LME Rally Intact But Near-Term Pft-Taking Seen

LONDON--Profit-taking may cap gains in the London Metal Exchange base metals ahead of the long Easter holiday, but traders said Wednesday longer- term sentiment has turned bullish for the markets and further upside is likely.

Lead and nickel are holding at record highs while momentum for copper's bull run looks intact. This spillover is lifting the other metals.

Force majeure on shipments from Australia's Magellan mine, a strike at Doe Run's La Oroya operations in Peru and ongoing force majeure at Xstrata's Northfleet refinery have all combined to attract trade buyers to lead, a market a broker described as having been the bridesmaid of the complex.

With prices up 2% from Tuesday at $1,980 a metric ton as of 0850 GMT, brokers said the psychological $2,000/ton resistance is the next target.

Nickel is also holding at record highs, with the market well-supported by further falls in inventory, a lack of fresh supply and reports of a potential new strike at the Voisey's Bay operations in Labrador, Canada by mid-April.

With the market at $48,600/ton as of 0850 GMT, the next target is $50,000/ton.

Copper is similarly at four-month highs although there's more skepticism over whether or not the sudden price jump is justified. Players returned from an annual industry meeting in Chile held last week in bullish mode, and the upside moves have been driven by sentiment rather than strong market fundamentals, brokers said.

The rationale behind the gains appear to be continued expectations of strong demand from China, the world's largest copper consumer. But anecdotal evidence from physical market players shows there has been little evidence of soaring Chinese interest, and China's spot market is still trailing the LME with participants there still not buying into the hype surrounding the rally.

This may leave the copper market the most vulnerable to a selloff among the base metals, brokers added, saying the market looks overbought.

Bullish sentiment has meanwhile lifted aluminum, with prices around $2,850/ton through the morning London session, a 2% gain from Tuesday. But analysts said prices will probably be capped in this area as a result of strong producer selling and the conviction the market is in growing surplus.

Zinc, which has underperformed relative to the other base metals, is slightly higher and may be gain further if speculative players enter to cover their shorts, brokers said. The market is still 28% down from its November highs and has room to move higher, brokers noted.