Nickel and tin hit new highs on supply worries

Nickel and tin hit new record highs on the London Metal Exchange (LME) on Tuesday as supply concerns boosted prices, analysts said.

“Nobody would go short in nickel…there is some genuine market tightness,” analyst Michael Widmer at Calyon said.

Nickel for delivery in three months was at $37,500/37,600 a tonne at midsession after hitting a high of $37,600 in early trade. On Monday it closed at $37,300.

“The market often uses nickel as a barometer so the metals could go higher from here,” an LME floor trader said.

Prices were supported by pay talks at Xstrata’s nickel operations in Sudbury, Ontario. [ID:nN22276080]

“Sudbury will continue to support prices, unless they reach an agreement, prices could spike to $40,000,” Widmer said.

If a new collective agreement is not reached by the time the current contract expires at midnight Jan. 31, more than 1,000 employees at the Sudbury complex, with just over 4 percent of world nickel smelting capacity, would be in position to strike.

Available stocks of nickel stand at around 3,700 tonnes, about one day’s global consumption and down from around 36,000 tonnes at the start of 2006. In the same period, prices have jumped more than 170 percent.

Deutsche Bank forecast a supply deficit of 198,900 tonnes in 2007 and 166,800 in 2008, primarily as a result of production delays at the two largest mines scheduled to come on stream — BHP Billiton’s Ravensthorpe in Australia and CVRD’s Goro in New Caledonia.

Tin traded at a record high of $12,200 versus $11,790, buoyed by uncertainty about the operation of the independent smelters in Indonesia that faced closure in October.

The country accounts for a third of world tin output and the provincial government has identified eight smelters, out of 35 small smelters, that may be allowed to reopen.[ID:nJAK316016]

ALUMINIUM UNDERPINNED

Aluminium gained at $2,785 against $2,760 on Monday.

A violent general strike in Guinea has halted shipments of bauxite, the raw material needed to produce aluminium, by the world’s top exporter Compagnie des Bauxites de Guinee (CBG), underpinning the market. [ID:nL22822018]

The premium for LME cash aluminium above the three-month price, or backwardation, was at $114, up from $30 on January 4.

Using LME data from January 19, analyst John Kemp at Sempra Metals said one dominant position now held over 80 percent of the warrants in LME-registered warehouses.

LME copper futures lost $11 at $5,609/5,610.

Copper stocks came in at 194,225 tonnes, up by 775 tonnes and almost double from the start of 2006.

But sentiment in copper was not overly bearish.

“It feels like the market is building a base at these levels, with plenty of CTA (Commodity Trading Adviser) activity supporting the market,” the LME floor trader said.

Metals prices could continue to rise, David Lilley, partner in U.S.-based investment fund Red Kite, said.

“We believe that fund diversification flows into commodities as an asset will continue to support pricing across the metals complex,” Lilley said. [ID:nSHA29908]

Zinc was slightly higher at $3,700/3,701 versus $3,690. Lead gained $25 to $1,670, nearing its contract high of $1,785 set on December 12.

“There are strong indications that more zinc is coming out of China, it is completely opposite to the lead market where there is a risk that China might stop exporting,” Widmer said.

Source: Reuters