LME copper ends 4% higher, other metals up

Renewed bullish sentiment and some positive supply side news for some of the base metals has lifted London Metal Exchange prices Tuesday but analysts warn that bouts of profit-taking are likely to come.

Copper in particular has built on its positive start to the week with the market pushing back through $7,000 a metric ton to four-month highs.

With little fundamental news behind the gains, analysts said sentiment seems to be driving prices, with players returning from an industry meeting in Chile last week with renewed enthusiasm for copper.

The market closed the kerb session in London up 4% on the day at $7,230/ton, a gain of 6% from Monday.

The turnaround in copper's fortunes has taken some market participants by surprise, especially given that much of the momentum has come from expectations of strong demand from China. Anecdotal evidence from physical traders suggests however that Chinese buying hasn't materialized, at least not on the scale that would justify the current gains.

And warnings by copper miners meeting in Chile, of the same problems as those seen at the same meeting a year ago, have been greeted by skepticism by some traders. Stocks are more than double those seen in April 2006, with the market now in a surplus, having been in a deficit at that time.

"It's all very well that copper's moving on bullish sentiment, but that alone won't be able to sustain the gains and we could see a dangerous selloff as players take profits at the top," a London broker said.

The bullish tone to copper filtered through to the other metals, although nickel's upside move to fresh all-time highs was more fundamentally justified than copper, analysts said.

News that Jubilee Mines in Australia will likely face a shortfall of 500 tons in its 2006-07 production added impetus to LME prices, with the market already experiencing critically tight inventories and with no fresh supply due to come onstream.

LME nickel hit $48,600/ton, a 6% gain on the day and a rise of 8% from Monday. Nickel has been the star performer of the base metals complex this year, rallying 62% since the start of January.

Similarly, lead was underpinned by positive fundamentals as supply side concerns returned to the fore. A strike in Peru, force majeure on shipments from Australia's Magellan lead mine, and ongoing uncertainty over ore grades at the Black Star mine in Australia combined to lift LME prices by 2% on the day and 4% from Monday.

Traders in London said that the longer that this price-supportive situation continues, the higher lead prices look set to move.

The other base metals also ended in positive territory as spillover influence from copper filtered through.

Prices in dollars a metric ton.
3 Months Metal     Bid-Ask        Change from
                                 Monday PM kerb
Copper          7230.0-7235.0       Up 260
Lead            1959.0-1960.0       Up 34
Zinc            3260.0-3265.0       Up 110
Aluminium       2845.0-2850.0       Up 90
Nickel         48585.0-48590.0      Up 2985
Tin            14045.0-1050.0       Up 305