Metals end higher

17 May, 2006

London Metal Exchange (LME) prices closed higher on Tuesday, reversing direction after early losses, but the recent pattern of nerve-jarring volatility may persist, analysts said.
"Prices have bounced. There haven't been any specific changes in metals fundamentals, but a 23 percent rise at the start of the month was a little aggressive so a correction comes as no surprise," Barclays Capital analyst Ingrid Sternby said.
"Fundamentals are still constructive and I remain a buyer on any weakness. I don't see any reason for prices to calm down. They may move sideways for a while, but intraday moves will be great," she added.
Copper gained $135 by the close to $8,325 a tonne, but sentiment remained cautious with mining companies still under pressure on European exchanges.
On Monday copper fell by as much as 8.8 percent as investors sold.
Recent price fluctuations were expected to continue and LCH.Clearnet, which clears London Metal Exchange (LME) contracts, raised initial margins to mitigate against the risk of default by members.
The new margins will take effect on May 18.
Nervous investors were soothed by US manufacturing data, which rose 0.7 percent in April after strong gains in March, particularly in durable goods. But the bullish data increased chances of US interest rate rises with the Federal Reserve keen to manage inflation.
"The implication is that the expansion is now entering its second half when the focus switches from supporting growth to limiting inflation and monetary policy needs to shift from accommodative to restrictive," Sempra Metals economist John Kemp said.
Aluminium gained $18 at $2,970 and zinc was up $75 at $3,475. Zinc stocks in LME warehouses continued to decline, down 275 tonnes at 250,000.
"While a correction is due, zinc still remains the star performer and with stocks continuing to fall and concentrate supply remaining an issue, this is not likely to change in the medium term," Standard Bank said.
Nickel was up $450 at $20,450. Lead was at $1,222 versus $1,210, while tin was $25 lower at $8,950/9,000.

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