Nickel eased at the close after jumping to a new record peak in early trade and zinc touched a five-month high on Monday, with the markets well supported.
"The metals met very strong resistance at certain levels after nickel hit a new high and zinc traded at $3,740," a London Metal Exchange (LME) trader said.
"There was a lack of follow-through buying in the late afternoon... we can expect the market to be even more volatile tomorrow during the LME dinner," another trader said.
Metal producers, consumers, traders and analysts are gathering for London Metal Exchange week - a series of meetings, seminars and events including Tuesday's LME dinner.
Prices are generally volatile during the week because of thin trading conditions as many dealers are absent.
Nickel for sale in three months ended at $29,450 a tonne after touching a new record high of $30,250 in early trade. On Friday, nickel closed at $29,500.
Prices hit $29,950 in August and since the start of 2006 prices have risen by over 100 percent.
"Further gains in nickel prices look likely to us given positive demand from the stainless steel sector and the low level of LME nickel stocks," a Barclays Capital report said.
LME nickel inventories total 4,458 tonnes, of which only 2,652 tonnes, less than a day of global consumption, are available to the market.
Macquarie Research sharply raised its 2007 and 2008 price forecast for nickel and lead and lifted other base metals on predictions of very small surpluses.
ZINC HIGHER:
Zinc closed at $3,655 after touching $3,740 earlier, up 4.8 percent, the highest since the end of May.
On Friday, zinc ended at $3,570, up 4.4 percent on the day.
LME zinc inventories came in at 134,500 tonnes, down by 225 tonnes, their lowest level since 1991.
In 2007, the zinc market was forecast to be in deficit by 90,000 tonnes, analyst Michael Widmer at Calyon Corporate and Investment Bank said in a note.
"Although we have seen the galvanised steel market turning somewhat softer in recent months, a gradual slowdown in zinc demand in combination with some supply growth will only in the second half of 2007 ease tightness," Widmer said.
An official from Iran's Industries and Mines Ministry said there has been a crack in a wall in Iran's largest zinc mine, the Angouran mine owned by Iran Zinc Mines Development Company.
The mine produces around 60,000 tonnes of zinc annually and the mine would resume activities very soon.
Copper closed at $7,450, down $10 from a previous close of $7,460 on Friday.
"We are into a period of tightness across all the metals, probably for the remainder of the year and then we may slow down a bit. In the short term, we are on the upside," analyst William Adams at BaseMetals.com said.
Aluminium closed at $2,620 against $2,590 at the close on Friday.
The aluminium market was seen remaining in a small deficit of 49,000 tonnes next year with prices continuing to rise in the first few months of 2007, Widmer said in the report. In industry news, Norilsk Nickel, the world's largest nickel and palladium miner, produced 182,000 tonnes of nickel in the first nine months of 2006, up slightly from 181,000 tonnes in the same period last year, the company said on Monday.
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