METALS-Nickel drops to near two-month low, copper falls

Thu Jun 12, 2014 12:53pm EDT

Related Topics

* Nickel could see more falls in shot-term - analysts

* Shanghai copper premiums steady

* Chinese economy concerns continue to weigh on metals (Updates with closing prices)

By Eric Onstad and Harpreet Bhal

LONDON, June 12 (Reuters) - Nickel sank to its lowest price in about two months on Thursday on persistent profit-taking after months of rallying on an Indonesian ban on ore exports in January.

Copper fell to its lowest in 1-1/2 months on caution over a Chinese investigation into metals financing that could impact metals trade and release metal onto the market.

Three-month nickel on the London Metal Exchange (LME) hit a session low of $17,700 a tonne, the weakest since April 16, before paring losses to close at $18,000 a tonne, down 1.7 percent.

Nickel, up 30 percent so far in 2014, has been by far the best performing base metal after top producer Indonesia imposed a ban on shipments of unprocessed ore in January. It hit a 27-month peak of $21,625 a tonne on May 13.

Deutsche Bank analyst Grant Sporre expects further weakness in nickel since stocks of ore and refined metal have not been eroded as much as has been discounted in the price.

"The nickel price had run ahead of fundamentals ... For the very near term, the next month or so, we've still got some downside risk, we could drift towards $17,000," he said.

"But as we look to Q4, the market will tighten up again and the real fundamentals come to the fore, so we could head back above $20,000."

Analysts at Commerzbank also expect more falls for nickel in the near term.

"Short-term-oriented financial investors have been taking profits for a number of weeks now. This is clear from the open interest which from its record high in May has now decreased by 8.5 percent to 228,000 contracts," the bank said.

"In our opinion, the current momentum suggests that the correction will continue in the short term."

COPPER FINANCING

News this week that authorities are investigating the use of cargoes of metal as collateral in financing deals has upended market conditions.

The investigation has prompted some banks to wind up deals or stop doing them altogether, while others are telling their customers to shift metal into safer warehouses as a fraud investigation in a China port rumbles on.

Three-month LME copper fell to its lowest level since May 1 at $6,614.75 a tonne, before paring losses to close a $6,620 a tonne, down 1.1 percent.

However, the premium of cash copper over three month copper CMCU0-3 rebounded to $46.75 a tonne, from a low of $8 on Friday, as anxiety eased somewhat that the investigation would lead to the financing deals unravelling and flood metal onto the market.

"I suspect the bounce back up is a reflection that there is physical tightness and there has been no visible physical sign of metal coming to the fore," Sporre said.

In another sign that the worst of the scare might be over for now, premiums for bonded copper in Shanghai steadied at $70-$90 from the day before, after sliding over the past week according to China price provider Shmet. (www.shmet.com/)

Metals markets have also been weighed down by concerns about the Chinese economy, which got off to a soft start to the year, growing at its slowest pace in 18 months in the first quarter.

Lead closed 2.4 percent lower at $2,075, its lowest since early May, while tin ended down 1.1 percent at $22,575, having earlier hit a low of $22,550 - a level last reached on March 13.

Aluminium ended at $1,845, down 1.1 percent and zinc , untraded at the close, was last bid at $2,075 down 2 percent.

PRICES

Three-month LME copper

Most active ShFE copper

Three-month LME aluminium

Most active ShFE aluminium

Three-month LME zinc

Most active ShFE zinc

Three-month LME lead

Most active ShFE lead

Three-month LME nickel

Three-month LME tin (Additional reporting by Melanie Burton; Editing by Susan Thomas and David Evans)

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