Lead Advances in London Trading on Sign Stockpiles Will Shrink

By Chanyaporn Chanjaroen

Aug. 6 (Bloomberg) -- Lead rose the most in more than a week in London after the amount of stockpiled metal earmarked to leave warehouses jumped to a 22-month high, indicating a possible supply shortfall. Aluminum and copper also advanced.

So-called canceled lead warrants gained 2.7 percent to 10,525 metric tons at warehouses registered with the London Metal Exchange, the highest since Sept. 28, 2006. The market is shifting from a surplus into a deficit of 67,000 tons this quarter, according to Barclays Capital. That's equal to about 72 percent of existing LME-tracked stockpiles.


``A big jump in canceled warrants suggested we're going to see stockpiles declining,'' Gayle Berry, an analyst at Barclays Capital in London, said today by phone. Lower-than-expected output in China, the world's largest producer of the metal, will curb supply of the metal, she said.

Lead for delivery in three months added $75, or 3.7 percent, to $2,090 a ton as of 12:39 p.m. in London. The contract rose 1 percent yesterday, while the LME index tracking all industrial metals gained less than 0.1 percent.

Lead has declined 18 percent this year, the second-worst loser on the LME after nickel. Chinese prices are about $600 to $700 a ton more expensive than international prices, an incentive for increased imports of the metal into the world's largest consumers of the commodity, Berry said.

Open interest, or outstanding contracts, in lead futures has jumped 29 percent since the end of June, to 95,683 contracts, the highest since records began in 2005. Expanding open interest as prices gain suggests investors and traders are taking a net long position, or a bet prices will rise further.

Supply Disruptions

Xstrata Plc, the world's fourth-largest copper and nickel producer, said supply disruptions will support prices for both metals this year by partly compensating for any weakening in demand.

Labor strikes, energy shortages and maintenance cut nickel supply by about 70,000 tons in the first half, Zug, Switzerland- based Xstrata said today in its earnings statement. That's more than all the nickel held in warehouses monitored by the LME.

Copper rose $55, or 0.7 percent, to $7,680 a ton. LME stockpiles gained 1.1 percent to 150,325 tons. Including those tracked by exchanges in New York and Shanghai, they totaled 192,698 tons, or 3.8 days of global consumption, according to Bloomberg calculations. Last year's average was 4.9 days.

Nickel lost $100 to $17,500 a ton.

Aluminum rose $23, or 0.8 percent, to $2,923 a ton. China's biggest aluminum smelters have cut more than 10 percent of capacity because of a power shortage and weak export demand, said Wen Xianjun, deputy chairman of the China Nonferrous Metal Industry Association.

Among other LME-traded metals, tin increased $325 to $20,425 a ton. Zinc added $6 to $1,752.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net