METALS-Copper hits record highs as China holds rates steady

Trade the News

Wednesday December 15, 2010 03:12:22 AM GMT

* China copper output hits record high in Nov

* Year-on-year Chinese retail sales, IP surges in Nov

* Investors relieved that China leaves rates unchanged

* Goldman Sachs sees copper above $11,000 in 1 year

* Coming up: US FOMC meeting, US rates on Tuesday

(Updates with late copper prices. Adds to byline, adds NEW YORK to dateline. Adds comment. Rewrites throughout.)

By Carole Vaporean and Marie-Louise Gumuchian

NEW YORK/LONDON, Dec 13 (Reuters) - Copper hit successive record highs on Monday, boosted by economic prospects for top consumer China, along with a dollar weakness and supply concerns that could propel prices even higher.

Benchmark copper on the London Metal Exchange ended at $9,220 per tonne, from $8,980 at the close on Friday. The metal used in power and construction set a new peak at $9,235.25. It stayed near its strong close into late trade.

In New York, copper for March delivery finished up 9.50 cents at $4.2070 per lb. It shot to a contract high at $4.2225 a lb. In late business, it held at levels near the highs, last trading at $4.2120 a lb.

COMEX copper's session high was a new record for a fourth-month contract. Comparing the price with a third-month contract, meaning delivery three months away, March copper rallied to its highest level since May 2008, when it hit an all-time high at $4.2605.

Over the weekend, China released its latest slew of strong economic readings that suggest demand for copper will continue. For November, year-on-year retail sales shot up 18.7 percent and industrial production surged 13.3 percent.

Following the strong economic growth readings, many investors feared China might raise interest rates to cool the rapid pace of economic growth there, but that did not happen.

"The ongoing theme of economic recovery is still out there. We got the green light last night when China did not raise rates. And that was one of the fears," said Frank Lesh, broker and futures analyst with Future Path Trading in Chicago

Strength in the Chinese economy was accompanied by recent signs that the U.S. economy was also picking up, as well as a falling dollar to boost copper prices.

U.S. deficit concerns returned to the forefront of foreign exchange trading, pushing the dollar lower after Moody's said a tax-cut deal reached last week by the White House and congressional Republicans could shift its outlook on the United States' top credit rating.

A U.S. tax cut deal could swell the budget deficit at a time when the Federal Reserve is committed to accommodative monetary policy.

The Federal Reserve holds its last policy meeting of the year on Tuesday.

Copper's gains also boosted other metals, with nickel and lead edging to one-month highs.

"Obviously the China outlook is helping copper, but more than a general story it's very much a (fundamental) copper story," said BNP Paribas analyst Stephen Briggs.

Base metals have reacted positively to Chinese import data out last week and the fact Beijing has not raised interest rates despite climbing inflation.

Investors have been watching closely for any policy moves that would dampen demand in the world's top copper consumer.

Robust import data from China and the launch of physically-backed exchange-traded products (ETPs) on Friday have raised expectations for copper use, but also worries over possible price distortion.

These factors, against a mine supply shortfall, could propel the metal to new peaks in the months ahead, analysts say.

"We maintain our 12-mo ahead copper price forecast of $11,000/mt and believe that prices could spike substantially above these levels, most likely in late 2011," said Goldman Sachs in a research note on Monday.

However, MF Global analyst Ed Meir noted the risk of a correction was growing.

"We still believe some trouble could lie ahead, as a rate rise will have to come through sooner rather than later, triggering a modest correction in a number of already overheated commodity markets," said Meir in a research note.

ETP VOLUMES

At the end of the second day of trade, shares in ETF Securities' physical copper ETP ended up more than 2 percent.

Zinc wound up at $2,320 from $2,274 a tonne. Zinc's cash discount to three months contract reached almost parity on Friday, signifying a lack of available inventory, although it has since slipped a little.

Aluminium ended at $2,330 versus Friday's close of $2,308 a tonne. Stainless steel-making ingredient nickel closed over 2 percent higher at $24,530 from $23,980 a tonne, having hit its highest in one month at $24,672. Tin traded at $26,150 from $25,800 a tonne.

Battery material lead ended at $2,440 versus $2,390 a tonne, having also edged to a one-month top of $2,451. Metal Prices at 1709 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 420.60 9.65 +2.35 334.65 25.68 LME Alum 2331.00 23.00 +1.00 2230.00 4.53 LME Cu 9220.00 240.00 +2.67 7375.00 25.02 LME Lead 2435.00 45.00 +1.88 2432.00 0.12 LME Nickel 24515.00 535.00 +2.23 18525.00 32.33 LME Tin 26100.00 300.00 +1.16 16950.00 53.98 LME Zinc 2321.00 47.00 +2.07 2560.00 -9.34 SHFE Alu 16345.00 55.00 +0.34 17160.00 -4.75 SHFE Cu* 68480.00 1160.00 +1.72 59900.00 14.32 SHFE Zin 18825.00 475.00 +2.59 21195.00 -11.18

** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Melanie Burton in London; Editing by Lisa Shumaker)

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