LME metals flat after options, strike threats support

LONDON, June 6 - Copper and aluminium were steady on Wednesday after the option expiry with strike threats underpinning the market, analysts said.

London Metal Exchange (LME) copper was at $7,485 a tonne at the end of the official session, versus $7,540 at its close on Tuesday.

Aluminium was down $34 at $2,769 after the expiry of options, which passed with few surprises.

Copper looked technically strong above $7,540, traders said.

LME copper stocks fell by 250 tonnes to 123,050 tonnes, the lowest since late October 2006 and down by about 40 percent since the beginning of February.

"Although we are looking for output to come on in the second half, particularly by the fourth quarter, things are staying pretty tight for the moment and with threatening strikes in Latin America that is going to keep everything on edge," said Helen Henton, head of commodity research at Standard Chartered.       

Prices were supported by potential strikes in Mexico, where workers threatened industrial action at nine mines and processing plants owned by Grupo Mexico, and lack of progress in contract talks at Collahuasi, one of Chile's largest copper mines.

The premium for cash metal over three-months copper eased to $88 after hitting $100 in the previous session, up from $54 in mid-May.

Nickel was down $600 at $45,600/45,605 after falling more than 3 percent in the previous session.

Stocks in LME warehouses have risen by 6 percent in June to 8,406 tonnes, accounting for some two days of global consumption.

Low stocks and strong stainless steel production in China have lifted nickel futures by almost 40 percent this year. The price hit a record high of $51,800 on May 9.

"The nickel market is pretty tight but prices have been completely overstretched and demand is going to suffer," Henton said, pointing to substitution and cutbacks in use.

"The stainless steel market, particularly in the U.S. and Europe, looks quite over-stocked now so there will be a natural downturn in demand," she said.

Two-thirds of nickel output goes to the stainless sector.

OPTION EXPIRY

Traders said a small number of options had been exercised in copper at $7,600 and for aluminium at $2,750.

"Most of the large holdings were out of the money...it was all pretty flat," an LME trader said.

Aluminium had to go up $100 to put more options into play and traders said prices were likely to fall after failing to reach important strike levels.

Three-months zinc was at $3,690, down $85 from Tuesday. Lead was down $15 at a bid of $2,310/2311 and tin was unchanged at $13,950/13,975.