LME nickel, zinc and copper jump, seen volatile

LONDON, Jan 10 - Nickel, zinc and copper bounced back at the London Metal Exchange on Wednesday after losing ground since the start of the year, and there could be more big moves to come, analysts said.

Nickel jumped in late trade to end the kerb session at $32,400 per tonne, up 7.2 percent from Tuesday's close.

"We are seeing a recovery in nickel and zinc...the two that had been hit the hardest by the selling over the last few days," analyst Kevin Norrish at Barclays Capital said.

Zinc closed up $220 or more than 6 percent at $3,740, and copper was up $250 at $5,875, its highest since Jan. 5.

At the New York Mercantile Exchange's COMEX division, copper for March delivery surged 10.80 cents, or 4.2 percent, to settle at $2.6640 a lb, after dealing between an overnight low at $2.5550 and a session peak at $2.6855.

In London, nickel and zinc fell earlier in the week as commodity indexes reduced the proportion of their assets invested in the two best performing base metals of last year. Analysts expected more sudden moves ahead.

"It is sensible to be cautious this week, the re-weighting and hedge selling will last until Monday of next week so we wouldn't rule out further volatility," Norrish said.

At Tuesday's close zinc had shed over 17 percent from the start of 2007, while copper and nickel were down 11 percent.

This week the Dow Jones AIG index is rebalancing, selling some of the stronger commodities of 2006 [ID:nL02923885].

Norrish said: "We think the market is over-emphasising the importance of the re-weighting... once this is out of the way we expect a significant recovery." He said zinc and nickel, in particular, were well supported by supply-demand factors.

Reflecting the tight nickel market, the premium for cash metal above the three-month price was around $1,350, having doubled since the start of January.

Percentage changes in the DJ index are slight, but require metal to be sold because prices moved so dramatically last year.

According to the index's Web site, its weighting for copper in 2007 is rising to 6.2 percent from 5.9 percent last year. Aluminium is shifting to 6.8 percent from 6.9 percent, nickel is largely unchanged at 2.7 percent, and zinc is moving to 2.8 percent from 2.7 percent.

CHINESE BUYING

Many producers and traders expect copper prices to rise by mid-February, with Chinese buyers seen returning to the market after heavy de-stocking in 2006.

"The Chinese have never really left this market so it might not have too much of an effect on prices," the LME trader said.

Chinese demand for copper was unlikely to rise in the first quarter, analysts and industry sources said. They noted that while the price had dropped 35.5 percent from a peak of $8,800 in May last year, it remained up about 24 percent from the same period a year earlier. [ID:nHKG216703]

Copper stocks in LME-monitored warehouses stand at around 193,800 tonnes, just under four days of world consumption, so the market is vulnerable to supply disruption.

Chilean state-owned miner Codelco said it was working to reduce the threat of rockslides at its 570,000 tonne-per-year Chuquicamata mine. [ID:nN09204702]

ALUMINIUM HIGHER

Three months aluminium was $55 higher at $2,710.

The premium for cash metal above the three-month price was around $70, up from $20 on Jan. 2.

"The large and growing anomaly in the nearby aluminium market suggests a major fund operation is under way," economist John Kemp at Sempra Metals said.

He said one player held a large long position equivalent to more than 40 percent of the open interest in prompt January 17 or more than 714,000 tonnes, well in excess of the entire LME stock of around 698,000 tonnes [ID:nL10156555].

Tin closed at $10,450, up from its last quote on Tuesday at $10,095/10,100.

Investors were watching developments in Indonesia, acco