Base metals bounce, but seen vulnerable

Base metals bounced on Thursday after the previous day's large losses, but analysts say prices are likely to come under mounting pressure as stocks rise and the gloomy economic outlook is reinforced.

Firmer metals prices helped bolster mining firms such as London-listed Rio Tinto, BHP Billiton and Xstrata, which all were up more than 2 percent.

Copper for delivery in three months on the London Metal Exchange was quoted up at $6,780/800 a tonne by 1035 GMT from Wednesday's close at $6,680, which was also the lowest price since November 17.

The metal has lost more than 20 percent since its record high of $8,800 seen in May.

"With the relentless stock falls now no longer evident, it looks as though the dynamics of the market have changed," BaseMetals.com said in a research note.

"In addition, with growing concerns over the demand outlook, especially in the U.S., consumers no doubt think the metals are switching from a sellers market to a buyers market."

Recent data from the United States has raised expectations the U.S. economic slowdown could turn into a hard landing and dampen global growth, which would hit hard demand for metals.

However, traders say low volumes ahead of the year end have exaggerated price falls and think that high volatility will be a feature of the market until January.

"It is easy for consumers to stand back and wait," a LME trader said. "It's a dangerous market, could go either way."

Also weighing on copper are higher stocks at LME warehouses, which analysts say could reach 200,000 tonnes early next year from nearly 173,000 tonnes on Thursday compared with little more than 25,000 last July.

A firmer dollar this week has also weighed on base metals. As the U.S. currency rises, dollar-denominated metals become more expensive for holders of other currencies.

NOT OUT OF THE WOODS

Still, some analysts think prospects for economic growth are better than markets expects.

"There's quite a lot of forecasting of a potential hard landing in the US, (but) the reality will be softer than that,"Numis Securities analyst John Meyer said.

"We expect continuing strong demand from China to be the principle driver for commodity prices through next year.

Others expect wage negotiations and the possibility of supply disruptions to support copper and base metals.

"We're not out of the woods yet," the trader said. "It could all blow up still.

Labour contracts for more than 6,000 workers of Codelco's Norte division expire at the end of the year. Union leaders have said the company's initial offer does not come close to matching demands for a wage rise of 6.6 percent.

Swiss-based Xstrata Plc presents a new wage offer to workers at its Altonorte smelter in northern Chile later on Thursday, which it is confident will be accepted.

Elsewhere, lead firmed to $1,655/60 a tonne after the close of $1,650 a tonne on Wednesday, when it tumbled to $1,590, the lowest since November 28.

Lead has been boosted by expectations of strong demand from battery manufacturers and falling stocks at LME warehouses, down about 60 percent since June.

On Thursday, lead stocks fell another 250 tonnes to 41,525 tonnes, less than two days of global consumption.

That should boost lead prices, a bank trader said. "But the funds have been playing with it and they want their profits now, before the year ends."

Nickel rose to $33,850/950 from $33,250/300, aluminium gained to $2,854/859 from Wednesday's last offer at $2,800, tin ceded $25 to $10,900/11,000 and zinc added $60 to $4,350/60.