The base metals all moved higher on Monday. Copper peaked during the pre-dawn hours and, though it declined to mid-morning, staged a later day rally to finish at $3.7938/lb., up more than 3 cents.

Nickel fell off its peak around the noon hour, but remained in positive territory at $9.2238/lb., up 4 2/3 cents. Zinc bottomed at mid-morning, but took off strongly from there, ending at its intraday high of $0.8371/lb., up nearly 2½ cents. Aluminum traded very jaggedly, to little eventual effect, closing at $1.3615/lb., up three-quarters of a cent, while lead was up straight through the day, just coming off its intraday high at $0.9295/lb., up 4 1/3 cents.

Copper was strong on the rise in crude, and the associated strength in the broader metals complex.

“With oil bouncing back to $130 after inconclusive Iran talks and gold inching back over $965, the ’safe haven players’ may be adding back some metals longs recently liquidated,” said analysts at RBC Capital Markets.

There were also supply concerns. Inventories monitored by the LME have bumped up by 5% so far this month, to 128,725 metric tons, the highest since March 12, but there are worries related to who’s in control.

Since those stocks are held by “only a few market participants,” availability is limited, Norddeutsche Affinerie AG, Europe’s largest copper refiner, said.

Traders ignored news that a strike planned to start yesterday at Southern Copper’s (PCU) Cuajone mine in Peru has been suspended by the labor union. Cuajone, which produced 148,939 tons of copper in 2007, is Southern’s biggest Peruvian mine.

Nickel also rebounded on supply shortages. LME inventories have fallen 6% this month, to 43,728 metric tons, the lowest level since November 23. BHP Billiton Ltd. has shut its Kalgoorlie refinery in Western Australia through June 2009, cutting sales of the metal by 25,000 tons, or about 57% of existing LME stocks.

“You probably started to see the impact from supply disruption in Western Australia,” said Max Layton, an analyst at Macquarie in London. However, Layton said, “It may be short-lived,” adding that “overall we see a small surplus this year.”

Meanwhile, Aluminum Corp. of China (ACH), the nation’s biggest producer, said 2008 production may decline by 30,000 tons after it reduced capacity at two ventures in Shanxi province because of the winter power shortage.

And Shanxi Huaze Aluminum & Power Co. suspended 25% of its 280,000-ton annual capacity as of July 18, while Shanxi Huasheng Aluminum Co. announced that it is trimming 22% off of its 220,000-ton capacity.
Source: Base Metals Rise, Supply Worries Rule the Day