Lead hits record high on supply worries

London Metal Exchange base metals were mixed Wednesday with lead pushing to a record high on supply worries, and further sideways-to-higher trading is expected across the complex over the near-term, market participants said.

Three-month lead jumped to $2,290 a metric ton, a record, before retreating to an afternoon kerb close of $2,240/ton, as supply concerns continued to dominate.

LME lead hit the high as news of further delay in supply from Ivernia Inc.'s (IVW.T) Magellan mine in Western Australia spurred speculative buying, said a London-based broker. Moreover, trade and consumers have also come into the market to buy in anticipation that prices may continue to push towards new highs.

Around 9,000 tons of lead in concentrate at Australia's Port of Esperance will stay stranded for at least another month pending approval from the Western Australian Department of the Environment and Conservation, or DEC.

Magellan Metals, wholly owned by Canada's Ivernia, is preparing a proposal to move the lead. The metal has been stranded since March 12 when the DEC revoked the port's export license after thousands of birds died in the area as a result of lead poisoning, with dust emissions from the port thought to be the source.

The company started shipping lead through Esperance in 2005, and was scheduled to produce 84,000 tons of lead in concentrate this year. The mine is slated to eventually produce 100,000 tons of lead a year, or 3% of global demand.

In addition, China said last week that from June 1 it will add export tariffs to lead, among other metals. Analysts said this development is bullish for prices over the coming months as the profitability of exporting will decline, raising the possibility of lower exports and therefore higher prices in the West.

"Individual hedge fund types have become increasingly selective in recent months" with their investments, having gotten "bored" with gold while nickel "begins to fade," said Stephen Briggs, analyst with Societe Generale. "Now lead is at the top of the list."

In related news, U.S. lead mine production reached 33,900 tons in February, down 11% from the previous month, the U.S. Geological Survey said.

Meanwhile, the base metals markets only witnessed limited downside reaction to equity weakness in China, triggered by news the Chinese government raised a stamp duty on share trading.

The news helped to pressure the Dow Jones Industrial Index at the open, but the index has since recovered.

"China's news hasn't had as much impact on the metals or equities markets as some would have thought," said one New-York based trader.

However, Edward Meir of Man Financial doesn't find this surprising, saying equities and metals markets are entirely different and should react to widely separate themes. Instead, metals should still push slightly higher over the next day or two, as support levels that held from last Friday are still intact, Meir noted.

Zinc also fell in line with the other markets, but should regain ground and push towards $4,000/ton due to strong fundamentals and an oversold price situation, said Kevin Norrish of Barclays Capital.

Elsewhere, copper fell due to speculative-type selling but should stabilize this week as Chinese buyers return to the market, said a broker.

Adding to underlying copper price support, market participants continue to monitor the developments out of Chilean state copper giant Nacional del Cobre, or Codelco, and its El Teniente mine. On Tuesday, union leaders representing contract workers blocked the access road to the mine; however, Codelco said output hasn't been impacted.

Contract workers at Codelco's five divisions are threatening a general strike June 8 if the mining giant doesn't meet union leaders' demands.

Three-month tin jumped above the $14,000/ton price level following reports that Indonesia's Bangka Belitung police seized tin ingots destined for export.

Indonesia produces about 120,000 tons of tin a year, around one third of global supply. Indonesia's Ministry of Trade in January imposed new regulations governing tin exports and has said all tin producers must demonstrate that they can meet all the conditions to be granted new licenses, which they need to be able to export tin.

The Indonesian police increased vigilance following a clampdown last October on tin smuggling in the sector in Bangka Belitung.

Prices in dollar a metric ton.

3 Months Metal Bid-Ask Change from

Tuesday PM kerb

Copper 7205.0-7206.0 Dn 55

Lead 2285.0-2290.0 Dn 1360

Zinc 3590.0-3595.0 Dn 55

Aluminium 2757.0-2758.0 Dn 14

Nickel 46650.0-46655.0 Dn 950

Tin 14025.0-14100.0 Up 175
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