Copper nears 10-month high on economic outlook


LONDON - Copper flirted with 10-month highs on Tuesday, as a recent raft of improving economic and company data lifted prospects for industrial metals demand.

Copper for three-months delivery on the London Metal Exchange traded at $5,620 (U.S.) a tonne in official rings from a close of $5,600 on Monday.

The metal used in power and construction hit a day's high of $5,645, a touch below Monday's high of $5,646 which was the strongest level since early October.

"Things look as if they may be starting to turn around and move into a better trend," Evolution Securities analyst Charles Kernot said.

The latest upbeat data showed U.S. home sales surged in June.

But Mr. Kernot voiced concerns about the sustainability of demand from China, the world's top copper consumer.

"People can breathe a little bit more easily, but you don't need to throw away the inhaler just yet," he said. "I'm still wary that China isn't going to be buying as much metal going forward."

The price of copper has rocketed more than 80 per cent year-to-date on a vast buying exercise from China. This follows a price fall of more than 50 per cent in 2008.

But concerns that Chinese demand could wane have been eclipsed in recent weeks by encouraging economic newsflow from the world's third largest economy, and investors are counting on China to lead the way out of the global economic crisis.

China's central bank said on Tuesday that prices there are stabilizing and could bottom out at the end of the third quarter before rebounding.

Stocks of copper at LME warehouses rose 1,500 tonnes to 278,925 tonnes, their highest level since mid-June.

Inventories had shot downwards this year, but have risen since mid-July. However, stocks are still far below levels above 500,000 tonnes hit in February this year, and analysts say recent rises are largely due to a seasonal lull in demand.

Aluminum was at $1,836 from $1,826. Stocks of the metal used in transport and packaging fell 4,225 tonnes but hovered close to a record in the range of 4.6 million tonnes.

"The rebound in Chinese economic growth has raised the prospect of a rebound in Chinese aluminum consumption. The Chinese industrial production cycle has clearly bottomed," David Thurtell, an analyst at Citi, said.

"A strong enough rebound in Chinese aluminum demand could absorb a fairly large part of the deficient demand in the United States, western Europe and ex-China Asia."

Zinc traded at $1,715 from $1,710 and battery material lead was quoted at $1,792/1,795 from $1,798.

Nickel was quoted at $17,000/17,050 from $16,950, having hit a 10-month high of $17,200.

Tin was at $14,400 from $14,600. It traded in a backwardation of $267 a tonne, a premium for cash tin over the three-month contract. This compares to a contango of $40 in mid-June.

Traders remain concerned about the scale of long positions in the tin market compared with the amount of available metal in LME warehouses.

Boosting the fundamental outlook were upbeat results from miner Xstrata.

Also supportive, a weaker U.S. currency made dollar-priced material cheaper for holders of other currencies.

Investors will eye U.S. manufacturing data due at 1400 GMT.