LME lead, nickel rally on low inventories

London Metal Exchange lead and nickel pushed to new record highs Monday but trading activity across the complex was generally slow as traders wait on future price direction, analysts said.

"Copper prices have moved very quickly the last few days and the possibility of a retracement has kept some traders sidelined," said Michael Skinner of Standard Bank in London. "We saw a bit of movement to the upside Monday morning following the return of the Chinese, but activity since then has been very range-bound because traders are taking a wait-and-see approach over future price direction," Skinner said. However, "if we see Asia return overnight and trade limit-up again there may be more enthusiasm from traders Tuesday."

Copper futures traded on the Shanghai Futures Exchange settled limit-up Monday in order to match a roughly 10% increase in LME copper prices last week. Nevertheless, three-month copper fell nearly 0.2% from Friday to a PM kerb of $6,280 a metric ton as LME stocks have increased roughly 9% from the start of 2007.

Meanwhile, LME nickel pushed to a new record of $41,500/ton earlier Monday before retreating to a PM kerb close of $41,300/ton. The metal remains well-supported and poised for further record gains due to critically low inventories, said a nickel trader. With canceled warrants – or material accounted for and to be drawn down at a later date – at 46% Monday, available LME nickel stocks comprise roughly half of a day's worth of global consumption.

"There's a lot of investor interest following the lead and nickel markets because they are genuinely tight," said Jon Bergtheil of J.P. Morgan in London. However, stainless steel inventories may build and begin to weigh on nickel prices in the medium term, Bergtheil added. Stainless steel producers are the largest consumers of nickel material.

Elsewhere at the LME, three-month lead pushed to a new record high of $1,955/ton, just off the technically key level of $2,000/ton, driven by a decrease in LME lead stocks by 100 tons to 31,900 tons Monday. LME stocks have decreased by over 20% since the start of 2007.

Moreover, uncertainty over Xstrata PLC's Mount Isa mine in Australia continue to add to the bullish sentiment, traders said.

On Feb. 12 Xstrata imposed temporary restrictions to deliveries from its 161,000-ton Northfleet lead refinery in the U.K., which takes its feedstock from Mount Isa.

Meanwhile, zinc prices hovered near $3,600/ton, aided by a drop in LME zinc stocks by 1,125 tons to 97,675 tons Monday.

Further upside is expected for zinc prices over the short term, with $4,000 a metric ton a likely target, a European-based zinc trader said. However, forecasts for oncoming zinc supplies caps any major gains over the longer-term, the trader added.

Zinc inventories have decreased roughly 70% from year-ago levels, but have increased roughly 8% from the start of 2007.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Friday PM kerb
Copper           6280.0-6290.0      Dn  26
Lead             1938.0-1940.0      Up  18
Zinc             3595.0-3600.0      Dn   5
Aluminium        2890.0-2895.0      Up  10
Nickel          41300.0-41350.0     Up 500
Tin         &nb