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METALS-Copper, nickel hit 5-week peaks on Indonesia ban worries

Eric Onstad
Thursday, 12 Dec 2013 | 5:28 AM ET

* Indonesia ban may force 60 pct cut in Grasberg output

* Nickel stockpiles seen extending further next year -INSG

* World copper market seen in 632,000-T surplus in 2014 -ICSG

(Adds details, quotes; previous SINGAPORE)

LONDON, Dec 12 (Reuters) - Copper and nickel climbed to five-week peaks on Thursday on fears that a planned Indonesian ban on ore exports next month could crimp exports from the world's fifth-biggest copper mine and nickel suppliers.

U.S. mining giant Freeport McMoRan Copper & Gold warned that Indonesia's plan would cut output at its Grasberg mine by 60 percent next year.

Three-month copper on the London Metal Exchange hit $7,249 a tonne, its highest since Nov. 4, on a fifth straight day of gains.

It was up 0.2 percent at $7,232 a tonne by 0932 GMT, adding to a rise of 0.9 percent in the previous session.

Copper's break above its 200-day moving average, a key technical signal for investors who follow chart patterns, sparked further buying.

"Copper is being driven today by technical buying and short-covering," said analyst Daniel Briesemann at Commerzbank in Frankfurt.

Indonesia's president is expected to make a final decision soon on a proposal to ban exports of unprocessed ore.

If Freeport had to slash copper ore exports, it could dramatically change copper's global supply/demand balance, said analyst Dominic Schnider of UBS Wealth Management in Singapore.

"If this would really happen, then the surplus we were initially looking at of between 300,000 to 400,000 tonnes would be annihilated. We would be in a deficit and we could see copper going to $8,000 a tonne," he said.

A surplus in the global market for refined copper will widen by over 60 percent in 2014 as new mine supply outstrips reviving demand, an industry group said.

"But will it last? I don't think so, it would deteriorate Indonesia's trade balance so rapidly that they would be forced by the market to change their policy," he added.

The most-traded February copper contract on the Shanghai Futures Exchange climbed 0.80 percent to close at 51,560 yuan ($8,500) a tonne on Thursday, having also marked its highest in more than a month.

The news comes against a backdrop of tight supply, as consumers in China and elsewhere jockey for 2014 shipments.

"The forward curve in copper has turned to backwardation, which points to a relatively tight supply/demand situation," said Briesemann.

When a market is in backwardation, nearby contracts command a premium over forward ones as buyers scramble to lock in immediate supplies.

The premium of LME cash copper over the three-month contract <CMCU0-3> nearly doubled to $9 per tonne on Thursday from $5.50 a day earlier, compared to a discount of $14.25 in mid-November.

NICKEL GAINS

Also benefiting from Indonesia's ban, nickel prices outperformed, up 0.9 percent at $14,166 a tonne. Indonesia is the top exporter of nickel laterite ore.

"Nickel can move higher, until we get some more clarity of what's going on there. But we can also see lower prices if the export ban is relaxed," Briesemann said.

Nickel, burdened by oversupply, has been the worst performer among LME metals this year, falling 17 percent. However, it has been the strongest this month, rising about 5 percent.

The ban may help dent record nickel stocks, which are expected to swell next year as new projects start up and existing operations ramp up production, another industry group said.

PRICES

Three month LME copper

Most active ShFE copper

Three month LME aluminium

Most active ShFE aluminium

Three month LME zinc

Most active ShFE zinc

Three month LME lead

Most active ShFE lead

Three month LME nickel

Three month LME tin ($1 = 6.0717 Chinese yuan)

(Additional reporting by Melanie Burton in Singapore; editing by Jason Neely)