Base metals mixed on LME; Nickel at fresh high

Base metals were mixed at the London Metals Exchange as strength in the U.S. dollar capped gains Monday, but nickel built upon last week's profits to hit a fresh high and looks poised to extend those gains, said traders and analysts.

LME three-month nickel prices continued their run higher, setting a fresh all-time high at $34,150 per metric ton earlier Monday, before modestly retreating.

"A tight supply-side situation, in tandem with critically low stocks in an environment of positive demand, continues to underpin (nickel) prices," said Barclays in a report.

Moreover, prices are supported from news that the strike at Eramet's (13175.FR) New Caledonian operations continues, costing the company 50 tons of production a day.

Despite LME warehouse data showing nickel stocks rose 588 metric tons to 6,942 tons Monday, stocks remain at low levels.

Nickel prices look poised to hit $35,000/ton in the short term, a trader said, as "there's nothing stopping prices from pushing higher."

Meanwhile, LME three-month copper prices hit a high of $7,240 per metric ton earlier Monday before retreating to trade at $7,095/ton. However, the metal has held above the psychologically key $7,000/ton level.

Jon Bergtheil of J.P. Morgan said that a stronger U.S. dollar has put a lid on base metals as well as precious metals prices.

Earlier Monday, the dollar hit a low against the euro last seen in March 2005, but has since retreated from those levels.

One base metals broker said LME copper prices slipped lower as activity switched from outright three-month prices to the forward spreads. Outright June 2011 copper is around all-time highs of $5,125/ton. Speculative longs are "moving forward" and consumer buying is entering at points in the curve "that were previously considered cheap," the broker added.

Underlying support for the market remains strong due to supply concerns such as a suspension of output at Hindalco's Dahej copper smelter due to a shortage of concentrates, along with reports that Brazil's CVRD may be forced to delay the start of its Goro nickel project in New Caledonia from the first half of 2008 to the end of that year.

Drawdowns in LME inventories are also adding to the upside price momentum, with many of the base metals markets remaining critically tight, traders said.

According to LME warehouse data, copper stocks decreased by 3,850 metric tons to 157,725 tons.

LME zinc prices touched a high of $4,575/ton earlier Monday before retreating to $4,470/ton. Zinc stocks increased by 100 metric tons to 87,650 tons Monday but still remains critically low, analysts said.

LME three-month aluminium traded to a high of $2,732.50/ton, before giving up gains to trade at $2,702.50/ton, while LME lead traded at $1,580/ton, just off Monday's high of $1,590/ton.

3 months metal (prices in dollars a ton)
Bid – Ask, Change from Friday PM kerb

Copper 7095.0-7100.0 Dn 55
Lead 1578.0-1580.0 Up 5
Zinc 4480.0-4485.0 Dn 29
Aluminium 2698.0-2700.0 Dn 20
Nickel 33475.0-33500.0 Up 25
Tin 10150.0-10175.0 Up 105