nickel tumbles 10pc

Nickel tumbles 10pc, copper weak

Print January 09, 2009
Article from: Reuters

NICKEL led base metals prices lower, shedding nearly 10 per cent, while copper fell for the second straight day.

The falls came as economic fears intensified and traders took profits as the rebalancing of commodity indexes started.

Buying ahead of the reweighting of the Dow Jones AIG Index and S&P GSCI this week turned to selling as the S&P rejig started and the market shifted its focus back to the weak economy.

“We were a little over-exuberant on some of these commodities,” said Pat Donnelly, senior broker with Peak Trading Group in Chicago.

“We saw some fresh money coming in in the beginning of the year and, with the thin markets as they were, pushed prices higher than they really should have been.”

London Metal Exchange nickel fell to a low of $US11,100 a tonne. The metal had rallied as much as 16 per cent since the start of 2009 and hit a two-month high of $US13,550 this week. It closed at $US11,545 a tonne, down from $US12,300.

“Nickel is particularly volatile,” analyst Leon Westgate at Standard Bank said.

“It looks like another bumpy ride, particularly while the index rebalancing is taking place and the added uncertainty it brings.”

Nickel prices dropped more than 50 per cent in 2008 as demand from stainless steel producers dried up and inventories rose. LME warehouse stocks fell 108 tonnes to 78,804 tonnes, but are still close to their highest level since July 1995.

“Quite a few of the producers have inventory as well. It's not just on the LME,” said analyst Dan Smith of Standard Chartered.

“As soon as the price goes up for nickel, people are going to take the opportunity to get rid of that stock.”

Copper for March delivery on the New York Mercantile Exchange's COMEX division lost 2.2 per cent of its value to settle at $US1.4790 a pound.

London copper for three-month delivery fell 4.3 per cent to close at $US3195 a tonne, down from the previous close of $US3340. Yesterday, prices hit a one-month high of $US3570, up 16 per cent this year.

Copper was under pressure from rising LME stocks, while news of smelter cutbacks in South Korea did little to help prices. LS-Nikko Copper, one of the world's largest copper smelters, will cut cathode output by about 10 per cent.

“Demand for copper cathode is not really looking good at all, and a lot of producers are really struggling to sell their material,” said a physical copper trader.

The number of US workers filing new claims for unemployment benefits fell unexpectedly by 24,000 last week, data showed, but the number of people remaining on jobless rolls rose to a 26-year high.

Yesterday's larger-than-expected drop in US private-sector jobs could foreshadow more grim non-farm payrolls data tomorrow.

Copper stocks continued to rise in LME warehouses, up 6375 tonnes at 357,700 - levels last recorded in January 1994 - and aluminium inventories rose 23,825 tonnes to 2.39 million, the highest in more than 14 years.

Aluminium prices slipped to $US1555 a tonne from $US1594.

Prices have dropped from record highs in July of $US3380 a tonne as a slump in demand has forced a number of producers to cut output and postpone future projects.

“At prices of around $US1500, many aluminium companies are no longer able to cover costs,” analyst Eugen Weinberg at Commerzbank said in a report.

“We therefore expect further closures to take place.”

The production cuts announced so far may be insufficient to help prices recover.

“Globally, the industry has cut the equivalent of around 5 million tonnes a year,” MF Global analyst Edward Meir said.

That amount is equal to around 10 per cent of world capacity.

“That should have been enough to support the market, but the stocks keep on rising and, while that continues, there is still room for further cuts,” Mr Meir said.

Lead was the only metal to finish higher, rising to $US1150 a tonne from $US1139/1140.

LME zinc dropped to $US1235 per tonne from $US1280, and tin was down at $US11,400 from $US11,625.