Base metals rebound on LME

London Metal Exchange nickel and copper surged on short-covering triggered by strong demand and falling supplies Thursday and, while profit-taking can't be ruled out, the strong fundamental outlook remains intact, analysts said.

Fresh buying entered the markets as sentiment improved across the base metals complex Thursday, says Michael Widmer of Calyon. The general LME trend is for further price rises at the moment, Widmer said, adding that earlier U.S. producer price index figures weren't bearish enough to dampen sentiment.

The PPI for finished goods rose 1.3% on year in February well above consensus estimates of a 0.6% rise. However, analysts said markets will keep a close watch on the key consumer price index data due Friday to give further indications of U.S. economic health and LME price direction.

Strong demand from the stainless steel sector coupled with low inventories continued to push three-month nickel to fresh highs. Three-month nickel surged to a fresh record high of $47,890 a metric ton before retreating to a PM kerb of $47,100/ton.

A decline in nickel stocks by 222 tons to 3,594 tons Thursday triggered the push higher as available nickel stocks comprise less than one day's worth of global nickel consumption.

Three-month copper surged to a new high for 2007 of $6,550/ton, before retreating to a PM kerb of $6,540/ton.

Short-covering pushed copper prices higher triggered by strong Chinese import data, said Jorge Vazquez, senior analyst of Harbor Intelligence. Moreover, an increase in liquidity due to fresh money at the middle of the month added to base metals investment, said Vazquez.

China's copper concentrate imports rose 30% in February to 390,000 metric tons from 300,726 tons a year earlier, according to the preliminary government data released Thursday. Meanwhile, Chinese industrial production grew 18.5% in the first two months of the year.

Adding to price support, copper stocks fell 1,625 tons Thursday to 196,125 tons and are down 8% from month-ago levels.

Meanwhile, aluminium prices jumped on short-covering driven by a rise in nickel and copper prices, said Vazquez, while physical consumer buying also provided support.

News that Ghana's only aluminium smelter, the Volta Aluminum Company, or Valco, will shut down completely Friday due to a national power crisis that hit the country last August was also mildly supportive, said analysts.

The plant has five potlines in total, each having an annual production capacity of approximately 40,000 tons. The company operates only one line after cutting its power consumption by 35% in June to complement the national load shedding program.

Following such strong gains across the complex, profit-taking is likely Friday, said Vazquez, but over the longer term, price hikes are expected.

"The complex remains vulnerable to broader macroeconomic sentiment and equity market volatility," said Barclays Capital in a daily note, but "base metals market fundamentals remain extremely supportive in our view as we enter the seasonally strong second quarter."

U.S. stocks moved higher Thursday after both European and Asia stocks bounced.

Prices in dollar a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Wednesday PM kerb
Copper          6540.0-6550.0       Up  320
Lead            1910.0-1915.0       Up   40
Zinc            3315.0-3320.0       Up  105
Aluminium   &nbs