LME copper under pressure in volatile market

LONDON, Jan 11 - London Metal Exchange (LME) nickel extended gains on Thursday but copper was erratic and under pressure after the previous session's rally.

"It will stay volatile," analyst Stephen Briggs at Societe Generale Corporate and Investment Banking said.

Copper for delivery in three months fell to $5,819 a tonne in the open outcry trading session from $5,875 on Wednesday, when the market climbed 4.4 percent.

Copper was seen trading in ranges between $5,700 and $5,950.

Nickel was up 4.0 percent at $33,700 after storming 7.2 percent higher on Wednesday to close at $32,400.

Zinc was at $3,780, up versus $3,740 at the close.

At the start of the week nickel and zinc dropped as re-weighting of metal assets by the Dow Jones/AIG commodity index, which continued this week, triggered a heavy sell-off.

"As long as the re-balancing continues, these markets are impossible to predict," analyst Michael Widmer at Calyon said.

Briggs said the decline in copper seen over recent months, bolstered by a surge in LME inventories, was slightly overdone.

Stocks rose by 1,625 tonnes on Thursday to 195,450, more than twice their level at the start of last year, but the stocks only cover four days of global consumption.

"The increase in stocks does not yet represent a market in surplus...the market is always anticipating, but I think it is doing it on slightly misleading information," Briggs said.

Analysts believe the market will shift from a deficit into a slight surplus of around 100,000 tonnes in 2007.

"But the change is not that large as sentiment and recent downward price movements would suggest," Briggs said.

In 2006 China's imports of copper fell 18.6 percent to 2.06 million tonnes as international prices and growing domestic output reduced import demand. [ID:nPEK231155]

But Chinese consumption was ticking up and analysts saw support prices around the Chinese New Year in February when buyers returned after de-stocking.

"The price pattern has now moved against domestic Chinese copper with prices on the LME being lower...it should give an incentive to import a bit more," Widmer said.

ALUMINIUM SQUEEZE

Aluminium rose to $2,755 against $2,710.

The premium for cash metal above the three-month price, or backwardation, stood at $86, its highest since January 2001.

"Clearly there is some sort of market operation happening," UBS metals strategist Robin Bhar said.

"It's a squeeze on the cash market."[ID:nL10156555]

Widmer said any price impact from a squeeze would be brief but he expected trade to be volatile.

Longer-term aluminium demand from the United States was seen slowing and aluminium prices would go lower this year, he said.

LME aluminium stocks amount to nearly 700,000 tonnes, or some eight days of global consumption, while nickel stocks stand at around 6,500 tonnes, the equivalent of less than two days of world consumption.

Reflecting the tight market, the backwardation was over $1,500 a tonne, having doubled since the start of January.

A series of strikes, project delays and cost over-runs at nickel operations around the world, coupled with strong demand from stainless steel makers, has more than doubled nickel prices over the past 12 months.

Lead was at $1,601 against its last quote on Wednesday at $1,599/1,600 and tin was at $10,575/10,600 versus $10,450 on Wednesday.