BASE METALS: Close Higher; Gains Seen Vulnerable To Mood Swings

Sep 07, 2011 LONDON (Dow Jones)--Recovering risk sentiment and a weaker dollar sent base metals to a strong close on the London Metal Exchange Wednesday, although market players warned that metal gains could yet be eroded by shifts in fragile macro sentiment.

At the PM kerb close, flagship three-month copper was 1.8% higher at $9,092 metric ton. Nickel rose the most, closing the session at $21,770/ton, up 5.3% on the day.

An uptick in equities was the main driver of base metal gains Wednesday, although a weaker greenback--which makes the dollar-denominated metals appear cheaper to holders of other currencies--also provided some support, according to analysts.

"Correlations between commodities and equity markets are very high," said Walter de Wet of Standard Bank.

"However, based on our underlying fundamental view of the commodity markets we believe that while base metals and energy may rally when equities bounce, they are likely to fall by a greater margin should equities decline," he added.

Base metals are sensitive to economic developments and speculation, as they are widely used in manufacturing and construction. They are also considered risk assets, compared with gold and core government bonds, so are vulnerable to swings in market sentiment.

The Dow Jones Industrial Average was recently up 1.6% at 11322 points, after management changes at Bank of America and Yahoo helped lead U.S. stocks higher after a three-day losing streak. Meanwhile, the euro was up against the dollar at $1.40561.

With U.S. President Barack Obama due to outline a jobs plan in a speech Thursday, market players will be on the lookout for clues as to the trajectory of U.S. economic policy. Any mention of stimulus measures will likely boost base metals, along with equity markets.

In fundamental news, union workers at Peruvian copper miner Sociedad Minera Cerro Verde began a 48-hour strike Wednesday, following unsuccessful talks with the company over a pay dispute, a union leader said. Cerro Verde is majority owned by Freeport-McMoRan Copper & Gold Inc.(FCX).

Meanwhile, workers at Freeport-McMoRan's massive Grasberg mine in Indonesia may also hold a one-month strike starting Sept. 15, as labor contract negotiations appear to be deadlocked, according to a union spokesman.

Prices in dollar a metric ton.
3 Months Metal             Bid-Ask        Change from
                                          Tuesday PM kerb
Copper                  9092.0-9092.5     Up 159
Lead                    2415.0-2416.0     Up 31
Zinc                    2239.0-2240.0     Up 52
Aluminum                2403.0-2404.0     Up 23
Nickel                21770.0-21775.0     Up 1100
Tin                   24375.0-24380.0     Up 575
Aluminum Alloy          2320.0-2325.0     Up 28
Aluminum Alloy-NASAAC   2420.0-2440.0     Up 10