc concentrate from the Century mine, is in stable condition after the vessel ran into trouble early Wednesday in severe seas.

It unclear yet whether Zinifex might have to declare force majeure on the shipment, but said it was looking to identify replacement vessels should the Wunma be out of service for a longer period, the company said in a statement Wednesday.

Three-month copper prices decline nearly 1% to a PM kerb of $5,420/ton from Tuesday driven by an increase in copper stocks by 3,175 tons to 215,750 tons.

In news, German producer Norddeutsche Affinerie AG said Wednesday that Chinese copper demand looks set to be strong in 2007 with production and local stock reserves appearing to be no longer sufficient to meet consumption needs.

Prices in dollar a metric ton.
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