METALS-Copper hits 20-month high, demand signals build

Thu Apr 1, 2010 3:36pm EDT

* Demand sentiment drives base metals to new highs

* Falls in inventories underscore demand uptick

* Coming up: U.S. March non-farm payrolls on Friday (Recasts with New York closing copper price, adds second byline, dateline, previously LONDON)

By Chris Kelly and Michael Taylor

NEW YORK/LONDON, April 1 (Reuters) - Copper climbed on Thursday to its highest level in 20 months, as strong manufacturing data in Asia, Europe and the United States bolstered demand prospects on the first day of the second quarter.

Copper for May delivery HGK0 on the New York Mercantile Exchange's COMEX division settled up 3.05 cents at $3.5840 per lb. May copper peaked at $3.6060 per lb, a high for the second-position contract on a continuation basis since early August 2008.

On the London Metal Exchange, benchmark copper CMCU3 ended at $7,885 a tonne from $7,780 at Wednesday's close.

The metal used in power and construction, hit a session peak of $7,939.75, a high dating back to August 2008, and crept closer toward the $8,000 level.

Data in China, the world's largest industrial metals consumer, showed a manufacturing sector pickup in March. [ID:nTOE63001J]

Factories also showed strength in Europe and the United States. The Institute for Supply Management reported U.S. manufacturing grew in March at its fastest pace in more than five years.

Taken together, the data pointed to a "synchronized global industrial recovery", said Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto. [ID:nN01114317]

"For copper, demand is moving higher and the global economy is recovering," he said. "Now there are increasing signals coming out of the U.S. that the recovery is a lot better than it was.

"All of that is leading to greater demand expectations."

Falling LME inventories have helped sentiment in recent weeks, with copper stockpiles shedding another 1,875 tonnes on Thursday to 512,450 tonnes, having hit 6-1/2 year highs at 555,075 in mid-February.

Aluminum CMAL3 was untraded at the close, but bid at $2,351 versus $2,323 on Wednesday. Earlier on Thursday it touched $2,366 a tonne, the highest since mid-January.

LME stocks of aluminum, used in transport and packaging, are down more than 46,000 tonnes to 4.59 million tonnes, since a record high above 4.64 million tonne on Jan 21. <0#LME-STOCKS>

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 in money markets. [ID:nGEE5BA277]

"Most people think that due to ... falling LME inventories, the prices are going higher -- but it's false," said Commerzbank analyst Eugen Weinberg. "It is very typical for bubbles, that the price reaction is being mistaken for fundamentals."

NICKEL Q1 STAR PERFORMER

Nickel surged 34.9 percent in the first quarter, outperforming other LME metals, on expectations of stronger demand from stainless steel mills. [ID:nLDE62U1VJ]

Three-month nickel CMNI3 hit a near two-year high at $25,714 a tonne earlier on Thursday. It closed at $25,050 a tonne from $24,995 at the close on Wednesday. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> For a graphic on first-quarter price performances here For a TAKE A LOOK on nickel click [ID:nSGE62I0A1] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

A series of strikes, project delays and production problems are expected to send the nickel market into deficit in 2010, the first time in four years. [ID:nLDE62L0X3] [ID:nSGE62I0A1]

LME nickel stocks hit a record high above 166,000 tonnes in early February and are now at 157,512 tonnes.

"Nickel production over the past few months has been performing much weaker than the rest of the base metals," said Gayle Berry, an analyst at Barclays Capital.

"This recovery in demand is only just getting going ... declines that you see in stocks are likely to continue."

Investors are also keeping close tabs on LME data, which showed a dominant position controlling between 50-80 percent of cash warrants for nickel, tin and lead. [LME/WC]

Battery material lead CMPB3 closed at $2,190 from $2,145 on Wednesday, having earlier hit near two-week highs at $2,224.

Zinc CMZN3 touched $2,434, its highest in more than two months, and ended at $2,404 from $2,375.

Tin CMSN3 closed at an unchanged $18,450, having earlier hit $18,750, a level last seen since September 2008.

Metal Prices at 1911 GMT Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 357.20 2.60 +0.73 334.65 6.74 LME Alum 2345.00 22.00 +0.95 2230.00 5.16 LME Cu 7875.00 95.00 +1.22 7375.00 6.78 LME Lead 2180.00 35.00 +1.63 2432.00 -10.36 LME Nickel 24900.00 -95.00 -0.38 18525.00 34.41 LME Tin 18350.00 -100.00 -0.54 16950.00 8.26 LME Zinc 2395.00 20.00 +0.84 2560.00 -6.45 SHFE Alu 16650.00 75.00 +0.45 17160.00 -2.97 SHFE Cu* 62200.00 880.00 +1.44 59900.00 3.84 SHFE Zin 19245.00 450.00 +2.39 21195.00 -9.20 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

(Additional reporting by Pratima Desai and Maytaal Angel in London; Editing by David Gregorio)

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