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Base metal prices lower on LME

LONDON: Copper and aluminium prices ended lower in fairly active selling on the London Metal Exchange (LME) on Tuesday, and all eyes are now firmly fixed on Wednesday morning's April options expiry.

"Over lunch and in the early afternoon there has been fairly good volume selling in copper, mostly long liquidation from speculative players," said Robin Bhar of LME brokers Brandeis.

Three month copper futures ended the afternoon kerb at $2,489 a tonne, down $18 from Tuesday and just off a five-week low of $2,485. Cash was last indicated at $3/6 above three month prices from around $9 late Monday.

Latest spread indications show April copper close to the key $2,500 options strike price, keeping the market guessing over whether puts or calls at the strike will eventually be declared. The third possibility is a partial declaration, traders said.

Options dealers said Tuesday's selling was partly a pre-emptive move in anticipation of further losses post-expiry.

"I think that when $2,500 calls or puts are declared tomorrow, it could be the signal for the market to drop," said one. He said copper may soon be back at $2,450 or $2,400.

Copper stocks fell 2,650 tonnes on Tuesday, despite rumours of a large stock drawdown circulating the market late Monday.

Some traders said the rumours appeared to have been spread deliberately in order to push values lower.

Another theory behind Tuesday's fall was that a market maker going short of $2,500 call options tried to push futures lower in order to avoid being declared on the positions at expiry.

Aluminium prices dropped $25 to $1,638 on selling based on bearish charts and a stock increase of 7,975 tonnes.

"You should remember that aluminium stocks have risen by about 160,000 tonnes so far this year," Bhar said.

The sharp fall brought the $1,600 option strike sharply into focus, with open interest on April puts sizeable.

Chart support was pegged at $1,628 and $1,605 based on recent lows. A rising trendline was convincingly broken during Tuesday's price action, chart watchers said.

Lead was the only metal to rise in value, gaining $1 to $781 despite a stock increase of 600 tonnes.

Physical traders spoke of slow conditions on the European spot market, but agreed LME stocks were likely to resume their downward trend soon. Warrant demand had picked up slightly early this week, traders said.

Cash finished around $16 over three month prices after narrowing to around $7 at one stage.

Tin fell $105 to $6,360 in line with weak copper and aluminium markets. Stocks fell 25 tonnes.

Nickel dropped $90 to $8,100 despite a stock decline of 108 tonnes.

Zinc ended $4.50 weaker at $1,071 after stocks rose 950 tonnes.

Alloy was last quoted at $1,405/15 from $1,417/20 after stocks rose 1,260 tonnes.-Reuter