Lead slides after stocks jump; copper retreats

LONDON — Lead prices slumped on Friday after inventories rose, a sign that shortages in China were starting to ease.

Copper retreated after a sixday rally that pushed the metal to its strongest in 4-1/2 years in the previous session as fears eased about a potential strike at top mine Escondida, an analyst said.

Benchmark lead was the biggest mover on the London Metal Exchange (LME), closing down 2.7% in final open outcry activity at $2,466 a ton.

LME lead had gained 14% when it touched the highest in more than three months at $2,555.50 on Thursday after rallying for slightly over a month.

The gains were largely fueled by worries about shortages in China due to rolling environmental inspections on the secondary lead processing sector that resulted in some smelter closures.

But LME data on Friday showed a 19% jump in on-warrant lead inventories — stocks that are not earmarked for delivery.

That was due to holders of stocks reversing earlier decisions to take material out of warehouses, potentially to ship to China.

“Seeing those stock cancellations reverse is a sign that the pull from China (for metal) seems to be letting up,” said Oliver Nugent, commodities strategist at ING Bank in Amsterdam. “We’re hearing that primary smelters (in China) are increasing utilization rates and tightness in China is being relieved by whatever slack there is outside in the regional market.”

Three- month LME copper shed 0.30% to finish at $7,312 a ton, off a session low of $ 7,211. Copper touched $7,348 on Thursday, its loftiest since January 2014, and has risen five percent so far this week, the most since mid-February.

Many speculators had jumped on the bandwagon after wage talks at Escondida in Chile raised prospects of a strike at the world’s biggest copper mine, Mr. Nugent said.

But that had largely been a convenient excuse for a rally and the main driver had been a tightening of spreads, he added.

The benchmark spread between LME cash and three months raced to a backwardation of $12 a ton on Friday, the steepest backwardation since June 2016 and compared to a contango of $38.50 in mid-May. This would usually indicate a shortage of copper for immediate delivery.

Among other industrial metals, aluminum ended down 0.40% at $2,300 a ton, zinc added 0.60% to $ 3,202, nickel dipped 0.60% to $15,420 and tin shed 0.50% to $21,225. —