“Everywhere we look in this region, we see growth,” Martin Abbott, chief executive officer of the LME, said in an interview on Bloomberg Television in Singapore today. “All of the numbers are so impressive,” Abbott said.

Asian nations including China are leading the global economy out of recession, boosting demand for metals such as copper, nickel and tin. The LME has announced talks with Singapore Exchange Ltd. on cooperation, and plans more metal warehouses in the world’s fastest growing region.

“We are recognizing that the growth in Asia is not cyclical, it is structural, and more and more of the business that we transact is going to be derived in this region,” Abbott said. “This is not simply a China story.”

Three-month copper futures have advanced for seven of the past eight years driven by rising Asian demand, and the contract has climbed 37 percent in the past 12 months to $6,664.75 a metric ton today. The LMEX Index of six industrial metals has gained 30 percent over the past year.

‘We See Growth’

“When you look at what’s happening throughout Asia, I think we’re looking at a long-term story of infrastructure build, industrial build and GDP growth,” Abbott said, citing expansions in Indonesia, Vietnam and Malaysia.

Abbott’s view echoes that of commodity bulls such as Singapore-based investor Jim Rogers, who has said that economic growth in Asia is powering demand. Rogers said earlier this week that “you should own commodities because that’s your only refuge,” backing silver and farm goods such as rice.

The International Monetary Fund yesterday raised its forecast for global growth to 4.6 percent this year, reflecting a stronger-than-expected first half. The lender increased the 2010 growth forecasts for China to 10.5 percent and for India to 9.4 percent for the year to March.

China’s economy expanded 9.1 percent last year, boosted by an unprecedented 9.59 trillion yuan ($1.4 trillion) of credit extended by banks in 2009 and a 4 trillion yuan, two-year fiscal stimulus plan. The nation is the world’s largest metals user.

Indonesia, Southeast Asia’s largest economy, may accelerate to 5.9 percent growth this year, Finance Minister Agus Martowardojo said yesterday.

Singapore Talks

The London-based metal exchange, founded in 1877, has begun talks with Singapore Exchange Ltd., operator of the local derivatives and securities exchange, on possible cooperation, according to a statement yesterday. The LME opened its first overseas office in the Southeast Asian city-state this year.

“The crisis has been a huge opportunity for the LME,” Abbott said yesterday to mark the exchange’s new Singapore office, referring to the global credit crisis. “We have actually seen more business coming onto the exchange because of the crisis, because companies are even more aware of the need for counterparty risk management.”

Abbott, who became chief executive of the LME in 2006, has overseen the introduction of cobalt and molybdenum futures. Trading volumes last year were the second highest on record after 2008, with a notional value of $7.4 trillion.

“We are agnostic about price,” Abbott said today. “We are not agnostic to cyclical and structural trends,” such as the industrialization of Asia, he said.

While London Metal Exchange futures anticipate prices no higher than $6,519.50 a metric ton through the end of 2011, or 1.2 percent more than for delivery now, 13 of 14 analysts surveyed by Bloomberg expect a shortage next year. Traders are being too bearish because lower prices may curb spending on mines and exacerbate future shortages, said Goldman Sachs Group Inc., which forecasts a price of $8,050 in 12 months.

“In the short-term, we’re looking at slowing growth and oversupply, but longer-term, things look good,” said Michael Pento, the chief economist at Delta Global Advisors Inc. in Holmdel, New Jersey who correctly predicted January’s slump that began this year’s 12 percent decline. “The smart move is to buy copper for a few quarters down the road.”

Codelco Chief Executive Officer Diego Hernandez said last month that higher costs and lower ore grades mean new global supply “is coming very slowly.” Freeport-McMoRan Copper & Gold Inc. Chief Financial Officer Kathleen Quirk said new finds are “extremely rare” and “it is a very constrained market from a supply standpoint.”

Metal for delivery in three months, the benchmark contract, slumped 20 percent since April to $6,469 on concern the economic recovery would slow in the second half. Manufacturing growth weakened last month in China, Europe and the U.S., which account for as much as two-thirds of global demand.

Lower-Quality Ore

Copper for delivery in August is next year’s most expensive contract on the LME, trading at $6,519.50. Metal for immediate delivery costs $6,439.75. The first-half drop of 12 percent was the worst since 2001. The highest prediction for next year’s average in Bloomberg’s survey of analysts was $8,157 from Bart Melek, a commodity strategist at BMO Capital Markets in Toronto. That’s 26 percent more than now.

Mining companies are already missing analysts’ output forecasts because of lower-quality ore, providing “a bullish pricing signal,” Credit Suisse Group AG analysts led by Liam Fitzpatrick in London said in a report June 30.

For now, traders are focused on demand. China’s growth will slow to 9.25 percent next year, from 10.1 percent in 2010, according to as many as 27 economists surveyed by Bloomberg. The country’s refined-copper imports fell 8.1 percent in April and 9.7 percent in May.

U.S. President Barack Obama said June 29 that the world’s biggest economy is facing “headwinds” from the sovereign-debt crisis in Europe, where governments are cutting budgets. U.S. growth will slow to 2.9 percent in 2011 from 3.2 percent this year, while the euro zone will accelerate to 1.3 percent from 1.05 percent, according to surveys of as many as 66 economists.

Global Equities

More than $7.4 trillion was wiped off the value of global equities since mid-April because of concern slowing growth will sap demand. Energy and commodities companies led this year’s 12 percent decline in the MSCI World Index of developed markets. The S&P GSCI Total Return Index of 24 raw materials fell 14 percent.

Copper producers will have to develop new supplies even if demand stagnates, Quirk of Phoenix-based Freeport, the world’s second-biggest copper miner, said at a conference in New York on June 4. Average ore grades fell about 26 percent in the last two decades, according to Deutsche Bank AG. Next year’s shortage may be the biggest since 2004, Macquarie Bank estimates.

Deeper Discoveries

A greater proportion of discoveries in the last 10 years were more likely to need deeper mining methods than in the previous two decades, according to a presentation in May by London-based Rio Tinto Group. It cost about 95 cents to extract a pound of copper from an open pit mine in 2008, compared with $1.33 from an underground mine, according to data from Addlestone, England-based researcher Brook Hunt, a Wood Mackenzie company.

Prices may exceed the record $8,940 reached in July 2008 as early as the first quarter, according to Leon Westgate, an analyst at Standard Bank Plc in London who forecast this year’s plunge. Copper will average $7,708 next year, the highest ever, according to the median in the Bloomberg survey of 14 analysts.

Demand will expand 6.4 percent to 19.98 million tons next year, the biggest gain since 2007, Morgan Stanley predicts. Refined copper from mines and scrap recycling will reach 19.95 million tons, the bank estimates. That production is worth about $143 billion at this year’s average price on the London Metal Exchange.

‘Declining Ore Grades’

The surplus will shrink next year because of “declining ore grades in mines, infrastructure problems and postponing planned mine projects due to problems with project financing,” Herbert Wirth, chief executive officer of Lubin, Poland-based copper miner KGHM Polska Miedz SA, said in an e-mail.

“The portfolio left to be developed has a lower quality than we have been used to for many years,” Hernandez of Santiago-based Codelco, the world’s biggest producer, said in an interview in New York last month. “For these new projects to be developed we need a higher copper price.”

Anglo American Plc, based in London, reported in April that first-quarter output dropped 14 percent from the previous three months because of lower ore grades. BHP Billiton Ltd. and Rio Tinto, the world’s biggest and third-largest mining companies, said the same month that year-on-year production in the period declined for the same reason.

Stockpiles monitored by the London Metal Exchange fell 20 percent to 444,500 tons since mid-February, equal to almost 9 days of global demand. Canceled warrants, or metal earmarked for delivery from warehouses, totaled 35,425 tons on July 1, the highest since March, data from the bourse show.

‘Decline Again’

“Copper supplies have started to decline again,” said Andrew Karsh, who helps manage $4.8 billion for the Credit Suisse Total Commodity Return Strategy team in New York. “What we see is a continual benefit in terms of the demand for copper.”

Stock analysts are already anticipating higher profit for mining companies. Freeport will report earnings per share of $8.17 this year and $9.14 next year, compared with $5.86 last year, according to the mean estimate of eight analyst estimates compiled by Bloomberg. Shares of the company fell 27 percent in New York trading this year.

Aurubis AG, the world’s largest copper smelter, gained 14 percent in Frankfurt trading. A shortage probably began in March and continued through the second quarter, CEO Bernd Drouven said in an e-mail. The company will report earnings per share of 3.59 euros ($4.50) this year, compared with a loss of 1.15 euros in 2009, according to the mean of eight analyst estimates.

BHP Billiton

BHP Billiton, based in Melbourne, fell 16 percent in London this year and Rio Tinto declined 15 percent. KGHM fell 14 percent in Warsaw. Codelco, the world’s largest copper producer, is not publicly traded.

“The industry as a whole is facing significant challenges,” said Greg Waller, vice president of investor relations at Vancouver-based Teck Resources Ltd., which mines copper in North and South America and expects to increase output by 40 percent in two years. “In 2011, we are expecting that growth will be back on track and consumption of copper will be strong while the supplies are tight.”

Stockpiles tracked by the London Metal Exchange fell for a 12th day today and have slid for 33 of the past 34 sessions. Bookings to remove copper from LME warehouses increased to the highest level in almost four months on July 1.

“Prices are creeping higher after the strong losses last week,” Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said by phone.

Copper for delivery in three months climbed $90, or 1.4 percent, to $6,500 a metric ton at 5:14 p.m. on the LME. The contract lost 5.3 percent last week. Futures for September delivery gained 0.7 percent to $2.9365 a pound on the Comex in New York.

Weinberg predicted “thin trading,” citing the U.S. Independence Day holiday. Comex floor trading is shut today. Investors bought and sold 4,660 three-month copper contracts in London, less than 15 percent of the total for July 2, last week’s slowest day of trading by volume.

LME prices last week dropped the most since the week ended June 4 as figures showed slower growth in manufacturing in China, the world’s top copper consumer. Auto sales in the country weakened in June and a services-industry index slid to a 15-month low, adding to signs that the economy leading the world recovery is cooling, reports showed today.

Car Sales

Passenger-car purchases rose 10.9 percent from a year earlier, down from May’s 25 percent gain, the China Automotive Technology & Research Center said. The services-industry measure fell to 55.6 from 56.4, HSBC Holdings Plc and Markit Economics said in an e-mailed statement.

“The government-orchestrated slowdown in China” contributed to Citigroup Inc.’s decision to cut its forecast for copper prices in this year’s second half, analyst Alan Heap in Sydney wrote in a report today. He also cited “prospects of a stalled recovery in the developed economies (Europe in particular).”

Copper will average $3.10 a pound ($6,834 a ton) in the half, 15 percent below its prior estimate, Citigroup said. The metal will average $3.29 next year, 9 percent less than predicted previously, according to the report.

Slowing Momentum

Concern about tighter monetary policy in China and the potential impact on demand of Europe’s fiscal crisis have helped to pull LME copper down 12 percent this year. Growth in Europe’s services and manufacturing industries slowed in June, Markit said, adding to signs a recovery is losing momentum.

The chance that Europe’s economy may return to recession “is rising fast and is at its highest since the recovery started more than a year ago,” Nick Moore, head of commodity strategy at Royal Bank of Scotland Group Plc, said in a report e-mailed today. “Absent an effective policy intervention to tackle the debt crisis in the periphery over the coming months, the European economy will double-dip in 2011.”

A composite index based on a survey of euro-area purchasing managers in both services and manufacturing fell to 56 from 56.4 in May, Markit said. An index of services retreated to 55.5 from 56.2. A gauge of euro-area manufacturing declined to 55.6 from 55.8 in the previous month, Markit said on July 1.

LME copper stockpiles fell to 444,500 tons, the lowest level since Dec. 2. Canceled warrants, as the bookings are known, slid 4.8 percent to 33,325 tons, the second drop in a row.

Nickel for three-month delivery on the LME slipped 0.3 percent to $18,744 a ton, erasing a gain of as much as 2.3 percent. Vale SA reached a “tentative” agreement for a new contract with workers in Canada who have been on strike for a year, the longest labor dispute in Vale’s 67-year history.

Aluminum was little changed at $1,937 a ton and lead rose 0.4 percent to $1,760 a ton. Zinc climbed 1.6 percent to $1,808 a ton and tin rose 0.4 percent to $17,300 a ton.

Copper for September delivery HGU0 on the COMEX metals division of the
New York Mercantile Exchange ended up 3.90 cents, or nearly 1.4 percent, at
$2.9160 per lb, after dealing between $2.8945 and $2.9580.

On the London Metal Exchange, benchmark copper CMCU3 was untraded at the
close but last bid at $6,410 a tonne from $6,335 at the close on Thursday.

Copper found support from the dollar, which slipped against the euro after
data showed a larger-than-expected drop in U.S. June nonfarm payrolls to
125,000, while the unemployment rate unexpectedly fell to 9.5 percent.
[ID:nN01165161] [USD/]

Donald Selkin, chief market strategist with National Securities Corp. in
New York, said the increase in private hiring gave a slightly positive tone to
the report, despite all of the negativity surrounding the headline number.

“I thought it was decent, relative to expectations … the fact that the
13,000 was out there and we came in at 83,000 in the private, to me was OK”, he
said, referring to the ADP Employer Services report on Thursday. [ID:nWEN6511]
[ID:nN02205916]

Still, recovery sentiment remained fragile, as highlighted by
below-consensus manufacturing surveys this week in the United States and China,
the world’s top two consumers of copper. [ID:nTOE66001K] [nN01108492]

Furthermore, euro zone manufacturing slowed in June to its weakest growth
rate in four months, but was unrevised from a survey estimate just over a week
ago. [ID:nSLAUHE67Q]

“Everyone knew things were slowing down a bit,” said Alex Heath, head of
base metals at RBC Capital Markets. “With cutbacks and austerity measures
imposed, nobody should be terribly surprised to see GDP shrinking or PMI
slowing down. On the other hand the numbers are still good in China.”

For graphic; here

TAX PRESSURE

Also weighing on metals was news Australia ended a damaging dispute with
global miners by dumping its “super profits” tax for a lower resources rent tax
backed by key global miners. [ID:nAUTAX]

As a result Swiss-based Xstrata (XTA.L) reinstated about A$600 million of
copper mining and exploration projects in Australia. [ID:nSYU010165]

Meanwhile, stocks in LME warehouses continued to fall. <0#LME-STOCKS>

Copper stocks dropped 2,125 tonnes to 447,300 tonnes, the lowest since
early December last year, and aluminum stocks shed 5,150 tonnes to 4.2 million
tonnes, about 220,000 tonnes below the record high of 4.64 million tonnes set
in January.

Three-month aluminum CMAL3 closed up $16 at $1,942 a tonne. Zinc MZN3
was untraded at the close, but last bid at $1,775 a tonne from $1,743 on
Thursday. Earlier, the metal used to galvanize steel, jumped more than 4
percent to $1,820.

Galvanized steel producers are estimated to account for more than 50
percent of global zinc demand, forecast at around 12 million tonnes this year.

Lead CMPB3 rose $18 to end at $1,753 a tonne, tin CMSN3 gained $280 at
$17,240, while nickel CMNI3 shed $200 to $18,800.

Metal Prices at 1805 GMT
Metal Last Change Pct Move End 2009 Ytd Pct

move
COMEX Cu 291.80 4.10 +1.43 334.65 -12.80
LME Alum 1935.00 9.00 +0.47 2230.00 -13.23
LME Cu 6445.00 110.00 +1.74 7375.00 -12.61
LME Lead 1755.00 20.00 +1.15 2432.00 -27.84
LME Nickel 18825.00 -175.00 -0.92 18525.00 1.62
LME Tin 17300.00 340.00 +2.00 16950.00 2.06
LME Zinc 1790.00 47.00 +2.70 2560.00 -30.08
SHFE Alu 14775.00 170.00 +1.16 17160.00 -13.90
SHFE Cu* 52350.00 1010.00 +1.97 59900.00 -12.60
SHFE Zin 15015.00 555.00 +3.84 21195.00 -29.16
** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and
ZN
SHFE ZN began trading on 26/3/07

Consumer spending in the U.S. rose in May more than forecast, a sign households are gaining confidence in the recovery and the job market. Purchases rose 0.2 percent after little change the prior month, Commerce Department figures showed today. Incomes climbed 0.4 and the savings rate increased to the highest level in eight months. Copper has dropped 7.5 percent this year.

“The numbers suggests that the U.S. economic recovery remains on track, though the pace of the recovery is probably a bit slow for most people’s liking,” David Thurtell, a Citigroup Inc. analyst in London, said by telephone.

Copper for delivery in three months jumped $36, or 0.5 percent, to $6,806 a metric ton at 1:49 p.m. on the London Metal Exchange. Prices rose to a four-week high of $6,875 on June 25 and reached $6,873 earlier today.

LME copper rose as much as 2.7 percent on June 25, supported by U.S. consumer confidence rising in June to the highest level since January 2008. Prices gained 5.2 percent last week, the most since the week ending Feb. 19, partly on speculation imports by China might increase after the People’s Bank of China indicated on June 19 it would abandon the yuan’s two-year peg to the dollar.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, slid 0.5 percent last week, making dollar- priced metals cheaper in terms of other monies. The index gained as much as 0.3 percent today.

Sovereign-Debt Crisis

Copper has dropped this year as the dollar gained and investors speculated that monetary tightening in China and the European sovereign-debt crisis may curb demand.

Group of 20 leaders responded to the European debt crisis with deficit-reduction targets and agreed to pursue higher capital requirements for banks once economic recoveries take hold.

Stockpiles of copper tracked by the LME fell for a seventh day to 453,175 tons, the lowest level since Dec. 7. Bookings to remove metal from warehouses jumped for a third day to 31,900 tons, the highest since March 3. Copper stockpiles monitored by the Shanghai Futures Exchange declined 8.8 percent last week to 123,939 tons, the bourse said on June 25.

Aluminum for three-month delivery on the LME rose 1 percent to $2,016 a ton. Stockpiles in LME-monitored warehouses dropped for a third consecutive day, down to 4.44 million tons and the lowest since July 13, 2009.

Aluminum producers in Henan province, the largest maker of the metal in China, agreed to curtail 700,000 tons of capacity, Wen Xianjun, the deputy head of China Nonferrous Metals Industry Association, said today by phone from Beijing.

Nickel gained 2.4 percent to $20,226 a ton. Zinc fell 0.3 percent to $1,866.75 a ton, lead advanced 1.4 percent to $1,840 a ton and tin was unchanged at $18,125 a ton.

 FUNDAMENTALS

 * Three-month copper on the London Metal Exchange CMCU3
rose $4 to $6,450 by 0132 GMT on Friday, hovering above a
one-week low of $6,410 in the previous session.

 * Shanghai's benchmark third-month copper futures contract
SCFc3 slipped 0.6 percent to 51,340 yuan a tonne.

 * New U.S. claims for jobless aid rose last week while
consumer prices notched their largest decline in nearly 1-½
years in May, suggesting interest rates will remain ultra low
to nurse the fragile economic recovery. [ID:nN17254724]

 * Meanwhile factory activity growth plummeted in the U.S.
Mid-Atlantic region in June, a survey by the Philadelphia
Federal Reserve Bank showed, adding to worries about the
vulnerable recovery in the U.S. economy. [ID:nN17165505]

 * LME copper stocks rose 1,025 tonnes to 460,175 tonnes on
Thursday, the first rise since mid-May. [MCU-STOCKS]

 MARKET NEWS

 * The euro held steady near three-week highs on Friday, as
investors liquidated short positions after a robust response to
Spanish bond auctions, while the U.S. dollar appeared
vulnerable to a sell-off.[USD/]

 * U.S. stocks edged higher late in a choppy, thinly traded
session on Thursday as investors built on momentum gained after
the S&P 500 index broke through its 200-day moving average
earlier this week. [.N]

 DATA/EVENTS

 The following data/events is expected on Friday:

 * India M3 Money Supply June  (1130 GMT)

 * U.S. ECRI weekly index     (1430 GMT)

 PRICES
 Base metals prices at 0132 GMT
 Metal         Last       Change   Pct Move  End 2009 YTD pct
chg
 LME Cu        6450.00      4.00     +0.06    7375.00
-12.54
 SHFE Cu*     51340.00   -330.00     -0.64   59900.00
-14.29
 LME Alum      1958.00     -8.00     -0.41    2230.00
-12.20
 SHFE Alum*   14520.00    -60.00     -0.41   17160.00
-15.38
 COMEX Cu**     290.25     -9.15     -3.06     332.75
-12.77
 LME Zinc      1742.00    -23.00     -1.30    2560.00
-31.95
 SHFE Zinc    14125.00   -170.00     -1.19   21195.00
-33.36
 LME Nickel   19500.00   -300.00     -1.52   18525.00
5.26
 LME Lead      1742.00    -22.00     -1.25    2432.00
-28.37
 LME/Shanghai arb^           189
 Dollar/yuan          6.8282 \ 6.8289
 ** 1st contract month for COMEX copper
  * 3rd contact month for SHFE aluminium, copper and zinc
  ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month

Shanghai aluminium rose about half a percent at 14,630 yuan a tonne, and the third-month zinc contract was up 2.1 percent at 14,600 yuan at the opening.

China’s copper imports at around 397 000 tons were slightly below forecasts, but analysts had expected a drop from April’s 436 345 tons as measures to cool growth rates and slow property speculation took hold.

Copper for three-months delivery on the London Metal Exchange was $6 425 a ton at 1415 GMT, versus $6 340 a ton on Wednesday and after hitting a session high of $6 455, its highest since Friday.

“Chinese imports are notoriously variable, it does not surprise me that they’ve pulled back a bit ahead of summer shut-downs,” he said, adding that Chinese demand would remain supportive in the longer term.

“They have cut back on speculative activity in property,” he added. “But I see China touching the breaks rather than throwing out the anchors.”

“It is still a healthy number and is reflective of the still strong underlying demand if you consider there’s destocking going on in China,” said analyst Gayle Berry at Barclays Capital.

Risk appetite across global markets looked strong, with the euro <EUR=> rising 1 percent versus the dollar. The euro was supported in part by the head of China’s national pension fund saying the currency would weather Europe’s debt crisis.

The European Central Bank kept interest rates at 1.0 percent as expected on Thursday after a torrid month in which it has abandoned resistance to buying government debt and flung its exit strategy into reverse.

A global shares rally also supported sentiment.

RATE DECISIONS

Chinese demand was the major reason copper prices more than doubled last year. The metal, used extensively in construction and wiring, has given up gains after hitting a 20-month high above $8,000 a ton in mid-April as China slowdown fears and worries euro zone economy weighed.

On the fundamentals front, which analysts say is largely being ignored by the market for the moment, inventories for copper at LME registered warehouses dropped by 1 775 tons and 7 575 tons for aluminium.

Battery material lead was at $1 696,25 a ton versus Wednesday’s $1 680 a ton while tin was at $16 700 a ton from $16 300. Aluminium was $1 964 a ton from $1 927 and nickel eased to $19 538 from $19 270.

LME zinc was at $1 770 from $1 757. Zinc, the weakest performer amongst LME metals has lost one third of its value this year, under pressure from high stocks and worries about longer term surpluses.

The People’s Bank of China pushed up yields on one-year bills for the first time in four months, boosting returns after rates for interbank loans climbed to the highest level since September 2008. The central bank has asked lenders to set aside more capital as reserves three times this year.
Metals also fell as the Dollar Index advanced for a third day, reducing the appeal of commodities priced in the currency. The euro weakened against most of its major counterparts, extending its longest monthly decline against the dollar in 10 years, on concern that Europe’s efforts to reduce budget deficits will derail the region’s recovery.
Property Problems

China’s property market problems are worse than in the U.S. or U.K. before the financial crisis, the Financial Times said, citing an interview with Li Daokui, a member of the Chinese central bank’s monetary policy committee. China has raised minimum mortgage rates, restricted pre-sales by developers and tightened controls on purchases of second and third properties in an effort to cool growth.
“Sentiment deteriorates amid mounting concerns over China’s property market,” Tan Wentao, an analyst at HNA Topwin Futures Co., said from Shanghai.
Copper for September delivery in Shanghai retreated as much as 1.7 percent to 54,090 yuan ($7,921) a ton and traded at 54,280 yuan a ton. Aluminum slid 0.2 percent to 15,255 yuan and zinc decreased 0.6 percent to 15,960 yuan.
“Shanghai copper may test lows of 52,000 yuan soon,” China Futures’ Lu said. “Aluminum is not considered a financial investment as much as copper, while zinc has fallen more than its peers this year, so the two are more resistant to declines.”

Nickel in London slumped 2.4 percent to $20,848 and lead dropped 2 percent to $1,813 a ton. Zinc declined 1.5 percent to $1,906.50 and tin lost 0.3 percent down at $17,850 a ton.

Surprisingly strong U.S. housing data for April drove
optimism about the economy, boosting stocks and driving up oil
prices.

The stock rally — a 2.3 percent rise for the Dow Jones
Industrial Average .DJI — also eased concerns that Europe’s
sovereign debt crisis could restrain a fragile economic
recovery.

“Investors are waking up to the positive story coming from
the United States. Shocks from Europe could knock us back
again, but ahead of the payrolls numbers, I think these markets
will be firm,” a trader in Hong Kong said.

Friday will see the release of U.S. non-farm payrolls for
June, viewed by many as the key gauge of the nation’s economic
recovery, with the market looking for an increase in excess of
500,000.

Three-month copper on the London Metal Exchange CMCU3
rallied $65 to $6,730 by 0336 GMT, and earlier touched $6,760,
reversing the previous day’s loss.

“I don’t see a strong rebound. Sentiment is cautious after
the correction in the past few weeks,” Barclays Capital analyst
Yingxi Yu said.

“Metals are still being weighed down by concerns about
China — those are probably more important than the crisis in
Europe, but growing uncertainty about the global economy may
delay Chinese efforts to slow growth and that may be positive”

On the supply side, copper’s longer term outlook saw a
boost after global miner Xstrata (XTA.L: Quote) said it has suspended
almost A$1.2 billion ($1 billion) in coal and copper mining
projects in Australia, blaming Canberra’s new mining tax.

Xstrata, which last month halted some copper exploration in
the country’s north, said on Thursday it was now suspending a
A$600 million project to expand its Ernest Henry copper mine.

Benchmark third-month Shanghai copper SCFc3 rose 560 yuan
to 53,960 yuan, but zinc SZNc3 extended losses from the
previous session, when the market hit its downside limit, to
fall 0.6 percent to 15,115 yuan.

LME aluminium CMAL3 rose 0.8 percent to $2,000 a tonne,
but technicals pointed to a slightly weaker market, targeting
$1,920 for as long as the market holds below $2,025.
[TECH/C-MET]
Base metals prices at 0336 GMT
Metal Last Change Pct Move End 2009 YTD pct
chg
LME Cu 6730.00 65.00 +0.98 7375.00
-8.75
SHFE Cu* 53960.00 560.00 +1.05 59900.00
-9.92
LME Alum 2000.00 15.00 +0.76 2230.00
-10.31
SHFE Alum* 14955.00 20.00 +0.13 17160.00
-12.85
COMEX Cu** 304.75 1.55 +0.51 332.75
-8.41
LME Zinc 1827.00 26.00 +1.44 2560.00
-28.63
SHFE Zinc 15115.00 -95.00 -0.62 21195.00
-28.69
LME Nickel 20050.00 400.00 +2.04 18525.00
8.23
LME Lead 1725.00 29.00 +1.71 2432.00
-29.07
LME Tin 17675.00 25.00 +0.14 16950.00
4.28
LME/Shanghai arb^ -181
Dollar/yuan 6.8298 \ 6.8303
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month

 FUNDAMENTALS

 * Three-month copper on the London Metal Exchange CMCU3
rose $28 to $7,720 by 0013 GMT on Friday, rebounding from
losses the previous session.

 * When Shanghai closed on Thursday, LME copper stood at
$7,778.

 * Supporting the sentiment, weekly jobless claims data from
the United States fell while producer price data showed
inflation is muted, reassuring investors that the economy is on
a steady recovery path. [ID:nN22397444]

 * But Greece's debt crisis continues to worry investors,
after Moody's Investors Service cut the country's sovereign
debt to A3 on Thursday and said it was likely to reduce the
rating further unless the deficit-stricken government restored
market confidence.[ID:nLDE63L28G]

 * "Greece's problem will likely affect the market today. In
addition, investors are still worried about impact from the
Chinese government's tightening policy on property, which has
affected the overall sentiment," said a trader based in the
southern province of Guangdong.

 MARKET NEWS

 * U.S. stocks staged a late-day comeback on Thursday as
strong quarterly profits from consumer bellwethers such as
Starbucks Corp (SBUX.O: Quote) outweighed worries about Greece.[.N]

 * The euro fell to its lowest in nearly a year on Friday,
hammered by a wave of stop-loss selling in Asian trade as
speculation Greece could default on its sovereign debt
obligations spooked investors.[USD/]

 DATA/EVENTS

 The following data/events is expected on Friday (GMT):

 * Australia Q1 export, import prices -0130

 * France March consumer spending     -0645

 * Germany April IFO                  -0800

 * UK Q1 GDP                          -0830

 * Euro zone Feb industrial orders    -0900

 * G20 Finmins, central bankers/IMF meet -n/a

 * U.S. durable goods for March       -1230

 * U.S. new home sales for March      -1400

 * U.S. ECRI weekly                   -1430

 * G20 finmins briefing               -2120
  RELATED NEWS > METALS-Copper down as investors fret over
Greece[ID:nLDE63L14R] > Guinea says RUSAL owes over $860 mln in
taxes   [ID:nLDE63L2M5] > METALS INSIDER: Warning signs in
Chinese trade  [ID:nLDE63L1H1]
  PRICES
  Base metals prices at 0013 GMT
 Metal         Last       Change   Pct Move  End 2009 YTD pct
chg
 LME Cu        7720.00     28.00     +0.36    7375.00
4.68
 LME Alum      2324.00      4.00     +0.17    2230.00
4.22
 LME Lead      2320.00     10.00     +0.43    2432.00
-4.61
 Dollar/yuan          6.8255 \ 6.8265

Prices rallied after London Metal Exchange copper inventories fell for the 18th day to 516,925 tons on March 26, the longest period of declines since July 2009. Nickel supplies in LME warehouses decreased for a sixth day to 155,922 tons.

“The drop in inventories has been helping support some of the metals,” said Chen Yonglin, an analyst at CITIC Newedge Futures Co. “As the economic outlook improves and we move into the peak demand season for construction, the metals that don’t have huge surpluses will do well.”

Three-month delivery copper on the LME rose as much as 1.8 percent to $7,651 a ton, the highest since March 8, and traded at $7,640.50 at 1:30 p.m. in Singapore. The metal has risen 3.5 percent this year, headed for its fifth quarterly gain, on expectation demand will increase as the global economy rebounds.

Futures also advanced as the dollar fell for a second day against a basket of six major currencies after the European Union and International Monetary Fund pledged last week to help Greece finance the region’s biggest budget deficit if it runs out of options in capital markets.

Nickel, the best performing metal on the LME this year, jumped to the highest price since June 13, 2008. The three-month contract has more than doubled in the past year as China’s $586 billion stimulus package boosted both output and consumption of stainless steel. Almost two-thirds of nickel is used to strengthen the alloy.

Nickel Jumps

Nickel added as much as 3.4 percent to $24,400 a ton as a fall in stockpiles was “taken as evidence of improving demand,” said David Moore, commodity strategist at Commonwealth Bank of Australia.

Premiums for European nickel briquette were at $425 a ton last week, almost two-and-a-half times the level at the start of the year, according to the U.K. industry publication Metal Bulletin.

“The European stainless steel sector finally appears to be joining its peers in Asia and the U.S. in ramping up production levels,” Macquarie Group Ltd. analysts led by Jim Lennon wrote in a note today.

Among other LME-traded metals, aluminum rose 1.1 percent to $2,244 a ton, zinc climbed 2.1 percent to $2,275 a ton, lead gained 1.2 percent to $2,149.50 a ton and tin rallied 0.9 percent to $17,825 as of 1:32 p.m. in Singapore.

SINGAPORE, March 16  - Copper prices rose in
London and Shanghai on Tuesday, reversing losses in previous
sessions as fears about the impact of Chinese monetary
tightening on demand faded a little.
Worries that China’s attempts to quell inflation could also
cut demand for metals, or drive commodities speculators using
cheap loans to cash in positions if interest rates rise, has
prompted liquidation in the past few days.
But analysts said although sentiment may have been shaken
by the risk of China raising interest rates, the outlook for
real demand was unchanged.
“There is a perception that the very strong rebound in
prices seen last year was driven by easy money conditions, not
only in China but globally,” Barclays Capital analyst Yingxi Yu
said.
“Our economists have revised their calls for the first rise
in benchmark interest rates from the third quarter to the
second. This may have an impact on market sentiment, but I
don’t think it will affect real demand conditions in China.”
She added that the bank’s GDP forecast for China in 2010
remained at 9.6 percent and policy would remain sufficiently
loose to accommodate annual growth rates of the order of 9 to
10 percent.
Three-month copper on the London Metal Exchange CMCU3
rose $31 to $7,341 by 0217 GMT, having slipped 2.1 percent in
the previous session and almost 5 percent in the past six
sessions.
The market shrugged off a 6.7 magnitude earthquake off the
coast of Chile as too small and too deep to threaten copper
output or infrastructure, following the huge 8.8 quake at the
end of last month that sent prices roaring almost 6 percent
higher. [ID:nN15226125]
Sentiment was underpinned by another fall in LME copper
stocks, down for the ninth day running — their longest run of
declines since an extended period of stock draws in the second
quarter of last year.
For a graphic showing copper stocks and cancelled warrant
ratios, double-click:
here
Benchmark third-month Shanghai copper SCFc3 rose 150 yuan
to 58,530 yuan.
London copper remained at a premium to Shanghai,
effectively closing arbitrage opportunities, but it has
narrowed to 100 yuan from more than 400 on Monday and traders
said the window may reopen again.
“The arb is shut for the moment, but we think it will
reopen. There is strong demand from certain sections of the
consumer community and stocks of material held in bonded
warehouses have come down,” a trader in Hong Kong said.
“Demand usually picks up in the second quarter and that
should result in higher prices in the spot market and lift
demand for imported metal.”
LME zinc CMZN3 rose $8.50 to $2,288, while Shanghai metal
SZNc3 ticked up 50 yuan 18,545 yuan.
In industry news, Japan’s Toho Zinc (5707.T: Quote) raised its bid
for a stake in Australian-listed zinc miner CBH Resources
(CBH.AX: Quote) to knock out a rival offer from Belgian metals group
Nyrstar (NYR.BR: Quote), CBH said.
CBH said Toho was now offering 25 cents a share for a
maximum 49.9 percent of the company, which is set to more than
double its annual output to 59,000 tonnes of zinc metal and
30,000 tonnes of lead from its main Endeavor mine in central
Australia this year.
Base metals prices at 0217 GMT
Metal Last Change Pct Move End 2009 YTD pct
chg
LME Cu 7341.00 31.00 +0.42 7375.00
-0.46
SHFE Cu* 58530.00 150.00 +0.26 59900.00
-2.29
LME Alum 2234.00 7.00 +0.31 2230.00
0.18
SHFE Alum* 16705.00 35.00 +0.21 17160.00
-2.65
COMEX Cu** 331.80 1.10 +0.33 332.75
-0.29
LME Zinc 2288.00 8.50 +0.37 2560.00
-10.63
SHFE Zinc 18545.00 50.00 +0.27 21195.00
-12.50
LME Nickel 21645.00 145.00 +0.67 18525.00
16.84
LME Lead 2205.00 2.00 +0.09 2432.00
-9.33
LME Tin 17650.00 240.00 +1.38 16950.00
4.13
LME/Shanghai arb^ 100
Dollar/yuan 6.8262 \ 6.8267
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month

* Copper tagged for delivery jumps in LME warehouses

* U.S. indicators showing signs of economic growth

* COMING UP: January U.S. factory orders, home sales (Recasts, updates prices, market activity; new byline, dateline, previously LONDON)

NEW YORK, March 3 – Copper rose on Wednesday, hitting a seven-week high as the dollar fell against the euro, making metals cheaper for non-U.S. investors amid signs that demand was improving cropped up in the U.S. and Asia.

Benchmark copper <CMCU3> on the London Metal Exchange ended at $7,580 a tonne, up from a close of $7,490 on Tuesday. The red metal, used in power and construction, touched a session high of $7,634, its highest since Jan. 11.

In New York, most active copper for May delivery <HGK0> finished with 2.35 cent gains at $3.4350 per lb on the New York Mercantile Exchange’s COMEX division.

The contract reached a high of $3.4720, near the seven-week high hit Monday at $3.4870 after Chile’s earthquake.

The euro strengthened after debt-laden Greece endorsed a 4.8 billion euro austerity package, to ensure it met key fiscal targets. [ID:nLDE6221CO] Dollar-denominated copper tends to rally when the euro gains.

Copper rose “because the situation in Greece has gotten better, so the euro’s rise was very strong. I think that had a lot to do with it,” said Donald Selkin, chief market strategist with National Securities Corp. In New York,

Robust data from the U.S. services sector did little to help the dollar, but added to other data showing improvement in U.S. economic growth. [USD/] [ID:nLDE622222]

In COMEX after-hours trade, the Federal Reserve released its Beige Book report showing increased U.S. economic growth.

The anecdotal Beige Book reported modestly stronger economic activity across most of the 12 Fed districts during February despite heavy snowstorms in many areas. [nWEQ003823]

CANCELED WARRANTS

Also supporting copper was a rise in canceled warrants in LME warehouses. Material tagged for delivery rose to 35,975 tonnes on Tuesday from 29,800 the previous day, and was up from 14,000 a week earlier.

Canceled warrants now constitute 6.5 percent of total LME copper stocks, which last fell 1,750 tonnes to 550,575 tonnes.

Demand from China helped copper surge 140 percent in 2009 in the absence of Western demand, but the world’s third-largest economy has been buying less copper as it tightens monetary policy to temper rapid growth.

But some analysts pointed to the canceled warrants and Wednesday’s drop in London Metal Exchange warehouse stocks as indication that China may be gearing up its purchases.

“You have slightly lower inventories and increased bookings. That could be showing better demand,” said Serkin.

CHILE IMPACT EASES

Traders said the impact from Chile’s weekend earthquake lessened, but still underpinned prices.

After two large aftershocks in Chile on Wednesday, top copper producer Codelco said its operations were not affected, [ID:737-800S] and it was exporting normally. [003600.KS]

Anglo American PLC <AAL.L> said copper production lost after Chile’s weekend earthquake amounted to less than 1,500 tonnes, with minor damage at its mining operations. [WB.N]

Chile’s copper mines, which produce a third of global supply, emerged almost unscathed from Saturday’s massive 8.8-magnitude quake which killed almost 800 people, toppled buildings, shattered key highways and downed power lines. [ID:nN02150357] [ID:nN03234941] [ID:nWLB9145] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

For more on Chile mines resuming output, see [ID:nN28135112]

For a map locating Chile’s major copper mines and the quake epicenter, see: http://link.reuters.com/qug92j <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Aluminium touched a five-week peak of $2,219 a tonne. Used in transport and packaging, it ended at $2,210 from $2,168.

Steel ingredient zinc <CMZN3> closed at $2,320 from $2,255, battery material lead <CMPB3> at $2,238.50 from $2,200, and tin <CMSN3> was untraded at the close, but bid at $17,350 from $17,075 a tonne on Tuesday.

Stainless ingredient nickel <CMNI3> hit $22,943, its highest since June 2008. It closed at $22,845 from $22,240 on Tuesday. It is up about 20 percent so far this year. (Additional reporting by Rebekah Curtis and Pratima Desai in London;

The metal hit a five-week high at $7 600 (R58 520) a tonne in Asian trade.

The 8.8-magnitude quake which hit the South American nation early on Saturday and ensuing tsunamis killed more than 700 people in Chile and dealt a heavy blow to one of Latin America’s most stable economies.

Chile’s biggest copper mines slowly resumed operations on Sunday despite limited power supplies, which analysts say could hamper exports.

“The impact on copper production appears to be limited for now, but should not be insignificant in a copper market that continues to see a chronic underperforming supply-side,” said Standard Bank in a note.

The jump in copper prices to their highest in five weeks after the quake has likely tipped technical signals back into bullish mood, traders said.

PRICES

* Three-month copper on the London Metal Exchange was trading at $7 440 a tonne at 10:13 SA time compared with $7 195 at the close on Friday.

* Aluminium was at $2 148 a tonne from $2 133.

DATA/EVENTS

* US personal income/spending for January, 15:30 SA time.

* US institute of supply management February manufacturing index, 17:00 SA time.

* US January construction spending, 17:00 SA time.

MARKET NEWS

* The dollar index edged up 0.1 percent, supported at the margins by improving US economic data, while sterling fell to a nine-month low against the dollar and a one-year low on the yen on Monday, hurt by political uncertainty.

* Oil rose more than 1 percent and topped $80 a barrel on Monday, amid threats by Iran that it could cut off energy supplies to Europe, although prices later eased on worries about slowing demand in China.

* Asian equities were firm and European shares were higher in early trade as signs emerged that Greece’s debt crisis could be easing, while firmer copper prices after a massive earthquake in Chile boosted mining shares.

FUNDAMENTALS

* Up to one-fifth of Chile’s copper mine capacity was shut after the world’s biggest producer was hit by a powerful earthquake on Saturday, but at least two mines in the quake-affected area resumed operations within 48 hours.

* Chile’s biggest copper mines hit by a massive earthquake slowly resumed operations on Sunday despite limited power supplies, which analysts fear could curtail exports from the world’s No. 1 producer.

* Chinese copper mining stocks rallied on Monday as copper prices hit five-week highs on supply worries after a massive earthquake hit top producer Chile.

* Key zinc mining and smelter firms have agreed to processing fees of around $270 a tonne, up almost 40 percent on last year, industry sources said on the eve of the International Zinc Association (IZA) conference.

* Global miner Rio Tinto will increase its stake in Canada’s Ivanhoe Mines by 2.7 percent to 22.4 percent for $233 million, in a move tied to plans to jointly develop the giant Oyu Tolgoi copper mine in Mongolia.

TECHNICALS

* Copper support at $6 970, resistance at $7 240, 14-day RSI at 64.5.

* Aluminium support at $2 070, resistance at $2 142, 14-day RSI at 56.7

* Deal between Teck Resources and Xstrata (Updates with details, quotes)

By Chris Kelly

SCOTTSDALE, ARIZONA, Feb 28  - Key zinc mining and smelter firms have agreed to processing fees of around $270 a tonne, up almost 40 percent on last year, industry sources said on the eve of the International Zinc Association (IZA) conference.

A benchmark-setting deal for annual treatment charges — fees paid by miners to smelters to turn concentrate into finished metal — has been struck between Canadian miner Teck Resources Ltd (TCKb.TO) and smelter firm Xstrata (XTA.L), several market participants attending the conference said.

“The deal was made between Teck and Xstrata … that’s what everyone is saying. It will be confirmed Monday morning,” said one European zinc trader, attending the annual industry gathering in Arizona.

The two companies were said to have struck the deal at around $270 per tonne, based on a $2,500 a tonne London Metal Exchange zinc price <0#MZN:>.

The agreement came in near the top end of expectations of between $200 and $300 a tonne.

Several other sources confirmed the deal, though neither Teck nor Xstrata were immediately available to comment.

Another market source said the deal also included escalators and de-escalators, additional terms that would allow for fee adjustments when metal prices fluctuate outside a pre-determined range.

“I am hearing escalators less than 5 percent down to $2,000 (per tonne), and more than 5 percent below $2,000,” the source said.

Last year, the benchmark was set at $194 per tonne based on a $1,250 a tonne zinc price, with an escalator of 13 percent up to $1,500 a tonne and of 12.5 percent above there.

“The miners are winning at today’s prices, but if you actually work out what those numbers mean, they are a bigger improvement for the smelters at lower prices,” the source said.

“If the zinc price was to collapse to last year’s basis price, it’s a big, big improvement for the smelters.”

LME zinc prices have been volatile this year, peaking at $2,736 in early January, its highest since March 2008, and falling as low as $1,935 on Feb 5.

Zinc CMZN3 rose 2.1 percent to $2,240 by 0419 GMT on Monday in an overall firmer market, down 12.5 percent this year.

The Conference Board’s gauge of consumer sentiment declined to 46 in February, the business-backed group said. That’s beneath the lowest forecast in a Bloomberg News survey of 68 economists. Copper dropped 8.8 percent last month on concern that a slowing economic rebound will curb demand for the metal used in pipes and wires.

“This bad consumer-confidence report is a great excuse for people to take their money off the table and wait to see how things shake out,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “It’s definitely causing concern.”

Copper futures for May delivery sank 9.4 cents, or 2.8 percent, to $3.2345 a pound on the New York Mercantile Exchange’s Comex unit. That marks the biggest decline for a most-active contract since Feb. 4.

Rio Tinto Group, the world’s third-largest mining company, said the removal of government stimulus packages and slowing consumer spending may dent demand for metals in the second half of the year.

“There are plenty of negative forces out there,” Vivek Tulpule, the chief economist for London-based Rio, said in an interview.

Copper prices also dropped as the dollar gained, reducing demand for commodities as alternative assets. The U.S. Dollar Index, a six-currency measure of the greenback’s strength, rose as much as 0.6 percent.

On the London Metal Exchange, copper for three-month delivery fell 2.7 percent to $7,132 a metric ton ($3.24 a pound). Aluminum, nickel, tin, lead and zinc prices also declined.

The 133-year-old exchange offered futures on the metals on its floor starting at 12:20 p.m. local time. Codelco, the world’s second-largest molybdenum producer, wants to support the molybdenum contract, according to Gonzalo Cuadra, a Codelco managing director.

The LME is expanding into so-called minor metals as it opens a first overseas office in Singapore and proposes a venture with the London-based Baltic Exchange to bring trading of freight derivatives onto a new exchange. The bourse handled $7.41 trillion of contracts last year, including 49.7 million in aluminum, 26.5 million in copper and about 30,000 in Mediterranean steel billet.

Trading in the new contracts may exceed steel “because moly and cobalt have a history of volatility and they have a wide range of industrial applications,” said Stephen English, marketing manager of SFP Metals (U.K.) Ltd. in London, who has traded cobalt for more than 30 years.

LN Metals International Ltd. traded the first two metric tons of cobalt at $43,650 a ton ($19.80 a pound), Nigel Dentoom, chairman of the company, said at the LME. He declined to say if LN Metals was the buyer or seller.

Molybdenum Traded

Molybdenum traded earlier today at $35,000 a ton ($15.88 a pound), exchange spokesman Stephen White said. Total trading volume won’t be available until tomorrow, he said. About five companies were involved in trading by midday today, said Chris Evans, head of business development at the LME.

Cobalt prices dropped 2.4 percent to $19.52 a pound this year, according to Metal Bulletin. The benchmark molybdenum oxide contract quoted by Metal Bulletin climbed 43 percent to $17.25 a pound. The LME estimates both markets combined at about $7 billion, compared with $5 billion for tin, which the bourse already trades.

“While we do not intend to utilize the molybdenum contract upon its launch, we will continue to monitor the activity on the exchange,” said Bill Collier, a spokesman for Phoenix-based Freeport-McMoRan Copper & Gold Inc., the world’s largest molybdenum producer.

Production of molybdenum last year was about 440 million pounds (199,581 tons), while cobalt output was 54,000 tons, according to Eric Taarland, a senior consultant at London research company CRU. Output of both metals exceeded demand, according to CRU estimates.

Molybdenum Demand

Molybdenum demand has gained because of growth in stainless steel output, while cobalt consumption was driven by sales of rechargeable batteries, according to Taarland.

There are 12 cobalt and molybdenum brands registered for delivery against the LME contracts, including Vale SA’s Vale Inco unit and Molibdenos y Metales SA.

The LME plans to combine its Mediterranean and Far East steel billet futures into a global contract. Volumes reached about 3.3 million metric tons of steel, worth $1.4 billion, since they were introduced in April 2008 to Feb. 12, according to the exchange.

“I think we are still seeing some residual demand from last week,” said Catherine Virga, senior base metals analyst with CPM Group in New York.

“We are pulling up from that correction. We are seeing an uptick in physical demand across the metals due to the lower prices.”

On the London Metal Exchange (LME), aluminum peaked at $2,138 a tonne, its highest level since Feb. 3, and nickel soared to a seven-month high of $20,345 a tonne.

Copper for three-month delivery in London MCU3 closed at $7,144 a tonne, up from $6,870 at the close on Monday. The metal used in power and construction hit a session high of $7,138 a tonne, the highest since Jan. 28.

On the New York Mercantile Exchange’s COMEX division, benchmark copper for March delivery HGH0 rallied 13.9 cents, or 4.5 percent, to finish at $3.2215 per lb, its highest level on a closing basis since Jan. 27.

The euro had its biggest one-day gain versus the dollar since the end of November, as traders bet the single currency had slipped too far over fiscal worries about Greece. [FRX/]

A weaker U.S. currency makes dollar-priced commodities cheaper for holders of other currencies.

Regional manufacturing data from the United States brightened the economic outlook and bolstered the bullish momentum in the metals, analysts said. [ID:nN16372747]

Demand growth for commodities has, for some years now, been led by emerging economies such as China, the world’s largest consumer of industrial metals, which is expected to grow by more than 11 percent in the first quarter. [ID:nTOE6130AF]

Chinese markets are due to reopen next week after this week’s New Year break.

“The demand picture out of China is still robust,” said Daniel Smith, an analyst at Standard Chartered.

“Once China comes back from the New Year holidays things will pick up and this rebound is an anticipation of that.”

CONCENTRATION

Stocks of copper in LME warehouses stand at 549,900 tonnes, their highest since October 2003. That is a negative, but the market is looking at canceled warrants — material already earmarked for delivery.

Copper canceled warrants at above 16,000 tonnes from 3,625 tonnes on Feb. 8 are mostly concentrated in Korea, and analysts say this material is probably heading for China.

Canceled warrants on aluminum are at 295,175 tonnes versus 256,550 on Feb. 8, a small number compared to stocks near record highs at above 4.587 million tonnes.

But in the context of financing deals, which have tied up much of aluminum stocks, they are significant, analysts said.

Aluminum MAL3, used in transport and packaging, closed at $2,131 a tonne from Monday’s close of $2,054, while stainless steel material nickel MNI3 closed at $20,325 from $19,350.

Stocks of nickel fell to 164,856 tonnes on Feb. 15 from 166,356 on Feb. 10. Nickel prices over the same period are up about 10 percent.

Material tagged for delivery nearly doubled to 5,460 tonnes on Feb. 15, from 2,394 on Feb 8. Most of the new canceled nickel warrants were in Singapore.

Battery material lead closed at $2,298 a tonne from Monday’s last bid at $2,180, jumping nearly 6 percent to hit an intraday high of $2,308.75, its highest in nearly a month.

Zinc MZN3 was at $2,337 from $2,200 on Monday, and rose over 6 percent to hit a late-session high of $2,346. Tin MSN3 was last quoted at $16,700/16,725 from $16,495. Metal Prices at 1953 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 322.10 13.85 +4.49 334.65 -3.75 LME Alum 2137.00 83.00 +4.04 2230.00 -4.17 LME Cu 7145.00 275.00 +4.00 7375.00 -3.12 LME Lead 2285.25 152.25 +7.14 2432.00 -6.03 LME Nickel 20270.00 920.00 +4.75 18525.00 9.42 LME Tin 16700.00 205.00 +1.24 16950.00 -1.47 LME Zinc 2327.00 127.00 +5.77 2560.00 -9.10 SHFE Alu 16825.00 185.00 +1.11 17160.00 -1.95 SHFE Cu* 56410.00 1020.00 +1.84 59900.00 -5.83 SHFE Zin 18345.00 270.00 +1.49 21195.00 -13.45 * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

The cost of base metals such as copper and aluminium have traditionally been completely overshadowed by the price of crude oil.

It was oil that got the headlines, while copper and the other main metal commodities stayed very much in the background.

All this changed in the year or two before the global economic bubble burst in the summer of 2008.

Yes, the rapidly increasing price of oil still dominated the financial headlines, but suddenly there was also a lot of reporting on the fact copper and other metal prices were also hitting all-time highs.

Figures from the London Metal Exchange tell the story – in April 2000 the price of “bell weather” metal copper was $1,679 per metric tonne, by April 2008 this had risen to $8,685.

Little wonder local newspapers across the UK had started to write stories about big increases in cases of thieves stealing copper pipes and wires to sell on the black market.
For a moment you would have thought copper was the new gold.

At the same time, a growing number of metal mining companies had quietly made it onto the FTSE 100 index of leading UK shares, many with rather un-English sounding names.

There was Antofagasta from Chile, Mexican business Fresnillo, India’s Vedanta, and Kazakhmys from Kazakhstan, out of a total 11 mining firms that still remain on the FTSE.

And instead of being unassuming members of the index, the mining stocks have very often been the FTSE’s biggest daily risers or fallers, such has been the volatility of global metal prices in recent years.
China’s metal appetite

The big growth in the price of base metals up to mid-2008 was led by China’s arrival as a new economic powerhouse with an insatiable appetite for raw materials.

Analysts say global copper supplies remain tight

Such was China’s need for copper in particular, that global demand started to outpace available supplies, and the price shot up accordingly.

While China’s imports of copper and other metals has remained high post summer 2008, demand in the West tailed off as the recession hit North America and Europe, and prices fell back accordingly.

By December 2008 copper prices had slumped to $3,072.

But with the global economy slowly recovering last year as the US, Japan and leading European economies Germany, France and the UK all exited recession – albeit hesitantly in some cases – metal prices recovered in 2009.

The price of copper rose to an average of $6,590 last year.

Tight supplies

For most metal analysts prices are set to rise further in 2010, but it could be a bumpy ride along the way.
“We see metal prices being strongly up on last year, but still with a lot of volatility,” says David Wilson, London-based director of metals research at Societe Generale.

“If you look at copper in particular, the price at the moment is around $6,567 a tonne. We forecast this to rise to an average of $7,435 for the year as a whole.

“We predict the rise because global demand is rising strongly again, while copper supplies remain tight.”

Mr Wilson says the likely volatility comes because of concerns about macro issues, such as whether the debt problems in Greece, Portugal and other European countries could hit the global economy.

“There have also been concerns that demand for metals could fall in China because of the country’s fiscal tightening,” he adds.

“But I think that is a little misplaced – the Chinese economy is still on target to grow 8% this year, the government just doesn’t want it to grow any faster than that.”

Greece fears

Fairfax economist Dmitry Kalachev agrees, predicting that China’s vast imports of base metals will continue to rise strongly, despite the country’s monetary tightening measures.

“We see copper rising to an average of $8,200 this year,” he says.

“All the major infrastructure projects in China this year are still in place.

“The debt situation in Greece and Portugal could have some [negative] implication on commodity prices if it causes the euro to fall in value.”

This is because commodities are priced in the US dollar, and a weaker euro would make them more expensive to buy for country’s in the eurozone.

Yet Mr Kalachev says an impact on the price of commodities from Greece and Portugal will likely be limited.

“China is the main driving factor, and other developing countries such as India and Brazil, whose economies are also continuing to grow strongly.”

Charles Kernot, director of metals and mining at Evolution Securities, is far more cautious, but still sees metal prices going up.

“We see the price of copper rising from an average of $6,590 last year to $7,660 this year,” he says.

“But it is going to be pretty volatile.

“All the uncertainly in Europe surrounding Greece, Spain and Portugal is creating a lot of uncertainly, and there is concern about the impact of the ongoing tightening in China.”

FTSE boost

Mr Wilson adds that the expected further increase in metal prices will also likely lift the share prices of the 11 mining stocks on the FTSE, helping to raise the index in the process.
ut why is the London Stock Exchange proving such a popular place for foreign mining firms to list their shares? Mr Wilson says there are a number of factors.

“London remains the leading centre of expertise for investing in the global mining sector, so firms know they can best attract investment here,” he says.

“The London Stock Exchange is also well regulated and transparent, and has a history of companies successfully listing.

“So you can see why it is proving so popular for foreign mining firms.”

Whatever happens to metal prices this year, they are likely to remain in the news.

With much of Asia shut for the Lunar New Year, and a market holiday in the United States, just 172 lots of copper changed hands by 0735 GMT, versus more than 2,000 lots typical for the time of day and well below recent elevated levels of 3,000 lots or more. “There is not much to report today. With China out there is very little business. We saw prices jobbing a little higher on the Japanese economic numbers, but it didn’t last,” a trader Sydney said.

“We are a touch down now but I don’t think we’ll see much action today.” Prices fell $7.25 to $6,802.75 a tonne, off an earlier low of $6,787. Copper traded as high as $6,860 earlier.

Japan’s economy expanded at the fastest pace in two quarters, and more than expected, in October-December as an export recovery spurred capital spending. Copper prices fell 1.9 percent on Friday after China surprised markets by hiking the percentage of cash banks must keep as reserves, which reduces funds available for lending.

The increase, coming in the wake of benign inflation data, and ongoing doubts about debt levels in Greece, put pay to an attempt to see copper break above $7,000 last week. LME aluminium rose $5 to $2,060. Nickel rose $50 to $18,600, while lead the biggest loser, dropped $18 or 0.8 percent to $2,115.

With much of Asia shut for the Lunar New Year, and a market holiday in the United States, just 67 lots of copper traded hands by 0425 GMT. Prices rose $11 to $6,821, the low of the day, having earlier touched $6,860.

LME aluminum was flat at $2,055. The only other metal to trade, nickel, rose $55 to $18,605.

Copper prices fell 1.9 percent on Friday after China surprised markets by hiking the percentage of cash banks must keep as reserves, which reduces funds available for lending.

The increase, coming in the wake of benign inflation data, and ongoing doubts about debt levels in Greece, put pay to an attempt to see copper break above $7,000 last week.

PRICES
* Three-month copper MCU3 on the London Metal Exchange was
trading at $6,891.25 a tonne at 0812 GMT compared with $6,940 at
the close on Thursday.
* Aluminium MAL3 was flat at $2,065 a tonne.

DATA/EVENTS
* U.S. Commerce Dept releases Jan retail sales, 1330 GMT.
* Reuters/University of Michigan Surveys of Consumers
releases preliminary U.S. Feb consumer sentiment index, 1455 GMT.
* U.S. Commerce Dept issues December business inventories,
due at 1500 GMT.
* U.S. Economic Cycle Research Institute (ECRI) releases
weekly index of economic activity for week to Feb 5 at 1530 GMT.
* Euro zone flash GDP estimates, 1000 GMT.
* Euro zone industrial production data, 1000 GMT.
[ECI/US] [ECI/EURO] [ECI/GB]
[M/DIARY] [MTL/DIARY]

MARKET NEWS
* The dollar strengthened against the euro as the single
currency softened across the board, weighed by disappointment
among investors over lack of detail from the European Union on
helping debt-laden Greece. [FRX/]
* Oil eased to just above $75 a barrel, pressured by a
firmer U.S. dollar as investors awaited further details of the
European Union plan to help Greece. [O/R]
* Asian shares rose on Friday as investors took comfort from
the EU’s pledge to support Greece. European shares also opened
higher, extending a winning run to a fifth session on Friday.
[MKTS/GLOB]

FUNDAMENTALS
* Deliverable copper inventories in warehouses monitored by
the Shanghai Futures Exchange rose 3 percent from one week
earlier, while deliverable aluminium inventories rose 1 percent,
the exchange said on Friday. [ID:nBJD003497]
* China said its aluminium industry faces severe
overcapacity, with the total smelting capacity at about 20
million tonnes, exceeding demand by 7 million tonnes.
[ID:nTOE61A074]
* China’s top steel firm, Baosteel (600019.SS: Quote), hiked March
prices of hot- and cold-rolled steel coil by 300 yuan ($43.91) a
tonne bringing them to the highest levels since November 2008,
two industry sources said on Friday. [ID:nTOE61B01S]
* Tajikistan, Central Asia’s largest aluminium producer, cut
its output of the metal by 4.1 percent year-on-year to 30,158
tonnes in January, a source at state-owned aluminium company
TALCO said on Friday. [ID:nLDE61B05L]
* Kazakh copper miner Kazakhmys (KAZ.L: Quote) said its Boschekul
copper facility, set for 2014 launch, would produce about
100,000 tonnes of copper concentrate a year. [ID:nLDE61B04R]
* Belgian specialty metals and materials group Umicore
(UMI.BR: Quote) is interested in acquiring the catalyst unit of
Germany’s Sued-Chemie (SUCG.DE: Quote), Belgian business daily De Tijd
said on Friday. [ID:nLDE61B03C]

TECHNICALS
* Copper support at $6,800, resistance at $7,055, 14-day RSI
at 55.0.
* Aluminium support at $2,020, resistance at $2,095, 14-day
RSI at 42.5.
For related news and prices, click on the codes in brackets:
LME price overview RING= LME aluminium <0#MAL:>
LME copper <0#MCU:> Asia physicals <BASE/ASIA1>
COMEX copper futures <0#HG:> Europe physicals <BASE/EU>
Scrap metal prices BASEU3 LME plastics <LME/PLASTICS>
RELATED NEWS AND OTHER TOPICS
Base/minor metals news [MET] All metals news [MTL]
Metals summary [GLANCE/MTL] Scrap metals news [SCRAP/EUR]
Index of summaries [GLANCE/] All commodities news [C]
Metals diary [MTL/DIARY] Weather news [WEA]
Foreign exchange rates FX=S
SPEED GUIDES
COMMODS METAL1 <BASE/FUT1> <BASE/CASH1> <BASE/OPT1>
<LME/OPT1> <LME/FUT1> <LME/BROKER1> <LME/INFO1> REUTERS
For Reuters Metals Production Database click on URL below
mpd.session.rservices.co

Spot gold was at $1,072.40 an ounce at 1608 GMT versus $1,065.55 late in New York on Friday, having earlier touched a high of $1,073.50. In the last session it slid to $1,043.75, its lowest since Nov 2, as the euro fell on fears over the outlook for some euro zone economies.

US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $18.50 to $1,070.70 an ounce. From a technical perspective, resistance near the $1,050 level held on Friday, preventing a move down towards the 200-day moving average near $1,020 an ounce. A breach of this area would lead to a sharper sell-off, analysts said. Among other precious metals, silver was at $15.16 an ounce from $15.11 an ounce, platinum at $1,477.50 from $1,479.50 and palladium at $401.50 from $402.50.

Copper bounces: Copper rallied on Monday as investors and consumers, seeing bargain prices and believing in the stronger China demand story, piled in.

Benchmark copper on the London Metal Exchange traded at $6,386 a tonne at 1515 GMT from $6,265 at the close on Friday. Earlier on Monday the metal, used in power and construction, touched $6,475 a tonne. Aluminium traded at $2,000 from versus $1,980 on Friday. LME stocks of the metal, used in transport and packaging, fell 7,450 tonnes to 4.58 million tonnes.

Zinc touched a high of $2,053 a tonne and traded at $2,005 from $1,940 on Friday, while battery material lead was at $1,949 compared with $1,940. Steel-making ingredient nickel traded at $17,031 from $17,005, and tin at $15,250 from $15,350.

* Eyes on Greece, sovereign debt markets.

(Adds closing prices)

By Michael Taylor and Pratima Desai

LONDON, Feb 8  - Copper rallied on Monday as investors and consumers, seeing bargain prices and believing in the stronger China demand story, piled in.

Benchmark copper MCU3 on the London Metal Exchange ended at $6,450 a tonne from $6,265 at the close on Friday. Earlier on Monday the metal used in power and construction touched $6,475.

A frenzied sell-off across equities and commodities because of sovereign default fears and a stronger dollar last week pushed copper to $6,225, the lowest since Oct. 19, and 20 percent below this year’s high of $7,796 on Jan. 7.

“The correction was a buying opportunity, the impact of tightening in China is completely irrelevant … Bank lending in China has actually been going into deposits, not into spending,” said David Wilson, analyst at Societe Generale.

China is the world’s largest consumer of base metals.

“Wider concerns — the situation in some European countries and their sovereign risk had some kind of impact in terms of driving investors away from riskier assets,” Wilson said.

Worries about Greece’s sovereign debt and a potential spillover have rattled markets and boosted the dollar, which is near 8-1/2 month highs against the euro. [MKTS/GLOB]

A stronger U.S. currency makes dollar-denominated metals cheaper for holders of other currencies.

However, Germany’s Finance Minister Wolfgang Schaeuble said on Monday that the Group of Seven industrialised nations is confident the European Union will sort out Greece’s debt problems. [ID:nLDE6170PC]

“There was a big sell-off on everything last week and it was probably overdone,” said Herwig Schmidt, head of sales at Triland Metals. “Maybe this is a good buying opportunity.”

STOCKS EASE

Aluminium MAL3 closed at $2,012 from versus $1,980 on Friday. LME stocks of the metal, used in transport and packaging, fell 7,450 tonnes to 4.58 million tonnes.

A large portion of those stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets.
But while stocks have fallen, investors remain concerned about the pace of the global economic recovery, and further tightening in China.

“Mixed economic data has cast doubt on the speed of the economic recovery,” Standard Bank said in a note.

“The past couple of weeks have seen commodities come under pressure as concerns over Greece and the other Southern European nations have seen the dollar strengthen.”

Traders expect trading to remain subdued until Feb. 22, after the Chinese New Year holiday.

Zinc MZN3 touched a high of $2,053 a tonne and ended at $2,022.5 from $1,940 on Friday and battery material lead MPB3 at $1,965 a tonne compared with $1,940.

Steel-making ingredient nickel MNI3 closed at $17,200 from $17,005, and tin MSN3 at $15,200 from $15,350.

Analysts say nickel may come under pressure after Brazil’s Vale (VALE5.SA: Quote) said it will push its Sudbury, Ontario operations towards full production, regardless of whether it is able to settle a strike at the complex.

* Falling dollar supports; last week’s sell-off overdone

(Update official prices, adds detail)

LONDON, Feb 8  - Copper rose more than 3 percent on Monday, rebounding from three-month lows hit late last week, as bargain hunting among traders and industry consumers helped push industrial metal prices higher.

Benchmark copper for three-month delivery MCU3 on the London Metal Exchange traded at $6,346 a tonne from $6,265 at the close on Friday, compared with a session high at $6,475.

“There was a big sell-off on everything last week and it was probably overdone,” said Herwig Schmidt, head of sales at Triland Metals. “Maybe this is a good buying opportunity.”

“Today is amazingly quiet after last week’s mayhem,” he added. “There is a little buying interest from the industry … consumers of copper, for tubes and wires, have been virtually absent from the market over the last eight months.”

Benchmark copper for March delivery on the New York Mercantile Exchange’s Comex division plunged 11.60 cents, or 3.75 per cent, to finish at $2.9735 a pound, its lowest level on a settlement basis since Nov. 12.

Over at the London Metal Exchange, copper for three-month delivery closed down $230 at $6,590 a tonne, after dealing in a wide range between $6,948 and $6,545, another low dating back to the middle of November.

“It’s primarily dollar-related,” Michael Gross, futures analyst with Optionsellers.com in Tampa, Fla., said of the selloff.

“The sharp [dollar] upswing shows there are additional concerns about credit problems overseas in Europe.”

The dollar rose broadly after the European Commission backed a Greek deficit-cutting plan as expected and worries mounted over the fiscal health of Portugal.

A firm U.S. currency makes metals priced in dollars more expensive for holders of other currencies.

On the economic front, the pace of U.S. private sector job losses slowed in January, while modest growth was seen in the U.S. services sector.

This data followed more upbeat data that included Tuesday’s home sales numbers, Monday’s manufacturing figures and economic growth data on Friday.

“It’s [economic data] been a see-saw … fits and starts,” Mr. Gross said. “It’s going to be more of a daily thing, whereas copper is reacting now to more of the bigger macroeconomic factors.”

Copper was hit in late January by investors’ fears that signs of monetary tightening in China could choke demand from the world’s top consumer of industrial metals.

“China’s macro environment has changed from one predominantly focused on growth to one where balancing growth and inflation has become increasingly important to policy makers,” Barclays Capital said in a note.

“Given China’s importance to key commodity markets, these moves have had a noticeable impact on sentiment.”

LME copper stocks fell 675 tonnes to 540,475 tonnes. At the end of last week, copper inventories rose to about 543,500 tonnes to hit their highest level since last February.

Stocks of aluminum, (AL-FT) used in transport and packaging, dropped 6,600 tonnes, but held near a record high above 4.6 million tonnes.

A large portion of those aluminum stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets.

Aluminum ended at $2,083 from $2,120. Analysts said improving U.S. auto sales was boosting sentiment.

“Over all, an annualized figure of 10.80 million units represents a solid figure especially given the state of the economy,” Standard Bank said in a note.

“It will take time for sales to recover back to pre-crisis levels, however the steady increase in sales is another positive sign that should continue to underpin … industrial metal prices.”

Zinc closed at $2,095 from $2,160, while battery material lead ended at $2,020 from $2,118 but earlier slipped 5 per cent at $2,010.25 to track other metals lower.

Tin closed at $16,600 from $16,450 and steel-making component nickel was last bid at $18,195 from $18,300.

Pending sales of previously owned US homes edged up as expected in December, a survey showed, allaying some fears of renewed weakness in the troubled sector. That came on the heels of a string of positive GDP and manufacturing numbers since Friday.

“The numbers are good, but we need a little more consistency. The pattern has been for a string of positive numbers followed by one or two poorer indicators,” a dealer in Hong Kong said.

“We are holding our breath now ahead of the payrolls report at the end of the week. There is a sense that payrolls may finally reverse their long decline. But if we see another big drop the budding confidence the market is feeling will shatter.”

The median forecast for nonfarm payrolls is for an increase of 5,000 after an unexpected 85,000 drop in December. A rise would be only the second increase since December 2007.

Three-month copper on the London Metal Exchange rose $75 to $6,895 a ton by 0715 GMT, recovering after it hit $6,600 on Monday, its lowest since mid-November, having tumbled as much as 15 percent in the previous three weeks.

“We finally got the much talked of pre-Lunar New Year sell-off, but the Chinese are still not buying much because they will be shut for a week,” said Nirrav Sharma of G-Steelmet, a Singapore-based trading house.

“In reality, we are seeing an adjustment – some funds are exiting, creating opportunities for others to get in. People are calling for the market to trade between $6,700 to $7,000 for a while.”

Benchmark third-month Shanghai copper rose 1,540 yuan by the close to 55,820 yuan.

Southern Copper Corp, one of the world’s largest copper producers, said it sees average copper prices at $3.25 per pound ($7,165 a ton) in 2010, as it expects emerging and developed economies to boost demand for the metal.

“We believe that inventories of copper will start to die off during the year, reversing the last month’s trend,” Southern Copper’s Chief Financial Officer Genaro Guerrero said on a conference call with investors.

U.S. copper futures most actively traded March HGH0 settled up 0.2 percent at $3.0895 a lb in New York. The session peak was $3.1245, up 1.3 percent.

On the London Metal Exchange, benchmark copper for three-month delivery MCU3 closed up 0.4 percent at $6,820 a tonne, up from a session low of $6,727.

Traders reported fund buying in copper on both the New York and London exchanges as investors, emboldened by bullish U.S. macroeconomic data this week, returned to commodity markets, which had sold off sharply in recent weeks.

“We’re having some more encouraging economic data coming through,” said Gayle Berry, analyst at Barclays Capital in London.

“The pieces of the jigsaw do seem to be falling into place to suggest that we will see a recovery in (developed world) demand begin to pick up pace over the first half of this year,” Berry said.

And the short-selling pressure that pushed copper to 2-1/2 month lows this week could disappear if investors sensed a broader-based rebound around the corner, analysts said.

“I think all of these commodities have just been selling off so much that any of sort of bullish news that comes up from here is just going to get the shorts caught with their pants down,” said Michael K. Smith, president of T & K Futures and Options Inc in Port St. Lucie, Florida.

The demand outlook for copper improved after the release of better-than-expected U.S. manufacturing data on Monday, which followed with similarly positive U.S. GDP data on Friday. [ID:nN01363414] [ID:nN28120005]

The dollar’s decline since Monday, after rallying to 6-1/2 month highs against the euro, was another factor helping commodities. A weaker dollar is favorable to investors using other currencies to buy dollar-denominated commodities. [USD/]

Copper prices fell 8.5 percent last month as rising LME inventories indicated weak demand outside of China, the world’s largest metals consumer.

Copper stockpiles in LME warehouses are at six-year highs, although they fell on Monday by 2,375 tonnes — the largest decline since early July — to stand at 541,150 tonnes.

Prices had also fallen recently on concerns over monetary tightening in China that could potentially erode demand. [ID:nTOE61003S]

But some analysts said the market has overreacted to the concerns on China, the No. 1 consumer for copper.

“People worry it means growth will slow down,” said Standard Chartered analyst Daniel Smith, referring to the credit-tightening measures that had surfaced in China’s financial system since mid-January.

“But we’ve still got loose monetary conditions in China that are conducive to growth. The fact it is becoming tighter is not the same as it being a tight monetary policy.”

Other LME metals rose as well.

LME aluminium MAL3 closed at $2,120 from $2,085. Stocks of the metal, used in transport and packaging, fell 3,125 tonnes, but held near record levels above 4.6 million tonnes.

A large portion of those aluminium stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets. [ID:nGEE5BA277]

Steel-making component nickel MNI3 was at $18,300 from $18,000, while zinc MZN3 was last quoted at $2,160/2,161 a tonne from $2,145.

Battery material lead MPB3 was at $2,118 from $2,045, while tin MSN3 was at $16,450 from $16,150.

Cancelled warrants of lead — material earmarked for delivery from LME warehouses — were last at 15,650 tonnes compared with 75 tonnes on Dec. 17.

“We’re going to see a catastrophe in the market,” Threlkeld said yesterday.

Prices might slump to less than $1 (R7.55) a pound, equivalent to $2 205 a ton, or a third of yesterday’s price, said Threlkeld, who first got the world’s attention in 1996 when he showed that hoarding by Sumitomo would lead to a collapse.

“Some 90 percent of buying has been from speculators,” he said.

“Whether they are exchange-traded fund speculators or China pig farmer speculators it doesn’t really matter, because that buying is going to come back to the market.”

Three-month copper futures on the London Metal Exchange, which surged 140 percent last year after governments spent billions of dollars to lift their economies out of recession, traded yesterday at $6 750 a ton.

China, the world’s largest user, imported a record 3.2 million tons of the refined metal last year, up 119 percent from the previous year.

There were about 3 million tons of unreported inventories in China, said Threlkeld, who has traded the market for more than 40 years.

“Three million tons seems a bit excessive, given that that’s more than half of China’s total consumption last year,” said Li Rong, the chief analyst at Great Wall Futures. China’s copper consumption was about 5 million tons in 2009, he said.

“The price of copper is not just a function of how much inventory there is in the market,” said Li Junchao, an analyst at Western Mining’s futures department. “While it’s true that prices last year rallied way beyond their fundamentals, we expect the market to normalise this year.

(Updates prices)
By Michael Taylor and Rebekah Curtis
LONDON, Feb 1 (Reuters) – Copper rose on Monday, bouncing
from an 11-week low after strong manufacturing data from the
United States boosted the outlook for demand in the world’s
second-largest consumer of the metal.
Copper for three-month delivery MCU3 on the London Metal
Exchange closed at $6,791 a tonne from $6,745 on Friday.
Boosting the economic outlook, the U.S. manufacturing sector
grew in January at a faster rate than expected, with the index
reading at its highest since August 2004. [ID:nN01363414]
“Sentiment has improved,” said Eugen Weinberg, commodities
analyst at Commerzbank. “The U.S. ISM data means manufacturing
is picking up and implies the second largest client on the
metals market will be asking for more industrial metals.”
But Weinberg added that economic recovery will be slow — a
‘V’-shaped recovery with “a small ‘v’.”
The metal used in power and construction earlier fell to
$6,600, its lowest since Nov. 16, as strong economic data from
China stoked concerns that potential monetary tightening in the
world’s top metals consumer could dampen demand.
China’s economy made a strong start to the year, according
to two business surveys that also underlined the mounting
challenge policymakers face to curb inflation. [ID:nTOE61003S]
“China’s definitely going to tighten the amount of bank
lending across the economy, which will slow down growth,” said
Charles Kernot, an analyst at Evolution Securities.
“But they need to make sure that there is still some growth
coming through,” he added.
Highlighting strong Chinese growth, an index based on an
official survey of purchasing managers last month remained
firmly in expansionary territory, while an index derived from a
companion poll by HSBC scaled an all-time high.
“If interest rates start going up it’s better to have the
cash rather than the copper,” Kernot said. “People want to
liquidate as much as of their inventories as they can and use
the cash to pay off debt.”
Tin CMSN3 earlier fell 7 percent to the lowest since Dec.
24, 2009, chasing a broad sell-off in metals last week, and was
on track for its biggest one-day fall since early July 2009.
Other U.S. data showed construction spending fell more
steeply than expected in December. [ID:nN29161976]
STOCKS RISE
Copper fell 8.5 percent in January, as rising inventories at
LME inventories indicated demand outside China remained weak.
Stocks last rose 2,475 tonnes to 543,525 — their highest since
late February 2009.
The metal rose 140 percent in 2009 on robust Chinese demand.
Aluminium MAL3 closed at $2,085 versus $2,080 on Friday.
LME stocks of the metal used in transport and packaging fell 625
tonnes, but stayed near record levels above 4.6 million tonnes.
For an interview with the world’s largest aluminium producer
UC RUSAL, click on: [ID:nLDE61008Z]
Nickel MNI3 was at $18,000 from $18,500.
Anglo-Swiss miner Xstrata Plc (XTA.L) said it reached a
tentative deal with union workers at its nickel mining
operations in Sudbury, Canada, averting a strike.[ID:nN01179992]
Battery material lead MPB3 was last quoted at $2,045/2,047
from $2,020. Lead earlier touched a low of $1,960, a level not
seen since August.
Recent rises in cancelled warrants — material earmarked for
delivery — have given investors some signs demand may improve.
On Friday, cancelled warrants for lead rose to 15,850
tonnes, versus 11,700 on Jan. 28 and 75 tonnes on Dec. 17. LME
lead stocks rose 200 tonnes to hit 157,500 tonnes, the highest
since September 2003.
Zinc MZN3 was at $2,145 a tonne from $2,110 and tin MSN3
was at $16,150 from $17,200.
Zinc earlier hit a three-and-a-half month low at $2,074.
Analysts expect Chinese buying to remain subdued ahead of
its lunar new year holiday in mid-February. <CN/HOLIDAY>
For Barclays’ view on copper demand, see: [ID:nWEA8151]

Metal Prices at 1711 GMT
Metal Last Change Pct Move End 2009 Ytd Pct
move
COMEX Cu 307.35 2.75 +0.90 332.75 -7.63
LME Alum 2080.00 0.00 +0.00 2230.00 -6.73
LME Cu 6790.00 44.50 +0.66 7375.00 -7.93
LME Lead 2045.00 25.00 +1.24 2432.00 -15.91
LME Nickel 17950.00 -550.00 -2.97 18525.00 -3.10
LME Tin 16050.00 -1150.00 -6.69 16950.00 -5.31
LME Zinc 2145.00 35.00 +1.66 2560.00 -16.21
SHFE Alu 16190.00 150.00 +0.94 17160.00 -5.65
SHFE Cu* 54380.00 -1050.00 -1.89 59900.00 -9.22
SHFE Zin 17240.00 -155.00 -0.89 21195.00 -18.66
** 1st contract month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07.

But investors were cautious ahead the Lunar New Year holiday, which starts on Feb. 14, and will keep Chinese markets shut for a week. Many of China’s factories also close and demand for the metal used in construction and power drops.

By 1026 GMT, copper for three-month delivery MCU3 on the London Metal Exchange traded at $6,845 a tonne from $6,791 at the close on Monday and compared with a session low at $6,727.

London copper hit a two-and-a-half month low at $6,600 on Monday, before turning around later in the session, after data showed U.S. manufacturing grew in January. [ID:nN01363414]

“Funds have been strong buyers this morning,” said David Thurtell, an analyst at Citigroup. “The ISM data appears to have restored some calm to the bulls who were unsettled by the sell-off of the past few weeks.”

Concerns about China tightening monetary policy remain after strong purchasing managers data on Monday, and as Australia surprised many by holding interest rates steady on Tuesday. [ID:nTOE61003S] [ID:nSGE61003K]

Copper fell 8.5 percent last month, in part due to increasing worries about rising LME inventories, which indicate that demand outside China, the world’s largest metals consumer, remains weak.

The latest data showed copper stocks fell 2,375 tonnes to 541,150 tonnes but remain close to a more than six-year high.

“Inventories are still very high — copper close to six-year highs — and this is dragging on sentiment,” said Eugen Weinberg, an analyst at Commerzbank.

“Going forward in two weeks, the Chinese go into the New Year and they will close all factories, so manufacturing will drop strongly,” he added. “People are afraid of this, so are not taking positions or buying stocks before the New Year.”

INVENTORIES

Aluminium MAL3 traded at $2,105 from $2,085. Inventories in the metal, used in transport and packaging, slipped 3,125 tonnes but are still at near record levels above 4.6 million tonnes.

A large portion of those stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets. [ID:nGEE5BA277]

Steel making ingredient nickel MNI3 traded at $18,250 from $18,000, while zinc MZN3 traded at $2,162 a tonne from $2,145.

Anglo-Swiss miner Xstrata Plc (XTA.L) reached a tentative deal with unionised workers at its Canadian nickel mining operations in Sudbury, Ontario, on Monday, averting a strike that would have all but shut down base metals production in the Sudbury region. [ID:nN01179992]

The agreement was reached in the shadow of a strike by more than 3,000 workers at Brazilian miner Vale’s (VALE5.SA) Sudbury nickel and copper operations, and smaller strikes at Vale’s Voisey’s Bay mine in Eastern Canada and at its Port Colborne, Ontario, processing operations.

The Vale Sudbury strike is now in its seventh month, with no signs that bargaining will restart any time soon. Some analysts have speculated a deal at Xstrata could spur Vale and the United Steelworkers union to restart talks. [ID:nN01179992]

Battery material lead MPB3 was at $2,088 from $2,045, while tin MSN3 was at $16,400 from $16,150.

Investors are keeping a close eye on movements in cancelled warrants — material already earmarked for delivery from LME warehouses.

On Monday, lead cancelled warrants were at 15,650 tonnes compared with 75 tonnes on Dec. 17.

“The auto sector should be very positive for lead, plus the issue of constrained mine supply,” said David Wilson, an analyst at Societe Generale. “We do expect consumption to be very positive this year — particularly driven by the Chinese auto sector, and a rebound in U.S. auto production.”

For graphics on LME metal inventories, click on:

here

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Metal Prices at 1031 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 308.75 0.90 +0.29 332.75 -7.21 LME Alum 2105.00 20.00 +0.96 2230.00 -5.61 LME Cu 6857.00 66.00 +0.97 7375.00 -7.02 LME Lead 2086.00 66.00 +3.27 2432.00 -14.23 LME Nickel 18175.00 175.00 +0.97 18525.00 -1.89 LME Tin 16350.00 200.00 +1.24 16950.00 -3.54 LME Zinc 2161.00 16.00 +0.75 2560.00 -15.59 SHFE Alu 16215.00 25.00 +0.15 17160.00 -5.51 SHFE Cu* 54280.00 -100.00 -0.18 59900.00 -9.38 SHFE Zin 17155.00 -85.00 -0.49 21195.00 -19.06 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

* Many metal stocks rising, locked into finance deals * Sudbury nickel mine talks watched

(Recasts, adds comments/details, changes dateline pvs SINGAPORE) By Michael Taylor

LONDON, Feb 1 (Reuters) – Copper fell to a two-and-a-half month low on Monday, as strong economic data heightened investor concerns that China, the world’s top metals consumer, may further tighten monetary policy. By 1051 GMT, copper for three month delivery on the London Metal Exchange fell to $6,680 a tonne from $6,745 at the curb on Friday, according to the LME. It earlier touched a session low at $6,600, a level not seen since Nov. 16 and was on track for a fifth day of declines, its longest losing streak since August 2009.

Tin prices fell more than 6 percent to its lowest since Dec 24 2009, chasing a broad sell-off in metals last week, and was set for its biggest one-day fall since early July 2009. “It’s just a change in sentiment really,” said Alex Heath, head of base metals and RBC Capital Markets. “I don’t think anybody was under any misapprehension that metals had got ahead of themselves in terms of actual demand and growth … Trees do not grow to heaven.

“You can’t have this amount of money flooding around the system without (China) having some kind of tweaking processes going on,” he added. “You are still going to have huge growth this year … it’s healthy.” China’s economy made a strong start to the year, according to a pair of business surveys released on Monday that also underlined the mounting challenge policymakers face to curb inflation.

An index based on an official survey of purchasing managers last month eased from a 20-month high in December but remained firmly in expansionary territory, while an index derived from a companion poll by HSBC scaled an all-time high. That comes on the heels of 5.7 percent expansion in the U.S. economy in the fourth quarter, the quickest pace in more than six years, the Commerce Department said.

But some analysts say Chinese concerns are overblown. “With the risks in China still tilted towards inflation and stronger-than-expected growth, despite the shift towards less accommodative policy, the problem in China remains too much demand not too little,” Goldman Sachs said in a note.

“Given that we have already assumed slowing metals demand growth for China in 2010, this suggests that the risks to Chinese metals demand and our forecasts are likely skewed to the upside rather than to the downside in coming months.” Copper fell 8.5 percent last month, in part due to rises in LME inventories, which indicate that demand outside China remains weak. Copper prices rose 140 percent last year.

The latest data showed stocks rose 2,475 tonnes to total 543,525 — their highest since late February 2009. Among other base metals, aluminium traded at two-month lows at $2,068 versus $2,080 at the curb on Friday. LME stocks in the metal, used in transport and packaging, fell 625 tonnes but remained near record levels above 4.6 million tonnes.

Steel making ingredient nickel traded at $18,375 from $18,500 at the curb on Friday, while battery material lead was at $2,004.50 from $2,020. Lead earlier touched a low of $1,960, a level not seen since August. Recent rises in cancelled warrants — material earmarked for delivery — are under close scrutiny from metals investors for signs of improving demand.

On Friday, cancelled warrants for lead were 15,850 tonnes, compared with 11,700 on Jan. 28 and 75 tonnes on Dec 17. LME lead stocks rose 200 tonnes to hit 157,500 tonnes, a level not seen since September 2003. Contract talks between Xstrata and workers at its main nickel operations in Sudbury, Ontario were also being watched by many traders.

Zinc traded at $2,090.25 a tonne from $2,110 at the curb on Friday, and tin was at $16,300 from $17,200. Zinc earlier hit a three and a half month low at $2,074. RBC’s Heath said because tin is not traded as much by funds compared to other LME metals, it tends to be more volatile.

“It doesn’t take too much to do that in tin,” he added.

Metal Prices at 1059 GMT Metal Last Change Percent Move End 2009 Ytd Percent move COMEX Cu 303.05 -1.55 -0.51 332.75 -8.93 LME Alum 2062.00 -18.00 -0.87 2230.00 -7.53 LME Cu 6668.00 -77.50 -1.15 7375.00 -9.59 LME Lead 1995.00 -25.00 -1.24 2432.00 -17.97 LME Nickel 18200.00 -300.00 -1.62 18525.00 -1.75 LME Tin 16250.00 -950.00 -5.52 16950.00 -4.13 LME Zinc 2083.00 -27.00 -1.28 2560.00 -18.63 SHFE Alu 16190.00 150.00 +0.94 17160.00 -5.65 SHFE Cu* 54380.00 -1050.00 -1.89 59900.00 -9.22 SHFE Zin 17240.00 -155.00 -0.89 21195.00 -18.66 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07.

An advisor to the People’s Bank of China also noted on Monday that inflation and asset bubbles were the biggest worries for the Chinese economy.

“China was growing unsustainably and they are clearly worried about inflation, so they will be tightening further,” said Citigroup analyst David Thurtell.

Analysts say moves to limit liquidity could curb inflows into commodities from China, a key driver of industrial metals demand last year.

PRICES

* Three-month copper on the London Metal Exchange was trading at $6 680 (R50 701) a tonne at 10:05 SA time compared with $6 750 at the close on Friday.

* Aluminium was at $2 076 a tonne from $2 080.

DATA/EVENTS

* White House Office of Management and Budget releases its fiscal 2011 budget proposal, 5pm SA time.

* US December personal income/spending, due 3:30pm SA time.

* US December construction spending, 3pm SA time.

* US Institute for Supply Management releases its January manufacturing index, 3pm SA time.

* Euro zone, German January manufacturing PMI, due 10:58 SA time.

MARKET NEWS

* The euro recovered early losses versus the dollar in European trade on Monday after earlier huddling near seven-month lows on fiscal concerns. Higher-yielding currencies remained pressured by the closing of leveraged trades.

* Oil prices steadied on Monday after earlier extending the worst loss in 13 months in January on concerns about global growth and sluggish oil demand. Fresh economic data out of China heightened concerns Beijing would tighten monetary policy.

* Asian stocks slid after suffering their worst monthly drop in a year, with South Korean automakers bucking the trend to post nearly 3 percent gains amid troubles at rival Toyota.

* Commodity markets ended January with their worst losses in more than a year as a surge in the dollar and weak demand outlook caused prices to stumble after a strong run through 2009.

* China’s economy made a strong start to the year, according to a pair of business surveys released on Monday that also underlined the mounting challenge policymakers face to curb inflation.

* Inflation and asset bubbles are the biggest worries for the Chinese economy, a central bank adviser said on Monday. Fan Gang, the only academic member of the People’s Bank of China’s monetary policy committee, told a forum that China needed to address the problem of excessive liquidity.

FUNDAMENTALS

* Mining group Xstrata Plc posted an 11 percent rise in annual output of coal, its most profitable product, while 2009 mined copper production fell by 5 percent.

* Oleg Deripaska will remain as UC RUSAL’s chief executive after losing majority control of the indebted aluminium giant in a $2.2 billion IPO, he said in an interview cleared for publication on Monday.

* Australian boutique equities fund Northward Capital expects robust economic growth this year, which will help boost its favoured plays including Rio Tinto, Sims Metal and tourism stocks.

* Russia’s metals giant Norilsk Nickel expects to book a $2 billion net profit for last year after it ended 2008 with a loss of $449 million, Russian media reported on Saturday.

* Minmetals may restart zinc concentrate output at its Century mine on Tuesday, the company said on Monday, after a severe storm last week forced it to shut its export terminal and evacuate staff.

TECHNICALS

* Copper support at $6 620, resistance at $7 053, 14-day RSI at 19.7.

* Aluminium support at $2 057, resistance at $2 130, 14-day RSI at 17.5.

Employees of the former Falconbridge, bought by Swiss-based Xstrata in 2006, are in talks with the company and have voted in favour of going on strike if a deal isn’t reached by the time their contract expires on Jan. 31.

Concerns that a strike at Xstrata Nickel’s mines, mill and smelter in the Sudbury area would further deplete the world’s nickel supply sent the price of the metal used to make stainless steel up by 28 cents to US$8.71 on the London Metal Exchange.

And the price could continue to rise if workers do go on strike, said Patricia Mohr, a commodity market specialist at Scotiabank.

“Nickel prices have been boosted quite considerably over the past six months by the strike at Vale Inco in Sudbury and also in Voisey’s Bay (in Labrador),” Mohr said.

More than 4,000 workers have been on strike at Vale’s nickel mining and processing operations in Sudbury, Labrador and Port Colborne, Ont., since last summer.

Negotiating teams for United Steelworkers Scotiabank is forecasting an average nickel price of US$7.95 per pound in 2010 and $8 per pound in 2011.

The union representing Xstrata workers in Sudbury said talks are “proceeding quite well,” but the two sides have not yet broached the monetary issues – usually the most contentious part of any labour negotiation.

Richard Paquin, president of Canadian Auto Workers Local 598, said the union is pushing the company to recall some of the more than 500 workers who have been on layoff since last February.

“We are probably reopening a mine and we want to make sure our guys do that work,” Paquin said.

He said the union is hopeful it can avert a strike.

Meanwhile, the first inkling of progress was reported in a six-month-long strike at Vale Inco’s Canadian operations on Tuesday.

The United Steelworkers, representing striking workers at Vale’s nickel-copper-cobalt mine in Voisey’s Bay, said the company has submitted a counter proposal to workers and appears set to resume talks on a new contract.

The union said it is hopeful that the company’s counter offer is a “conciliatory move” that could lead to meaningful negotiations.

Negotiator Boyd Bussey said Vale’s proposal falls short in some areas, but provides a starting point from which the union and the company can head back to the bargaining table. However, the union said much work remains to be done before a deal can be reached.

The Sudbury Star reported negotiating teams for United Steelworkers Local 9508 in Voisey’s Bay and Vale Inco Newfoundland and Labrador will meet for talks Friday to Sunday.

Bussey told the newspaper it will be the first time his union and the company will sit down “face to face” since proposals were exchanged in February 2009.

There was little incentive for Vale to end the strike while the price of nickel remained low due to weak demand. Now that the price is regaining lost ground, the company may be more eager to get its Canadian operations up and running again.

China’s top copper smelter Jiangxi Copper had not signed 2010 fees with BHP as of Friday morning, a senior executive told Reuters.

It has agreed on the fees at $46.5 and 4.65 cents with Freeport.

When asked whether Jiangxi Copper would sign the same fees with BHP, he said: “It is the trend.”

Both Japanese and Chinese smelters had said that the processing fees agreed with Freeport should be the benchmark for 2010.

Treatment and refining charges are fees paid by miners to smelters to convert imported concentrates into refined copper, and are deducted from sale prices, based on London Metal Exchange copper prices.
The fees were set at $46.5 per tonne and 4.65 cents per pound for processing copper concentrate into metal, the same level as those set with Freeport-McMoRan & Gold late last year.

“Japanese smelters have agreed on the level, which is the same as those set with Freeport,” said an industry source close to the talks, but who declined to be named due the sensitive nature of the information.

The levels, down from $75/7.5 cents set for the calendar 2009 contract, are the lowest since the 2008/09 mid-year contract when processing fees were set at $42.5/4.25 cents.

The mid-year contracts provide terms for copper concentrate supplies for the 12 months starting in July.

The fees were set at $46.5 per tonne and 4.65 cents per pound for processing copper concentrate into metal, the same level as those set with Freeport-McMoRan & Gold late last year.

“Japanese smelters have agreed on the level, which is the same as those set with Freeport,” said an industry source close to the talks, but who declined to be named due the sensitive nature of the information.

The levels, down from $75/7.5 cents set for the calendar 2009 contract, are the lowest since the 2008/09 mid-year contract when processing fees were set at $42.5/4.25 cents.

The mid-year contracts provide terms for copper concentrate supplies for the 12 months starting in July.

The talks with BHP were drawn out as the major miner had been seeking an even deeper cut of about 43 percent.

China’s top copper smelter Jiangxi Copper had not signed 2010 fees with BHP as of Friday morning, a senior executive told Reuters.

It has agreed on the fees at $46.5 and 4.65 cents with Freeport.

When asked whether Jiangxi Copper would sign the same fees with BHP, he said: “It is the trend.”

Both Japanese and Chinese smelters had said that the processing fees agreed with Freeport should be the benchmark for 2010.

Treatment and refining charges are fees paid by miners to smelters to convert imported concentrates into refined copper, and are deducted from sale prices, based on London Metal Exchange copper prices.

* Copper fees lowest since $42.5/4.25 cts for 08/09 mid yr (Adds detail)

TOKYO, Jan 15 (Reuters) – Some Japanese smelters have agreed to a 38 percent cut in copper treatment and refining charges (TC/RCs) for 2010 with BHP Billiton Plc/LTD, an industry source said on Friday. The fees were set at $46.5 per tonne and 4.65 cents per pound for processing copper concentrate into metal, the same level as those set with Freeport-McMoRan & Gold Inc late last year.

“Japanese smelters have agreed on the level, which is the same as those set with Freeport,” said an industry source close to the talks, but who declined to be named due the sensitive nature of the information. The levels, down from $75/7.5 cents set for the calendar 2009 contract, are the lowest since the 2008/09 mid-year contract when processing fees were set at $42.5/4.25 cents.

The mid-year contracts provide terms for copper concentrate supplies for the 12 months starting in July. The talks with BHP were drawn out as the major miner had been seeking an even deeper cut of about 43 percent.

China’s top copper smelter Jiangxi Copper had not signed 2010 fees with BHP as of Friday morning, a senior executive told Reuters. It has agreed on the fees at $46.5 and 4.65 cents with Freeport.

When asked whether Jiangxi Copper would sign the same fees with BHP, he said: “It is the trend.” Both Japanese and Chinese smelters had said that the processing fees agreed with Freeport should be the benchmark for 2010.

Treatment and refining charges are fees paid by miners to smelters to convert imported concentrates into refined copper, and are deducted from sale prices, based on London Metal Exchange copper prices. (Reporting by Miho Yoshikawa and Polly Yam; Editing by Joseph Radford) 2010-01-15 05:32:51

Tin was the only metal that bucked the trend, rising 2.5 per cent to hit its highest since September 2008, as the fundamentals for the metal have improved after recent upbeat data and tighter exports from the top producer Indonesia.

Benchmark copper for delivery in three months on the London Metal Exchange edged down to $7,555 (U.S.) a tonne by 1100 GMT, from Monday’s $7,567.5 a tonne. The metal, used extensively in construction, touched a 17-month high last week.

The U.S. dollar was flat a basket of currencies, holding on gains made after an official from a Chinese sovereign wealth fund said he did not think the U.S. currency would depreciate more.

“One reason why metals are falling is the dollar,” said metals analyst Daniel Brebner at Deutsche Bank. “Also Alcoa numbers that came after the market’s close yesterday were pretty weak and are dampening the market,” he said.

Alcoa Inc. , one of the world’s largest aluminum producers, posted a narrower quarterly loss on Monday, but the results fell short of expectations.

The company said although aluminum prices are climbing, demand from some customers, especially plane makers and the commercial construction sector, was not expected to improve soon.

Disconnect

In the face of persistently weak demand, rising global stockpiles are a major concern among investors. Chile’s mining minister warned on Monday that copper prices could face a downward correction as inventories climb.

Copper stocks rose by 1,975 tonnes to 517,175 tonnes, their highest since March 2009, while nickel stocks are at 159,726 tonnes, just below Monday’s record high of 159,792 tonnes.

“The feedback from the physical desk echoes what the Chileans are saying – demand is pretty lacklustre – indeed, producers are asking if we can take more material,” a senior trader based in Singapore said.

“There are periods of disconnects between the fundamentals and prices and this is clearly one of those periods. The prices are looking a little over extended at this point,” Mr. Brebner said, adding that there could be further falls for zinc.

LME zinc inventories fell by over 2,000 tonnes, but a 30 per cent rise in Shanghai zinc stocks offset any potential boost to the zinc price which was at $2,543 a tonne versus $2,573 the day before.

Aluminum inventories also fell by 3,675 tonnes, but prices were down at $2,321 a tonne from Monday’s $2,330 a tonne. Traders said worries about power shortages in China and upbeat assessments on demand from UC Rusal could help ward off a larger decline.

Around 70 per cent of the total 4.6 million tonnes of aluminum stocks in LME warehouses are said to be tied up in financing deals. Aluminum cancelled warrants – material earmarked for delivery – stood at 244,700 tonnes, equivalent to the 18 per cent of the remaining 30 per cent.

Nickel was at $17,997 a tonne from Monday’s $17,890 a tonne while lead was at $2,500 a tonne from $2,532 a tonne.

Tin rallied as high as $18,350 a tonne, before easing to $18,275 a tonne versus $17,890 a tonne.

“We said last month that tin prices were finally threatening to break higher, having traded in a sideways direction since June when they decoupled from the uptrends in the other metals,” Standard Bank said in a research note.

“Based on our upwardly-revised forecasts, we are looking for a further increase of 29 per cent this year as the global economy recovers, demand improves and as restocking gets under way.”

 But aluminium may see some upside as worries about energy
supplies in Henan province and upbeat assessments on demand
from UC Rusal counter disappointing fourth quarter results from
Alcoa Inc (AA.N: Quote).

 FUNDAMENTALS

 * Three-month copper on the London Metal Exchange MCU3
rose $102.50 to close Monday at $7,567.50 a tonne, and extended
gains in late trade to $7,587.50 in after-hours trading.

 * But when Shanghai closed on Monday copper stood around
$100 higher at $7,670 a tonne.

 * Chile's Mining Minister Santiago Gonzalez warned that
high stock levels for copper could result in a significant
correction in metals prices.

 * "We are worried that stock levels are climbing higher. We
are at 700,000 tonnes at the moment, while prices remain
(high). This means that at any minute we could see a violent
change and prices could fall," Gonzalez said.

 * LME inventories rose 4,575 tonnes on Monday to 515,200
tonnes, their highest since March 2009.

 * Aluminium may see support after news smelters in China's
Henan province, which account for a fifth of capacity in the
world's top producer of the metal, face power cuts as a coal
shortage threatens electricity generation.

 * Shanghai aluminium prices jumped 4.1 percent on Monday
boosted by the power supply problems and rising alumina costs.

 * China's power shortages so far have affected aluminium
smelters only in Henan and could improve from mid-February as
the winter wanes, said Wen Xianjun, vice chairman of the China
Nonferrous Metals Industry Association. [ID:nTOE60A05Q]

 * Also bullish United Company RUSAL, the world's largest
aluminium and alumina producer, expects global aluminium
consumption to rise in 2010 on demand from China.
[ID:nTOE60A04B]

 * However, Alcoa Inc (AA.N: Quote) posted a narrower
fourth-quarter loss on Monday as aluminium prices inched up,
but the result fell short of expectations and its shares
dropped more than 6 percent in after-hours trade.

 * Excluding charges of 28 cents a share for restructuring,
special items and discrete tax items, Alcoa earned 1 cent a
share on an operating basis, short of the 6 cents a share
expected, on average, by analysts. according to Thomson Reuters
I/B/E/S.

 MARKET NEWS

 * The U.S. dollar slipped for the second straight trading
day on Monday as last week's disappointing U.S. jobs data again
pushed investors to sell and comments from a Federal Reserve
official that U.S. interest rates should stay low for some time
further eroded support.

 * The dollar index .DXY, a gauge of its value against a
basket of currencies, was up 0.15 percent by 0019 GMT. [USD/]

 * Oil prices closed marginally lower on Monday, after
earlier rising to a fresh 15-month high, as the promise of
milder weather in the United States took some steam out of the
market. [O/R]

 * U.S. industrial shares lifted the Dow and the S&P 500 on
Monday to new 15-month highs after China bolstered expectations
the world economy would strengthen, but Nasdaq fell on
profit-taking in tech stocks. [.N]

 DATA/EVENTS

 * The following data is expected on Tuesday ECON:

 - Japan economy watchers poll (0500 GMT)

 - U.K. trade balance          (0930 GMT)

 - U.S. ICSC chain stores      (1245 GMT)

 - U.S. international trade    (1330 GMT)

 - U.S. Redbook                (1355 GMT)

 - U.S. IBD economic optimism  (1500 GMT)

The shares changed hands on Friday in off-market transactions at 103 zlotys each, Reuters data showed – the price set by Poland’s treasury after it completed bookbuilding for the deal, which the treasury said was oversubscribed by 50 percent.

The ministry added in a statement that 56 percent of the shares offered were obtained by local investors, including pension funds, which bought around a third of the stake.

The news helped KGHM’s share price close Friday’s session 0.4 percent up at 104.5 zlotys, after a 4.5 percent fall the previous day.

Reuters first reported on Thursday what was an unexpectedly early move to seek financial buyers for the stake – but one which analysts said reaped dividends for a government facing a ballooning budget deficit.

Fuelled by resurgent metal prices, the stock nearly quadrupled in price last year.

“The treasury picked a very good moment for the sale. Copper is at a 16-month high and the outlook for metals is varied,” said Robert Maj, analyst at KBC Securities in Warsaw. “I thought (the price set by the ministry) would be a little lower.”

Copper MCU3 was steady on the London Metal Exchange on Friday, trading at $7,533 a tonne, having hit a 16-month high of $7,796 the previous day.

Thursday’s report that the share sale was imminent contributed to a lowering of yields on Polish debt as the deal highlighted the commitment of the European Union’s largest ex-communist member to limiting its borrowing in 2010 with funds from asset disposals.

Some investors were also betting that conversion of foreign cash to pay for KGHM shares would help the zloty, although dealers said the impact would be limited.

“Some players on the FX market speculated on this news but it seems like it was only small front-running,” one Warsaw-based dealer said.

“The market still expects privatisation inflows to boost the FX market further on but … sentiment is still mixed and right now most investors have a ‘wait-and-see’ approach,” he said.

The zloty was trading 1.1 percent up at around 4.0680 against the euro.

The centre-right government, which expects its budget deficit to soar to 52.2 billion zlotys ($18.2 billion) in 2010, said last year it would sell as much as 10 percent of KGHM on the market in 2010 but retain control over the miner.

Aluminium rallied on supply concerns as harsh cold weather hit parts of China. Health concerns over lead production in China boosted lead and zinc to multimonth highs.

At the New York Mercantile Exchange’s COMEX division, copper for March delivery rallied to a session peak at $3.5220 per lb, the highest level for the red metal on the spot daily third position chart since August 2008. The benchmark contract settled up 8.10 cents at $3.4945.

Benchmark copper for three-months delivery on the London Metal Exchange closed up $175 at $7,660 a tonne, after hitting another 16-month top at $7,742.

“Today is mostly a macro play again,” Michael Widmer, an analyst at Bank of America said. “Some of the car sales data from the United States wasn’t too bad, and manufacturing data wasn’t too bad either.

“People are increasing exposure to metals at the moment.”

Data on Tuesday showed a surge in new factory orders, offering assurance the economic recovery remained on track.

Later that day, the outlook for metals demand got a boost from figures showing U.S. auto sales ended 2009 on an upswing. There also was strong manufacturing data from the United States and China this week.

“Good news, bad news, we’re still going up,” Craig Ross, vice president of Chicago-based ApexFutures.com said, referring to the red metal’s parabolic price gains throughout 2009 and at the start of the new year, even as fundamental support from labor action in Chile faded.

News that Chile’s Codelco, the world’s No. 1 copper producer, had resumed operations at its massive Chuquicamata complex after workers voted to end a strike failed to stem the bullish momentum.

“This is a bull market and it looks like the $4.00 level is the next stop … probably sometime in this first quarter,” he said.

But analysts said copper and aluminum may come under some pressure as their weightings are reduced in the Dow Jones UBS Commodity Index next week.

CHINA SNOW

Aluminium ended at $2,385 from $2,302. The metal used in transport and packaging earlier hit $2,394, its highest since October 2008, as analysts said winter weather conditions in China were supporting prices.

“The snow storms are likely to generate concerns over lack of availability of metal,” said Daniel Major, an analyst at RBS Global Banking & Markets.

Zinc closed at $2,718 from $2,575, earlier hitting $2,725, its highest since early March 2008. Battery material lead ended at $2,680 from $2,523, having touched $2,690, its highest since early May 2008.

Both metals, which are often produced together, were also boosted by market talk of renewed health concerns over lead production in China, which one media outlet said had led to the closure of a battery plant in the country.

“They have closed this one plant, and you can be absolutely certain they are going to look at others,” John Meyer, an analyst at investment bank Fairfax said. “Anything like this tends to lead to lead producers having problems.”

Fairfax estimates that China will produce about 1.724 million tonnes of lead this year, which is 19 percent of annual global production.

A fresh rise in LME copper stocks reminded investors that demand outside of China remained weak and Chinese purchases have cooled.

China is the world’s top consumer of the metal. Inventories climbed 2,050 tonnes to a 9-1/2 month high of 507,400 tonnes.

Tin was untraded in closing LME rings but last bid at $17,800 from $17,350, but earlier hit a 15-month high at $17,825, while nickel ended at $19,155 from $18,710.

* Shanghai copper breaks 10-day run of gains By Rujun Shen and Jacqueline Wong

SHANGHAI, Jan 7 (Reuters) – Shanghai copper was steady on Thursday, having fallen from an early 18-month high in volatile trading after China’s central bank possibly signalling tighter liquidity. The People’s Bank of China unexpectedly raised rates at a three-month bill auction, which traders said could signal the start of monetary tightening.

“Investors are nervous, and panic when there’s the slightest sign that could cause prices to fall,” said Li Rong, an analyst with Great Wall Futures. The benchmark third-month Shanghai copper futures contract closed the morning session down 0.1 percent at 61,600. The most-active contract for April delivery gained 0.4 percent to 61,870 yuan a tonne.

The swing from the high to the low was the largest since December 2007, in heavy volumes. It comes after 10 days of gains for Shanghai copper, equalling its longest winning streaks achieved in December 2005 and April 1994. Other industrial metals also fell. Shanghai’s benchmark steel rebar futures contract fell by its 5 percent daily limit to 4,036 yuan a tonne, before easing to 4,168 yuan a tonne.

Three-month copper on the London Metal Exchange hit $7,796 a tonne, the highest since Aug. 22, 2008, before easing to $7,650 a tonne. “Looking at the volume that went through, it appears as if someone dumped a long position near $7,800. If you’ve been riding this for a couple of weeks, you’ll be getting out of this with $1,000 in your pocket,” a trader in Singapore said.

“The current metals prices have nothing to do with fundamentals. It’s all about speculation and market sentiment,” said Guo Yong, an analyst at Jinrui Futures. “The more speculative money is in the market, the more volatility we will see in prices.”

On the supply side, workers at Chile’s Chuquicamata copper mine have returned to work. Owner Codelco said it would work to ensure it makes up any output losses. Copper inventories in LME rose again on Wednesday, up 2,050
tonne to 507,400 tonnes, highest since late March, 2008.
Base metals prices at 0337 GMT
Metal Last Change Pct Move End 2009 YTD pct
chg
LME Cu 7650.00 -10.00 -0.13 7375.00
0.00
SHFE Cu* 61600.00 -50.00 -0.08 59900.00
2.84
LME Alum 2345.00 -40.00 -1.68 2230.00
5.16
SHFE Alum* 17585.00 -375.00 -2.09 17160.00
2.48
COMEX Cu** 345.75 -2.00 -0.58 332.75
3.91
LME Zinc 2670.00 -48.00 -1.77 2560.00
4.30
SHFE Zinc 21595.00 25.00 +0.12 21195.00
1.89
LME Nickel 18950.00 -205.00 -1.07 18525.00
2.29
LME Lead 2620.00 -60.00 -2.24 2432.00
7.73
LME Tin 17375.00 -425.00 -2.39 16950.00
2.51
LME/Shanghai arb^ -494
Dollar/yuan 6.8271 \ 6.8281
** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month

Shanghai copper has now risen for 10 consecutive days, matching record runs of rises in December 2005 and April 1994.

The third-month Shanghai aluminum futures contract rose by its daily 5 percent limit from the previous session’s settlement to 18,045 yuan a ton, as investors worried the harsh winter weather could disrupt supplies.

“The weather has had some impact on our production,” said an executive at an aluminum smelter in central China’s Henan province, which is a major aluminum producer, and was recently hit by the cold spell. “We get reduced power supply for some hours of the day. But so far the impact is not significant.”

The US released mixed economic data on Tuesday, showing sharper than expected home sales in November, but a surge in new factory orders offered assurance the economic recovery remained on track.

Recent manufacturing data from the US and China pointing to a steady economic recovery painted a rosy picture for industrial metals demand.

“The bullish sentiment in the market is extremely strong these days. We’ll see prices continuing to rise before a correction, possibly around the level $7,700 to $7,800 a ton,” said Wang Zhouyi, an analyst at Shanghai CIFCO Futures. “Some investors who closed their positions before the New Year’s Day holiday are now back buying again.”

Shanghai’s benchmark third-month copper futures contract hit a 17-month high of 61,850 yuan a ton, before ending at 61,650 yuan, up 2 percent, its biggest daily gain in two weeks. The most-active contract for April delivery rose 1.7 percent to 61,630 yuan a ton.

Three-month copper on the London Metal Exchange hit $7,606, highest since Aug 28, 2008, before easing to $7,590 a ton by 0700 GMT.

But some analysts warned the frenzy could fizzle soon.

“The upward momentum in copper is nearing an end, partly as prices are under the pressure from commodity index rebalancing. The growing LME stocks also weigh,” said Peng Qiang, an analyst at COFCO Futures.

 FUNDAMENTALS

 * Three-month copper on the London Metal Exchange MCU3
rose $125 to close at $7,500 a tonne on Monday, and edged
higher to $7,506 in after-hour trading.

 * When Shanghai closed on Monday, LME copper stood at
$7,430 a tonne.

 * Investors were encouraged by upbeat U.S. manufacturing
sector data released on Monday, which showed the sector grew at
its fastest pace in nearly four years in December, its fifth
consecutive month of expansion. [ID:nN04237488]

 * But headwinds remain, as a separate report showed
construction spending in November fell to a more than six-year
low, dragged by a sharp decline in homebuilding.

 * In Chile, Codelco made an improved wage offer to workers
at its huge Chiquicamata copper mine in a bid to defuse a
day-old strike that had helped boost global copper prices.
[ID:nN04228293]

 * The five-month strike at Brazilian miner Vale's
(VALE5.SA: Quote) Voisey's Bay nickel mine in Canada is nowhere near
an end, as the mediated talks between Vale and union leaders
failed to bring the two sides back to the bargaining table.
[ID:nN04196713]

 * LME's nickel stocks rose 414 tonnes to a new all-time
high at 158,424 tonnes on Monday.

 MARKET NEWS

 * U.S. stocks climbed broadly on Monday after an upbeat
U.S. manufacturing sector data, lifting confidence in the
global economy as investors eye fourth-quarter earnings.
[ID:nN04247972]

 *  The U.S. dollar weakened as optimism about a global
economic recovery encouraged investors to seek riskier
investments such as stocks and commodities at the expense of
the greenback. [USD/]

 DATA/EVENTS

 * The following data is expected on Tuesday:

 - France consumer confidence                      (0745
GMT)

 - Germany unemployment rate, total                (0900
GMT)

 - Euro zone Consumer Prices Index (CPI) for Dec   (1000
GMT)

 - ICSC/Goldman Sachs weekly U.S. chain store sales(1245
GMT)

 - Canada producer prices, raw material prices     (1330
GMT)

 - Redbook weekly U.S. retail sales                (1355
GMT)

 - U.S. factory orders for November                (1500
GMT)

 - U.S. pending home sales, November               (1500
GMT)

 - U.S. auto sales

 RELATED NEWS
 > METALS-Copper rallies to 16-mth top on demand prospects
[ID:nLDE6030L4]
 > Chile Codelco makes offer to defuse Chuqui strike
[ID:nN04228293]
 > Vale, union say won't restart Voisey's Bay talks
[ID:nN04196713]
 > Venezuela may shut metal output to save power-paper
[ID:nN04240130]
 > Chalco raised alumina prices 5.7 pct on Dec 31
[ID:nTOE60308U]
 > FACTBOX-Chile's Codelco copper output since
2000[ID:nN04233919]

* Copper inventories rise to highest since April

(Recasts, adds comments/details, changes dateline from SHANGHAI)

By Michael Taylor

LONDON, Jan 4  – Copper rose almost 2 percent to a 16-month high on Monday, building on gains of about 140 percent last year, on strikes in top producer Chile and as more investors piled into the metal.

But analysts warned of volatile trading and price corrections in the coming weeks, as rising inventories prove that outside of China, fundamentals remain weak. By 1102 GMT, copper for three-month delivery on the London Metal Exchange traded at $7,504 a tonne from $7,375 at the close on Thursday. The metal, used in power and construction, earlier touched $7,509.75, its highest since Sept. 1, 2008.

“If you are trying to justify the moves over the last month, you will fail to find any real driver except exceptional demand in China,” said Commerzbank analyst Eugen Weinberg. “Everywhere else we are seeing increased in inventories.

“It is due to only one reason — demand from investors.” The latest LME data showed copper stocks rose 75 tonnes to total 502,400 — their highest level since April.

Aluminium inventories fell 4,475 tonnes but remain near record peaks above 4.6 million tonnes, while nickel stocks rose 414 tonnes to a new all-time high at 158,424 tonnes.

Commerzbank’s Weinberg added that the recent rise in the copper price due to supply concerns in Chile was overdone.

Union workers at Chile’s giant Chuquicamata copper complex, the world’s second biggest, began a strike over pay early on Monday, a union leader said.

Unprecedented Chinese buying, investor cash, a weaker dollar and improving economic data, helped the red metal to rally in every quarter last year.

The outlook for China’s economy, and thus for metals demand, remains robust after the manufacturing sector steamed ahead in December, with strong rises in new orders and output driving the official purchasing managers’ index (PMI) to a 20-month high.

The dollar dipped, coming off an earlier four-month high against the yen on Monday but remained broadly supported on growing optimism about the prospects for a U.S. recovery.

A weak U.S. currency makes metals priced in dollars less expensive for holders of other currencies.

“It’s more that people are selling the dollar to move into riskier assets, including metals,” said David Wilson, director of metals research at Societe Generale. “Index re-weightings are also happening over the next week or so.”

“Every indication is that indices will reduce percentage exposures to metals because they out-performed so dramatically last year,” he added. “But we’re still expecting indexes to take up more metal because of bigger flows of money coming in.”

On the macro calendar, U.S. December employment data due later this week will be watched for evidence of economic recovery and renewed demand.

Other metals tracked copper, with aluminium at $2,273.75 versus $2,230. The metal, used in transport and packaging, earlier touched a near-three week high at $2,278.

Steel-making ingredient nickel traded at $19,060 from $18,525, while battery material lead was at $2,494 from $2,432.

Zinc traded at $2,622.50 a tonne from $2,560, down from a high at $2,632.75, it’s highest level since March 2008.

Tin edged up to $17,355 from $16,950. Used in electrical solder, tin hit a 15-month high at $17,500.

The figure represented a rise of 14% from 702 000 tonnes last year.

Kang said Jiangxi Copper’s smelting and refining facilities in Jiangxi province would resume full operations on Thursday after the repairs.

He added the current power supply tightness in Jiangxi province was not expected to cut the company’s production.

“The possibility of cutting power supply to us is little since we are a major company here.”

Jiangxi Copper has not yet decided whether it would run at full capacity to produce 900 000 t of refined copper next year, depending on supply of raw materials concentrate and scrap, Kang said.

The firm has a designed smelting capacity of 600 000 t a year using copper concentrate as feed. It also operates another 200 000 t of designed smelting capacity using scrap as feed in Guixi city.

The two smelting systems could run above designed capacity and reach a total of 900 000 t a year. It also has 900 000 t of annual refining capacity.

China, the world’s top copper consumer and the driver of a nearly 140 percent rise on London Metal Exchange copper prices this year, heavily relies on imports of concentrate and scrap for refined copper production.

Strike votes at two large Chilean copper operations, Codelco’s Chuquicamata mine and Xstrata PLC’s Altonorte smelter, are seen lifting sentiment as the year grinds to a close and investors assess what next from markets that have rallied around 140 percent this year,

“The strength in copper is likely to continue at least through January, as sentiment is very optimistic and so far there doesn’t seem to be any major news that would alter the trend,” Guo Yong, an analyst at Jinrui Futures, said.

“Investors are paying very little attention to fundamentals these days — it’s mainly the investment demand that’s pushing copper prices up. Spot copper isn’t selling well, consumers still think the current prices are too high.”

London Metal Exchange copper jumped 2.8 percent to $7,265 by 0707 GMT from Thursday’s evening evaluation of $7,070, after a four-day hiatus. Copper earlier touched $7,273, its highest since early September 2008.

Benchmark third-month Shanghai copper rose 100 yuan to 58,360 yuan a tonne at the close, having scored a 16-month peak in the previous session. The more-active fourth month, April, rose 60 yuan to 58,590 yuan.

Worries about the 42 percent rise in LME stocks and the 485 percent surge in inventories in Shanghai this year could be soothed a little after workers at the two large Chilean operations voted to strike.

The vote at Chuquicamata threatens output of around 4 percent of the world’s copper concentrate, while the vote at Xstrata PLC’s Altonorte smelter could cut 1.5 percent of global output of copper anode.

“Those Chileans have dealt a double blow to copper bears. These strikes will lift copper sentiment, but industrial action in Chile rarely lasts, so unless they are really dug in it won’t change the fundamentals much,” a dealer in Singapore said,

Shanghai zinc dipped 30 yuan to 20,340, having scored a 20-month high in the previous session, while aluminium rose 1.1 percent to 16,980 yuan, and earlier hit a new 15-½ month peak of 17,030 yuan.

LME aluminium rose 1.1 percent to $2,280 from an evening evaluation of $2,255 on Christmas Eve, while zinc jumped 3.3 percent from Thursday’s assessed value, to $2,578, retreating $10 from an earlier peak when prices hit their highest since mid-March 2008.

Aluminium may see support after news that output from the world’s biggest bauxite miner, Guinea, fell by more than a fifth in the first nine months of 2009 due to “institutional instability”.

 FUNDAMENTALS

 * Benchmark third-month Shanghai copper SCFc3 rose 950
yuan or 1.7 percent to 58,580 yuan a tonne by 0238 GMT and
earlier hit 58,890 yuan, its highest since early September
2008. The more-active fourth month, April, hit 59,180 yuan, up
2.3 percent. The market is on course for a rise of almost 150
percent in 2009.

 * Deliverable copper inventories in warehouses monitored by
the Shanghai Futures Exchange fell to 96,362 tonnes from
104,377 tonnes a week ago, while stocks on warrant declined
11,892 tonnes to 30,609 tonnes.

 * Shanghai copper stocks have risen almost sixfold this
year, their first increase since 2005.

 * London Metal Exchange inventories, at 484,800 tonnes,
have risen 42 percent so far this year, their fifth consecutive
annual increase, and will see their highest year-end levels
since finishing 2002 at more than 850,000 tonnes.

 * For graphics showing global metals stocks, double-click:
 here
 here
 here

 * The LME remained shut on Monday for Christmas holidays,
but will reopen on Tuesday. Copper rallied to $7,167 on
Christmas Eve, $3 shy of a 16-month peak.

 * The latest boost to sentiment came from threats to supply
from South America, where 274 union workers plan to down tools
early on Monday at the 232,000 tonne-per-year Altonorte copper
smelter in Chile. [ID:nN27159011]

 * Elsewhere in the copper-rich nation, nearly 3,000 union
workers at the Chuquicamata mine complex, which produces around
4 percent of the world's copper, will vote on whether to accept
a final wage offer from state-owned Codelco [CODEL.UL].
[ID:nN27132980]

 * The same terms in a preliminary offer were voted down
last week, but union officials thought the offer would be
approved, despite some dissention amongst the rank and file.

 * Shanghai zinc SZNc3 jumped 3 percent to hit its highest
since March 2008 and aluminium SAFc3 rose 1.4 percent to a
15-½   month peak.
 PRICES
 Base metals prices at 0236 GMT
 Metal         Last       Change   Pct Move  End 2008  Pct chg
09
 SHFE Cu*     58580.00    950.00     +1.65   23840.00
145.72
 SHFE Alum*   16735.00    235.00     +1.42   11540.00
45.02
 COMEX Cu**     327.10      0.00     +0.00     139.50
134.48
 SHFE Zinc    20475.00    595.00     +2.99   10120.00
102.32
 Dollar/yuan          6.8268 \ 6.8286
  * 3rd contact month for SHFE aluminium, copper and zinc

— Copper prices closed down on Tuesday, as concerns about swollen inventory levels weighed on sentiment and investor position-squaring picked up pace as the dollar extended its late-year rally.

“The fundamentals of copper aren’t that fantastic at the moment and I think we are seeing some recognition of that. LME stocks continue to move higher,” said Dan Smith, a metals analyst at Standard Chartered.

Benchmark copper for March delivery on the New York Mercantile Exchange’s COMEX division shed 2.05 cents to end at $3.1380 a lb.

On the London Metal Exchange (LME), copper for three-months delivery ended at $6,881 (U.S.) a tonne, down from a close of $6,940 on Monday.

Highlighting still weak physical demand, copper stocks in LME warehouses rose 1,450 tonnes to total 480,900 tonnes, the highest since mid-April.

Additional pressure stemmed from the U.S. dollar, which rose to its highest level in nearly two months against the yen on Tuesday as U.S. bond yields rose after strong housing data underpinned expectations for a U.S. economic recovery.

Against the euro, the American currency hit a 3-1/2 month peak amid ongoing worries about Greece’s fiscal health.

“The dollar is up a little bit today, and that is causing some folks to lighten up ahead of the holidays,” said Sterling Smith, an analyst for Country Hedging Inc in St. Paul, Minnesota.

Some New York energy and commodity markets will close early on Thursday, Dec. 24, and all will be closed on Friday for Christmas Day.

Copper’s losses were limited however, as arbitrage opportunities between the Shanghai Futures Exchange and the LME suggested increased future shipments of the metal into China, the world’s top metals consumer.

“The one thing I am paying most attention to is the China price holding up against the LME,” said Catherine Virga, senior base metals analyst with CPM Group in New York.

“With arbitrage opportunities reappearing, I am expecting stronger imports early next year,” she said.

Data on Tuesday showed the metal giant’s refined copper imports climb 14.8 per cent in November, rebounding from a 40 per cent fall in October.

“There are Chinese manufacturers claiming they can’t meet demand for autos and appliances. It highlights the strength of Chinese consumer demand,” noted John Meyer, analyst at Fairfax.

In other metals traded, nickel ended at $17,750 from $17,900, with LME stocks rising 114 tonnes to 150,612, a whisker away from all-time record levels of 151,254 tonnes seen in 1994.

The stainless steel making ingredient hit six-week highs on Monday despite record stocks, following an announcement that Russia will reinstate a 5-per cent export tariff on the metal.

Elsewhere, aluminum ended at $2,242 from $2,268. Stocks of the metal in LME warehouses fell 3,525 tonnes but remained near record levels of around 4.6 million tonnes.

Much of the stock of the metal used in transport and packaging is tied up in financing deals however, so it is not available and its impact on prices is limited.

Zinc , used to galvanize steel, ended at $2,434 from $2,438, having hit its best level since March last year on Tuesday, while battery material lead was at $2,306 from $2,310. Tin traded at $15,825 from $15,900.

Shipments increased to 194,388 metric tons last month, the customs office said today. That’s 15 percent more than October’s level, which was the lowest since December 2008, according to data compiled by Bloomberg.

Copper reached the highest price since September 2008 this month as manufacturing in China expanded at the fastest pace in five years. The country is targeting 8 percent growth in 2010 and an 11 percent gain in industrial production, industry minister Li Yizhong said yesterday.

“Domestic prices have strengthened noticeably against London, narrowing losses on imports,” Fu Bin, an analyst at Jinrui Futures Co. said from Shenzhen. “We may see profits again if the trend continues.”

Copper for delivery in three months on the London Metal Exchange fell 0.6 percent to $6,895 a ton by 3:21 p.m. in Shanghai. It reached $7,170 on Dec. 2, the highest in almost 15 months. Shanghai copper was down as much as 0.8 percent to 55,260 yuan ($8,092) a ton.

Break Even

Buying the metal from overseas to sell in the Chinese market almost breaks even after accounting for China’s 17 percent value added tax, according to Bloomberg calculations.

“The chance is big that some 200,000 ton copper stocks may be released from bonded zones and drag down Chinese prices,” Fu said. “Traders will expedite imports before that happens.” A bonded zone holds imported goods before duty has been paid.

China may increase imports to as much as 200,000 metric tons a month in the first quarter of 2010 after higher domestic prices made purchases from overseas cheaper, according to Macquarie Group Ltd.

Copper in Shanghai last week was at the biggest premium to the London Metal Exchange price since mid-July, Macquarie analysts led by London-based Jim Lennon wrote in a report dated yesterday. More construction and car production in the Asian nation will boost demand for metals, they said.

“While the arbitrage may only be temporary, the incentive to import is consistent with our view that Chinese copper demand is booming,” they said. “The strength in Chinese prices comes despite consumers reportedly doing everything they can to avoid buying and despite estimations of stock build by some commentators well in excess of one million tons this year.”

China’s 11-month refined copper purchases more than doubled to 2.9 million tons, customs said today. November exports declined 42 percent from a 14-month high the previous month to 10,824 tons, its data showed

The start of negotiations comes as a strike at rival Sudbury nickel producer Vale (VALE5.SA: Quote, Profile, Research) enters its sixth month with no end in sight.

“I can confirm that today marked the beginning of the negotiation process for the renewal of the company’s collective agreement,” Xstrata spokesman Peter Fuchs said in an email.

Fuchs said proposals are being exchanged with the Canadian Auto Workers union, which represents mine, mill and smelter workers at the Sudbury operations.

Swiss-based Xstrata currently operates two nickel mines in Sudbury, along with milling and smelting facilities. It acquired the assets when it took over Canada’s Falconbridge in 2006, in a deal coincident with the acquisition of Canadian nickel miner Inco by Brazil’s Vale.

Xstrata cut 686 Sudbury jobs in February and reduced its operations there following last year’s collapse in nickel and copper prices.

Prices have rebounded somewhat this year, but London Metal Exchange inventories have remained high, suggesting little pressure on nickel producers to restart operations.

About 3,100 workers at Vale’s Sudbury operations went on strike in mid-July following a breakdown in talks. Also on strike are Vale’s smaller Canadian operations in Port Colborne, Ontario, and its Voisey’s Bay nickel mine in the eastern province of Newfoundland and Labrador.

Zinc has been selling at an average $1.05/lb this month on the London Metal Exchange (LME), the first time it has passed $1 since April 2008 despite continued lack of demand for the metal used to coat steel to make galvanized sheet. Analysts suggest the falling dollar has helped buoy prices for zinc and other nonferrous metals.

The consensus of analysts which sees the 2010 annual average up 21% from 75¢/lb this year to 87¢, because of expected speculative investment on commodity exchanges. Note that “investors waded back into most other commodities as the dollar weakened, making them less expensive for foreign buyers,” according to an Associated Press report. However, investors “now question how long the dollar will remain weak.”

The Federal Reserve has kept interest rates near zero this year, weakening the dollar and making assets like stocks and commodities more attractive to investors. When the U.S. economy begins to show signs of strength, investors are worried that the Federal Reserve might raise interest rates sooner than expected and potentially upend the rally in commodities.

The Federal Open Market Committee’s interest rate decision is due this afternoon. A report on TheStreet.com says “the central bank is widely expected to leave rates unchanged, but investors are anxious for any more insight on the timing of a future rate hike.” FOMC officers have been reiterating their intention to keep rates low for an extended period, as long as unemployment remains high and the inflation outlook is stable. However, The Street.com analysis says “signs are beginning to mount that those two factors are shifting.”

Here’s why: Wholesale prices, measured by the producer price index, jumped 1.8% in November, the Labor Department reported Tuesday. That easily outpaces expectations and poses a direct challenge to Fed Chairman Ben Bernanke’s recent comment that high unemployment would keep inflation concerns subdued. Meanwhile, the consumer price index for November, released by the Labor Department Wednesday, met expectations for a rise of 0.4%.

(Late-breaking update: The U.S. Federal Reserve said interest rates will remain near zero “for an extended period,” but acknowledged recent signs that the economy is gaining momentum after its worst slump in decades. The Fed left its target for the federal-funds rate unchanged at range of 0% to 0.25%. Its assessment of the economic landscape was more upbeat than a month ago, suggesting that central bankers are edging closer to withdrawing some of their support for the economy.)

Back to zinc, the global market was in surplus by 403,000 metric tons in the first 10 months of 2009, according to latest figures provided by the International Lead and Zinc Study Group (ILZSG). The World Bureau of Metals Statistics (WBMS), on the other hand, sees a zinc surplus of 129,000 tons for the January-October period.

The ILZSG report says global refined zinc use was 8.831 million metric tons in the January-to-October period, down from 9.695 million metric tons a year earlier. World refined zinc output was 9.234 million metric tons, down from 9.761 million metric tons in the same period last year. Additional data from ILZSG shows October producer stocks fell to 328,000 tons from 329,000 tons in September, although they are still up from the 366,000 tons seen in September of 2008.

For a commodity player, any rise in the commodity price has a multiplier effect on earnings, depending on its operating margin. The recent rally in zinc prices seems to have a similar effect on Hindustan Zinc and a further cascading impact on its stock prices. Zinc prices on the London Metal Exchange (LME) have increased by more than one-fourth within a span of three months.

This is definitely good news for the shareholders of Hindustan Zinc which is otherwise fundamentally quite sound. Thankfully, the rupee has not appreciated much against US dollar during the same time period, which will otherwise have brought down the realisation in rupee terms. The rupee appreciated only by 2.5% during this period. What this implies is that Hindustan Zinc must have realised higher prices on its products in the past two months.

The company reported an operating margin of close to 68% in the September 2909 quarter, an improvement of around 1,400 basis points sequentially. Zinc prices rose by a little more than 25% in that quarter. With the current rise of around 21% in commodity prices, the operating margin could rise somewhere between 73% and 76% in the December 2009 quarter, depending on other by-product realisations.

Considering the continuous signs of economic recovery in different parts of the developed world, there may not be any significant fall in zinc prices from here onwards. According to a report of international lead and zinc study group (ILZSG), the global demand for zinc in calendar year (CY) 2010 is expected to grow by 11.9% compared to the 5.6% decline expected in CY09.

The supply is also expected to be slightly below demand and this may exert some downward pressure on zinc prices. However, there are other factors such as the movement of dollar, the economic recovery in the developed world and demand from China which will be crucial in determining prices. Commodity experts are of the opinion that there may be little correction in short-term before zinc prices bounces back again.

Factory output in the world’s biggest metal consumer climbed 19.2 percent from a year earlier, the statistics bureau said. That exceeded the 18.2 percent estimate in a Bloomberg News survey. Imports of copper and related products jumped 10 percent since October, the customs office said.

“The bottom line is we think underlying consumption is booming,” Max Layton, an analyst at Macquarie Bank Ltd. in London, said by phone.

Copper for March delivery rose 4 cents, or 1.3 percent, to $3.1425 a pound on the New York Mercantile Exchange’s Comex unit at 8:25 a.m. The contract retreated 2.9 percent this week. JPMorgan Chase & Co. raised its 2010 copper forecast to $3.22 a pound, from $2.70 previously.

Copper for three-month delivery gained 1.4 percent to $6,880 a metric ton on the London Metal Exchange.

Expectations of revived demand as economies emerge from recession, along with a weaker dollar and record first-half imports into China, helped copper to more than double this year.

Copper stockpiles in Shanghai dropped to the lowest in two months, fueling the first gain in Chinese prices in three days. Inventories monitored by the Shanghai Futures Exchange fell 8.6 percent to 95,676 tons this week, the exchange said. That’s the lowest level since the week of Oct. 5.

Lower Stockpiles

The drop in stockpiles was “bullish on a two-to-three- months view,” Layton said.

Stockpiles tracked by the LME gained for a 29th day, up 1 percent to 466,075 tons. Canceled warrants, or metal booked for removal from warehouses, slumped 33 percent to this year’s low of 700 tons yesterday. Earmarked metal now accounts for less than 0.3 percent of total LME inventories, down from the 2009 high of 21 percent in May.

Among other LME metals for three-month delivery, aluminum rose 2.4 percent to $2,255 a ton. The contract reached $2,259 earlier, the highest price since Oct. 15, 2008.

Canceled warrants in LME-monitored warehouses have jumped 47 percent this month and now account for 3.9 percent of total stockpiles, compared with 0.5 percent at the start of the year.

“We remain skeptical about aluminum prices in the medium term,” Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said in a report. Prices rose partly because 50 percent to 75 percent of LME-monitored stockpiles were judged to be tied up in financing deals, he said.

“The material should re-enter the market over the next few months,” Weinberg said. An increase in Chinese aluminum production in November and rising stockpiles in Shanghai, now at the highest level since 2003, may also hurt prices, he said.

Nickel rose 2.3 percent to $16,645 a ton, zinc gained 2.3 percent to $2,322 a ton and lead advanced 2.2 percent to $2,325 a ton. Tin fell 0.7 percent at $15,200 a ton.

Xstrata said it would close the Kidd metallurgical operations in Canada next May, though the mine and concentrator would continue to operate.

That suggests the mine’s concentrates, used to feed Kidd’s 125,000 tonnes a year of refined copper production, could be available to other smelters.

Treatment and refining charges (TC/RCs) are fees paid by overseas sellers to Chinese smelters for converting imported concentrates into refined copper, and are deducted from the sale prices, based on London Metal Exchange copper.

Higher TC/RCs arise when supply of concentrate rises or demand falls, which usually cuts the prices of concentrate and could in turn boost refined copper production.

‘The closure will certainly benefit smelters,’ an industry source said.

In October, Chinese smelter officials said top copper producers were seeking TC/RCs of $50 per tonne and 5 cents per pound, respectively, from foreign miners for concentrate shipments in 2010.

Chinese smelters now are looking to receive TC/RCs of around $60 and 6 cents, which will be still 20 percent lower than this year’s $75 and 7.5 cents.

Chinese smelters were worried about a fall in copper prices after prices more than doubled this year, a smelter official said.

‘Cash production costs at global smelters, including Chinese smelters, are over TC/RCs of $55 and 5 cents. We are trying not to make losses, or at least we don’t make big losses,’ he said.

Global miner BHP Billiton has offered TC/RCs of $43 and 4.3 cents to Chinese smelters for 2010. The two sides would hold the second round of the annual talk in the coming week, industry sources said.

Japanese smelters, the world’s second-largest copper concentrate buyer after Chinese, have also indicated their term TC/RC requirements around $60 and 6 cents to overseas miners. Last month, Japanese smelters expected the TC/RCs at $50 and 5 cents in 2010.

BHP has offered term TC/RCs of around $40 and 4 cents to Japanese smelters, the industry sources said.

A senior Japanese official directly involved with the term talks said there was still a price gap of about $20 between Japanese buyers and BHP.

‘There’s still a wide gap in our ideas…and I don’t anticipate an agreement when we meet next week,’ he said.

(Additional reporting by Miho Yoshikawa in TOKYO)

 * Euro recovers from 1-month low vs dollar

 * Japan Q3 GDP growth revised down sharply
 (Recasts lead, updates prices to Shanghai close)

 By Manolo Serapio Jr.

 MANILA, Dec 9 (Reuters) - Copper fell to its lowest in more
than a week on Wednesday as investors trimmed positions in
riskier assets following weak data and growing sovereign debt
troubles.

 Fitch Ratings cut Greece's debt to BBB+ with a negative
outlook while Moody's downgraded six Dubai-linked issuers on
Tuesday after concluding that no "meaningful" government
support would be provided to top firms such as DP World
(DPW.DI: Quote). [ID:nGEE5B70TN] [ID:nGEE5B70V3]

 The Greece news sent the euro skidding to a one-month low
against the dollar, before it regained some ground in Asian
trading, while sterling extended losses ahead of Britain's
pre-budget report. [USD/]

 Adding to the gloom, revised data showed Japan's economy
grew just 0.3 percent in the third quarter versus an initial
growth estimate of 1.2 percent on slow capital spending.
[ID:nTOE5B800U]

 "The base metals complex is lacking direction for the next
convincing break, and in the absence of any significant changes
to the fundamentals, the markets are drifting on the back of
macro news, concerns about certain sovereign debt position and
the dollar as well," said Yingxi Yu, analyst at Barclays
Capital in Singapore.

 Copper touched over 14-month highs last week and market
players are eyeing a slew of data, including industrial output,
consumer prices and urban investment, from top metals consumer
China due on Friday, for cues on whether a further pullback is
warranted.

 Three-month copper on the London Metal Exchange MCU3
dropped $80 to $6,900 a tonne by 0703 GMT, stretching losses
for a fifth day running.

 Shanghai's benchmark third month copper SCFc3 fell 1,100
yuan to close at 54,500 yuan ($7,981) a tonne. The most active
fourth month contract SCFH0 slipped 1,220 yuan to 54,620
yuan.

 Despite Wednesday's decline, copper prices are still up
more than 125 percent this year, driven by Chinese buying, a
struggling dollar and investment money betting on a pickup in
demand next year.

 "I think the market needs a significant correction towards
the end of the year. Most investors in China also need to cut
long positions," said a Shanghai-based trader, adding LME
copper will find strong buying interest when it drops to around
$6,500.

 "Most investors are still quite positive on the prospects
for next year so the selling pressure into the year-end would
be quite limited," said Barclays' Yu.

 Other base metals also edged lower with three-month LME
aluminium MAL3 down $53 to $2,110 a tonne.

 The metal touched a 13-month peak of $2,190 a tonne on
Tuesday, buoyed by rising physical premiums in parts of Europe,
even as LME inventories stand near record levels at 4.59
million tonnes.

 "We believe the global aluminium market is not in a
deficit, but the current physical market is tight in some
regions because the bulk of LME warehouse inventories are tied
up in financing deals and therefore are not readily available,"
Barclays' Yu said.

 Another metal bound to see increased availability is nickel
after Canada's First Quantum Minerals (FM.TO: Quote) said it will buy
BHP Billiton's (BHP.AX: Quote) closed Ravensthorpe nickel mine for
$340 million, paving the way to revive production that could
add nearly 3 percent to world supply. [ID:nSYD519009]
 Base metals prices at 0703 GMT
 Metal         Last       Change   Pct Move  End 2008  Pct chg
09
 LME Cu        6900.00    -80.00     -1.15    3060.00
125.49
 SHFE Cu*     54500.00  -1100.00     -1.98   23840.00
128.61
 LME Alum      2110.00    -53.00     -2.45    1535.00
37.46
 SHFE Alum*   15865.00   -170.00     -1.06   11540.00
37.48
 COMEX Cu**     312.05     -1.90     -0.61     139.50
123.69
 LME Zinc      2290.00    -37.00     -1.59    1208.00
89.57
 SHFE Zinc    18000.00   -445.00     -2.41   10120.00
77.87
 LME Nickel   15990.00   -160.00     -0.99   11700.00
36.67
 LME Lead      2295.00      6.00     +0.26     999.00
129.73
 LME Tin      15020.00   -130.00     -0.86   10700.00
40.37
 LME/Shanghai arb^           626
 Dollar/yuan          6.8284 \ 6.8294
 ** 1st contract month for COMEX copper
  * 3rd contact month for SHFE aluminium, copper and zinc
  ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE
third month

U.S. employers cut far fewer jobs than expected last month, and the umemployment rate dropped to 10 percent from 10.2 percent in October, bolstering hopes that a sustainable recovery was building.

The dollar edged lower against a basket of major currencies, after jumping 1.7 percent on Friday, its biggest one-day performance since mid-December last year.

“There had been expectations on a rebound in the dollar. Now the time bomb has exploded, but prices haven’t retreated,” said Zhu Yanzhong, an analyst at Jinrui Futures.

“Prices of metals, with the exception of gold, have been pretty much unscathed. It means that speculators still want to push prices higher.”

But Zhu warned the dollar rebound might not be a one-day show.

“Base metals prices will be under pressure to retreat once investors see the rebound continue,” he said.

Shanghai’s benchmark third-month copper futures contract edged down 0.3 percent to 55,550 yuan a tonne by 0226 GMT. It hit 55,850 yuan last week, its highest since Sept 12, 2008.

The most-active contract for March delivery fell 0.3 percent to 55,780 yuan a tonne.

Three-month copper on the London Metal Exchange was flat at $7,040 a tonne, after hitting its highest level since late September last year.

“The general trend is still pointing upward, even though December is traditionally a month with lower buying interest and price consolidation,” said Li Rong, an analyst at Great Wall Futures.

Chinese leaders began a key annual conference on Saturday to map out economic policies for next year, and are expected to stick to a loose monetary stance and active fiscal policy.

“Worries that the Chinese government would tighten up monetary policy in the short term have been eliminated. Everyone, from government or private sector, is bullish on next year,” said a Shanghai-based trader.

“Once prices edge lower, buying interest grows. In general, the market is optimistic, although we will see technical corrections.”

Among other metals, LME aluminium fell $11 to $2,135 a tonne, after posting a 6.5 percent gain last week. Shanghai aluminium was flat at 15,750 yuan.

Premiums for physical aluminium are rising in Europe on tightened supply, as much of the record high inventory in LME is tied up in financing deals that are not likely to suddenly be unwound

U.S. employers cut far fewer jobs than expected last month, and the umemployment rate dropped to 10 percent from 10.2 percent in October, bolstering hopes that a sustainable recovery was building.

The dollar edged lower against a basket of major currencies, after jumping 1.7 percent on Friday, its biggest one-day performance since mid-December last year.

“There had been expectations on a rebound in the dollar. Now the time bomb has exploded, but prices haven’t retreated,” said Zhu Yanzhong, an analyst at Jinrui Futures.

“Prices of metals, with the exception of gold, have been pretty much unscathed. It means that speculators still want to push prices higher.”

But Zhu warned the dollar rebound might not be a one-day show.

“Base metals prices will be under pressure to retreat once investors see the rebound continue,” he said.

Shanghai’s benchmark third-month copper futures contract edged down 0.3 percent to 55,550 yuan a tonne by 0226 GMT. It hit 55,850 yuan last week, its highest since Sept 12, 2008.

The most-active contract for March delivery fell 0.3 percent to 55,780 yuan a tonne.

Three-month copper on the London Metal Exchange was flat at $7,040 a tonne, after hitting its highest level since late September last year.

“The general trend is still pointing upward, even though December is traditionally a month with lower buying interest and price consolidation,” said Li Rong, an analyst at Great Wall Futures.

Chinese leaders began a key annual conference on Saturday to map out economic policies for next year, and are expected to stick to a loose monetary stance and active fiscal policy.

“Worries that the Chinese government would tighten up monetary policy in the short term have been eliminated. Everyone, from government or private sector, is bullish on next year,” said a Shanghai-based trader.

“Once prices edge lower, buying interest grows. In general, the market is optimistic, although we will see technical corrections.”

Among other metals, LME aluminium fell $11 to $2,135 a tonne, after posting a 6.5 percent gain last week. Shanghai aluminium was flat at 15,750 yuan.

Premiums for physical aluminium are rising in Europe on tightened supply, as much of the record high inventory in LME is tied up in financing deals that are not likely to suddenly be unwound.

“I’m not sure the high copper price is a good thing,” Caleb Fundanga said at a Zambia investment forum in London.

Three-month copper on the London Metal Exchange was trading at $7,110 a tonne on Thursday.

“We are questioning if $7,000 is a sustainable price for copper but $5,000 is a good price,” Fundanga added.

Copper mining is Zambia’s economic mainstay and copper and cobalt producers are a major employer in the southern African country.

At the MCX, copper for delivery in February contract moved down by 0.65 per cent at Rs 328.25 per kg in turnover of 2,958 lots. The metal for delivery in far-month April contract also shed 0.63 per cent to Rs 330.25 per kg in turnover of 142 lots.

Meanwhile, three-month delivery copper at the LME fell 0.07 per cent to USD 7,075 per tonne, while Shanghai’’s copper went down 0.31 per cent to 55,510 yuan per tonne in the morning trade today. Market analysts attributed weakness in metal at the futures market to overnight losses at the LME as weak US services sector data raised concerns over global economic recovery and rise in inventories.

Meanwhile, copper inventories at LME rose by 2,400 tonnes to 445,400 tonnes.

Copper prices fell steep in the final months of 2008 with the December spot price on the London Metal Exchange (LME) at $1.39, as compared with the 2008 peak of $3.94 which was hit in April. But in the first three months of 2009, the LME spot copper price has averaged $1.55.

Bloomberg News reports that LME metals jumped in price in March as some investors bought commodities in anticipation of a rebound in global economic growth. The exchange’s index of copper and five other industrial metals increased 11% in March, the most in 13 months. However, the International Copper Study Group recently announced that copper supply ended 2008 ahead of demand. Refined copper production rose by 3.4% on the year in 2008 to just over 14.7 million metric tons, the ICSG said in its latest report. Copper usage was up 1.9% in the same period to 13.9 million metric tons.

The head of research Nicholas Brook at London-based ETF Securities, who says that prices of copper “have probably found a floor” since several mining companies have cut activity in the past year due to lower prices and reduced access to financing. In a conference call reported by Reuters, Brooks predicts that copper prices in the short term will be underpinned by China, which has announced aggressive infrastructure spending.

However, the buying surge in China may not be here yet, as China’s economy grew by 6.1% in the first quarter, its slowest pace in 10 years. Premier Wen Jiabao says that while China’s economy is in better shape than other nations, “it is still some ways off from a full recovery.”

The commodities team at New York-based J.P. Morgan Securities has written to clients that “the undeniable reality for the copper market is that outside of China, demand remains moribund.” These analysts believe that a lasting recovery in copper’s price still is a long way off but are reluctant to pronounce a bottom because “even with projections of a modest improvement in western world demand in the second half, when stimulus efforts start to take effect, we believe that China’s growth will not be enough to offset the demand destruction seen in the western world.”

Still, the J.P. Morgan analysts do see copper averaging a slightly higher $1.67 in 2010, noting that strong gains are not likely for some time due to high inventories and fairly weak overall demand.

“I think markets are likely to remain reasonably flat until we see the U.S. payrolls report. There’s a bit of caution ahead of that data,” said David Moore, commodity strategist at Commonwealth Bank of Australia.

“The decline in the U.S. ISM services index was a bit unexpected and we’ve got payrolls data tonight which is fairly weighty in terms of its impact on the market.”

Data on Thursday showed an index of the U.S. services sector shrank in November to its lowest since July, shocking economists who had forecast a recovery from recession was picking up steam.

All eyes are on the U.S. non-farm payrolls report due at 1330 GMT. Analysts polled by Reuters forecast U.S. employers shed 130,000 jobs last month after cutting 190,000 in October and will probably support views that the shrinkage is in its final stages.

But the White House said on Thursday it has seen evidence that the unemployment rate in November might creep upward from 10.2 percent seen in October.

Shanghai’s benchmark third-month copper closed up 10 yuan at 55,690 yuan a tonne. The contract was up 4.1 percent on the week after rising to a near 15-month high of 55,850 yuan on Thursday.

The most-active fourth-month copper slipped 10 yuan to 55,920 yuan.

On the London Metal Exchange, three-month copper dropped $5 to $7,075 a tonne at 0702 GMT, but was still heading for a more than 3 percent weekly gain after touching a high of $7,170 on Wednesday, its best level since late September 2008.

Copper has risen more than 130 percent this year, on track for its biggest annual increase since at least 1978, thanks to Chinese demand, a struggling dollar, increased market liquidity and a brighter outlook for the global economy.

Goldman Sachs expects the uptrend to remain intact next year.

“Specifically, given the anticipated strong pick-up in the global economy in the first half of 2010 and correspondingly more buoyant investor sentiment, we expect base metals to make new highs by the middle of next year,” Goldman said in a report.

Copper will likely trade above $8,100 a tonne and zinc above $2,600 a tonne by that time, the investment bank said.

“However, by end 2010, we expect prices to retreat modestly as growth momentum is forecast to slow in the second half,” it added.

Metals prices had been rising despite a steady increase in inventories. Stocks of copper on LME warehouses stand at 445,400 tonnes, the highest level since April, suggesting slack demand.

In Shanghai, traders mostly expect weekly copper inventories to show an increase of up to 3,000 tonnes from 101,277 tonnes the previous week when figures are released later on Friday.

“We estimate a small gain of 2,000-3,000 tonnes. The premium has been pretty flat this week, producers are not delivering much into warehouses,” said a Shanghai-based trader.

Eleven of 19 analysts, investors and traders surveyed by Bloomberg, or 58 percent, said copper would gain next week. Eight predicted lower prices. The metal for three-month delivery was 3.4 percent higher this week at $7,087 a metric ton at 5 p.m. yesterday on the London Metal Exchange.

Copper, used in electrical gear and construction, rose to a 14-month high of $7,170 a ton on Dec. 2 after reports showed manufacturing increased at the swiftest pace in five years in November in China and rose for a fourth month in the U.S. European service and manufacturing industries expanded at the fastest rate in two years in November, figures showed yesterday.

A purchasing managers’ index released on Dec. 1 by HSBC Holdings Plc for manufacturing in China gained to a seasonally adjusted 55.7 last month from 55.4 in October. In the U.S., the Institute for Supply Management’s manufacturing index came in at 53.6, above the level of 50 that signals an expansion. The countries are the world’s two biggest copper users.

A composite index for European service and manufacturing industries increased to 53.7 from 53 in October, Markit Economics said yesterday.

The weekly copper survey has forecast prices accurately in 32 of the past 66 weeks, or 48 percent of the time.

Stockpiles monitored by the London Metal Exchange tumbled 2.4 percent to 480,400 metric tons. That’s the biggest one-day drop since Oct. 21. Copper prices have surged 57 percent this year on speculation that government spending will revive global growth and spur consumption of raw materials.

“The market has strengthened on the back of the decline in LME copper inventories,” Edward Meir, an analyst at MF Global Ltd. in Darien, Connecticut, said today in a report.

Copper futures for July delivery climbed 8.05 cents, or 3.8 percent, to $2.209 a pound on the New York Mercantile Exchange’s Comex division.

The price of copper will continue to climb as demand increases in emerging economies including China, the world’s biggest metals user, said Michael Cuggino, the chief executive officer of Pacific Heights Asset Management LLC.

“What’s happening in copper now is a reflection of the broader global economic story,” said Cuggino, who also helps oversee $3.4 billion as a portfolio manager. “We’re still expecting to see long-term global growth that’s going to drive demand for copper and the other commodities,” he said yesterday in an interview in New York.

Cuggino recommends investors buy shares of Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, as a way to take advantage of higher metals prices. Phoenix-based Freeport rose 81 percent this year before today.

Favoring Freeport

“We like Freeport now,” Cuggino said. “The things that will drive copper, the growth in China and the emerging markets, those things are the same reason to buy Freeport.”

Freeport gained 25 cents to $44.51 at 2:01 p.m. in New York Stock Exchange composite trading.

Still, stagnant U.S. economic growth may limit copper’s gains, said Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York.

Industrial production in the world’s largest economy fell 1.5 percent in March, the 14th drop in the past 15 months, as factories trimmed unwanted stockpiles, the Federal Reserve reported today.

“Copper may be able to get as high as $2.25, but after that it is going to meet resistance,” Groenewegen said. “Levels that high do not seem sustainable given the weakness that is still present in the economy.”

Yesterday, copper touched $2.2415 a pound, the highest for a most-active contract since Oct. 20.

On the LME, copper for delivery in three months climbed $120, or 2.6 percent, to $4,819 a ton ($2.19 a pound). The price reached a record $8,940 on July 2.

The shutdown of Escondida, which accounts for 8 per cent of the world’s copper output, pushed up the price of the red metal by $180 per tonne to $7,470 on the London Metal Exchange. Chile’s President, Michelle Bachelet, called for talks to resume between the miner and the unions, who are demanding a substantial pay rise and bonuses to reflect the huge profits earned from high copper prices.

In London, the price of nickel gained $300 per tonne as volumes in LME warehouses dwindled further. China’s largest nickel producer expressed concern that the nickel market was being distorted by speculators and urged the LME to improve regulation.

“The LME is no longer a place for fair dealing metals but a paradise of speculation,” said Li Yongjun, chairman of Jinchuan Group, the largest nickel producer in China.

Nickel reached a record high of $29,200 per tonne in the forward market as stocks plummeted to less than a day’s supply. The premium for cash nickel over three-month delivery widened to almost $5,000 per tonne, prompting the LME to introduce emergency rules on Wednesday to allow short sellers to escape the squeeze.

BHP’s tough stance with the Escondida strikers may be supported by the Chilean Government, reckoned some analysts, as Escondida pays its workforce the highest mining wages in Chile, and the state copper company, Codelco, will be anxious to avoid a high settlement with its own workers. “They won’t want to see BHP set a precedent and stoke higher wage claims at Codelco,” said Robin Bhar, metals strategist at UBS.

BHP said that it had shut the mine for safety reasons but Pedro Marin, a spokesman for the strikers, accused BHP of trying to scare the workforce. “This is illegal pressure,” he said.

December copper was up 10 cents to $3.03 per pound in New York trade, while three-month copper added $234.50 to $6,664.50 per tonne on the London Metal Exchange.

Demand hopes were stimulated by the news from the US Commerce Department that the United States gross domestic product was up by 3.5 percent in the third quarter, a sign that the US economy has exited the recession.

Other factors helping to push copper higher was a decline of 325 tonnes in LME copper inventories on the session and the likelihood that a strike at a copper mine in Chile, now in its 17th day and with no immediate prospects for an end, has caused the mine to reduce production.

Other base metals prices also saw gains as aluminium added $43 to $1,955 per tonne, zinc was up $75 to $2,265 per tonne, lead was $134 higher to $2,365 per tonne, tin added $350 to $15,000 per tonne, and nickel gained $890 to $18,690 per tonne.

Among precious metals, December gold added $16.60 to $1,047 per troy ounce in New York trade, while December silver was up 42 cents to $16.66 per troy ounce, January platinum was $31.30 higher to $1,338,20 per troy ounce and, in mid-morning trade, December palladium added $7.55 to $324.95 per troy ounce.

December copper was 4 cents lower to $2.96 per pound in New York, while three-month contracts on the LME dropped $40 to $6,530 per tonne on the session.

Inventories were up by 5,775 tonnes during the day to 379,825 tonnes.

Aluminium stockpiles, on the other hand, were down by 2,300 tonnes in LME warehouses, sending that metals prices $4 higher to $1,925 per tonne as some analysts forecast that aluminium inventories are already past their peak and on the way down.

Zinc and lead each saw prices drop by $10, to $2,219 per tonne and $2,350 per tonne respectively, while nickel added $140 to $17,760 per tonne in London.

Meanwhile, among precious metals, December gold added $2 to $1,089.30 per troy ounce and December silver was up a cent to $17.41 per troy ounce, but January platinum dropped $6.40 to $1,362.90 per troy ounce