LME hits a new high, and the outlook is for even greater gains

Daniel Magnowski,  Associated Press

LONDON — Lead hit a new high in early business at the London Metal Exchange on Thursday, supported by a tight supply outlook combined with strong demand from battery makers, analysts said.

The metal has outperformed other LME contracts, and indeed most other assets, with gains of 130 per cent since the start of the year.

By 10:30 (GMT), lead for delivery in three months traded up to $3,890 (U.S.) per tonne on electronic dealing system Select, surpassing its previous peak of $3,885, which it struck on Tuesday.

Despite these high prices, users of the metal have little choice but to continue buying, analysts said.

“There is a fair way to go before they will even look at making a change,” BNP Paribas analyst David Thurtell said.

Users of steelmaking raw material nickel started reducing their consumption of the metal when it hit $50,000 per tonne, though such a move was mooted when nickel was cheaper.

“It's difficult to see how you could make similar changes in the lead industry in the short term,” he said.

High prices may encourage recycling of lead.

“I doubt $4,000 will pose much of an obstacle and lead will push higher and higher. The only worry is that we start to see a significant increase in scrap finding its way to market,” National Australia Bank analyst Gerard Burg said.

Copper, often seen as a benchmark of the metals market, was quoted at $8,150/8,160 per tonne, down $40 from Wednesday's final open outcry session. At around $8,150, it is up more than 25 per cent since the start of the year.

Metals prices at historical highs supported mining shares, with Antofagasta up 4.5 per cent, Xstrata up 3 per cent and BHP Billiton up 2.7 per cent by 09:58 (GMT).

An eight-day walkout at Southern Copper operations in Peru ended on Wednesday after union leaders and company officials reached a pay deal.

But a strike at Southern's parent, Grupo Mexico, will drag on after a court ruled earlier this week that it could continue.

Grupo Mexico has lost around $2.8-million a day since workers at its Cananea mine walked off the job at the end of July. The group's Mexican copper production has been cut in half and it has defaulted on delivery contracts with some clients.

Aluminum was steady at $2,466 after rallying 1.8 per cent on Wednesday.

BHP Billiton is facing power supply problems at its southern African aluminum smelters, a spokeswoman said, after power utility Eskom urged consumers to save energy.

But BHP was unable to say whether the move by state-owned Eskom would affect production at its two smelters in South Africa and one in Mozambique, which have a combined capacity of around 1.43 million tonnes.

Nickel was at $32,200/32,400 per tonne, up $705 from Wednesday's close, zinc was up $32 at $3,097/3,104 per tonne and tin was up $25 at $16,000/16,200 per tonne.