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Base metals steady, nickel and tin near highs
Tue Jan 23, 2007 8:48 AM GMT

SHANGHAI (Reuters) - Base metals prices in London and Shanghai were steady
on Tuesday, with nickel and tin just shy of record levels, supported by
supply worries.By Nick Trevethan

Nickel for delivery in three months on the London Metal Exchange was at
$37,050 a tonne at 0433 GMT, versus the record high at  Monday's close of
$37,300, when the market rallied 2.8 percent.Tin was $11,600, down $190 from
the previous close. Earlier on Monday, tin matched its all-time high of
$11,850 recorded on December 29.

"It is difficult to say whether prices can continue at these levels.
Fundamentals support strong prices, but whether they support prices at these
levels is debatable," an LME dealer said.

"But there is very little metal around and if you are are short you have to
buy regardless of the price. You don't haveany other option."
Available stocks of nickel in LME warehouses stand at around 4,000 tonnes,
little more than one day's global consumption and down from around 36,000
tonnes at the start of
2006. In the same period, prices have jumped 170 percent.

Tin stocks are running at 12,520 tonnes, down from 16,725 tonnes at the
start of 2006. Uncertainty about the operation of independent smelters in
Indonesia and a switch to tin-based solders from lead-based, have supported
prices.

But industry officials warned that if prices, especially those of nickel,
continued at high levels, demand would ease.

"Higher nickel prices put pressure on production at domestic stainless steel
mills," a manager at a eastern China-based stainless steel maker said.

"In my opinion, the mills which produce both stainless steel and carbon
steel may shift some capacity from stainless to carbon steel, or from
300-series stainless steel to 400 and
200-series, which consume less nickel," he added.
Chinese stainless producers sell metal on an outright basis, which does not
take into account day-to-day movements in nickel prices, unlike Western
steel makers who make an alloy
surcharge to reflect changing prices.
He said nickel accounted for more than 85 percent of the cost of production
of 300-series stainless steel, up from 60 percent a year ago.
Shanghai copper futures were steady, with the most active March contract up
40 yuan at 52,590 yuan a tonne by the midday break on Tuesday.

Spot copper prices in Shanghai were up 390 yuan, quoted between 55,700 yuan
and 55,900 yuan.
LME copper futures were $15 lower at $5,605 a tonne.
"The key for copper this year is not the demand story. There is a chance for
restocking, in China and elsewhere in the world, but the crucial thing will
be supply," ABN AMRO commodities analyst Nick Moore said.

"Five years into the boom and producers are in a position to maximise,
rather than optimise, output."

Moore pointed to latest data from the International Copper Study Group
showing there was a sharp rise in mine capacity utilisation to 92.7 percent
in October from 84.2 percent in September.
"This very sharp acceleration in one month of 8.5 percentage points is a
harbinger of the supply surge that we expect and a major shift to surplus."
On Monday, global LME stocks stood at 193,450 tonnes, almost double from the
start of 2006. The most traded April Shanghai aluminium futures rose to
19,500 yuan from 19,400 yuan. LME aluminium ticked down $2 to $2,758.
"Aluminium now seems to be on a slow-paced climb despite


the 825-tonne influx of stocks into LME warehouses," Standard Bank London
said in a report. "The continuing tightness keeping the cash-to-three-months
backwardation at near decade record levels shows no sign of easing and
indeed Feb-March is continuing to tighten, meaning that this tightness could
last at least until March."

Premiums for LME cash metal above the three-month price were $105/125, near
their highest since 1990, and up from $30 at the start of 2007.

(c) Reuters 2007. All rights reserved. Republication or redistribution of
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