Short Covering, Options Lead Metals Up

Short covering and options-related trade at midsession helped to shake off some of the lingering torpor in the London Metal Exchange (LME) markets.

Zinc hurdled $1,110 resistance in the kerb after floundering through the rings, but ran out of steam at the $1,126 high. Last trade was $1,118, $29 firmer compared to Wednesday afternoon's close.

Dealers said that much of the buying was related to a speculative options position involving March calls with a strike price of $1,150. Most of the early trade had centred on this, which helped lift prices in other contracts, they said. "There's been no new business for a while so this options buying on zinc has done everyone a favour," said a trader.

Lead leapt $16 to $577, with $600 the target, and traders said this was linked to fund short covering.

Buying against nearby upside calls at $600/25 also helped fuel the rally, traders added. Technical tightness on February and March dates helped to push the cash/threes spread to $2 contango/$2 backwardation, versus $4/2 contango. Copper popped back up above $1,700 in early trade but slipped back before staging a bounce in the kerb, reaching $1,709 before closing $18 firmer at $1,703.

Chartists looked for consolidation between $1,680 and $1,720.

Aluminium was quietly firmer at $1,510, up $6, and needed to stay above the psychologically important $1,500 level to remain positive, traders said. Analysts saw the $1,480/1,520 range holding. Nickel made a comeback, rising $80 to $5,880 and tin crept $209 higher to $5,310.