LME MIDDAY: Nickel Stays Firm; Aluminum Tightness Remains

LONDON--Aluminum continues to be underpinned by nearby tightness Friday and traders said this will remain for the time being, while nickel prices are seen holding around record London Metal Exchange highs as supply side worries persist.

But the fall in oil prices, which could target $45 a barrel after bigger than expected increases in U.S. oil stocks were reported, is weighing on the other metals and could drag prices lower.

LME data shows that a player or consortium of players is holding an LME aluminum short position of around 40% of total positions open on the March prompt date. The LME short is a hedge fund, traders said, and also has access to the warrants for a large concentration of the physical metal available in LME warehouses.

Because these aluminum stocks are tightly controlled, the market tightness looks set to continue. The tomorrow-next spread is trading in a backwardation of around $6 a metric ton, and players are waiting for the first aluminum ring session at 1155 GMT, when tomorrow-next trade is settled, to see whether the market moves back into contango.

Outright three-month aluminum is trading either side of $2,700/ton.

It would appear nickel's fundamentals are strong enough for it to shrug off the weakness in oil, which is instead adding downside pressure to gold and copper.

Nickel set a record high Thursday on talk a container ship carrying a cargo of at least 1,000 tons of the metal is damaged and drifting off the coast of the U.K.

This is equivalent to one-fifth of the world's LME nickel warehouse stocks.

MSC Napoli hasn't sunk, its owner U.K.-based Zodiac Maritime Agencies Ltd. said, and is cracked rather than holed. Therefore the ship is likely to be recovered intact, meaning the impact of the news will likely be short-lived.

But because the maritime services are still having trouble bringing the ship into bay, there's still a risk it may sink.

News that a strike at Eramet's operations in New Caledonia has ended was shrugged off with players noting the looming deadline for a strike at Xstrata's Sudbury, Canada, mines. At Sudbury, however, there's no certainty a strike will take place.

An initially weaker tone to copper was helped by a 5,275 tons decline in LME stocks, but the market is struggling to gain upside momentum.

A similar picture is being seen in zinc, which is technically weak above $3,600/ton and could fall victim to system-driven selling should the market sustain a move through this level, traders said.