METALS-Fed gives copper bulls the upper hand

Thu Nov 4, 2010 7:09am EDT

* Weaker dollar, strike threat bolsters copper

* Is China trying to turn the tide with zinc auction

* Coming up: U.S. weekly jobless claims at 1230 GMT

(Recasts, adds comment/details, pvs Singapore)

By Pratima Desai

LONDON, Nov 4 (Reuters) - Copper climbed on Thursday after the U.S. Federal Reserve took steps to boost growth and demand in the world's largest economy and the market tried to factor in higher energy costs in top consumer China.

Benchmark copper CMCU3 on the London Metal Exchange was trading at $8,489 a tonne at around 1050 GMT from $8,320 at the close on Wednesday. The metal used in power and construction last month hit $8,554, its highest since July 2008.

The U.S. central bank on Wednesday committed to buy $600 billion in government bonds in an attempt to lower borrowing costs for consumers and business. [ID:nN03163902]

"Confirmation of quantitative easing is very helpful for base metals, though it was not unexpected and further weakness in the dollar is also helpful," said John Meyer, analyst at investment bank Fairfax.

The dollar fell sharply after the Fed news, making commodities priced in the U.S. currency cheaper for holders of other currencies. [USD/]

Traders said copper was also underpinned by the threat of strikes in Chile, the world's largest producer.

Latest news is that the Collahuasi mine will resume wage talks with union leaders on Thursday. [ID:nN0398314]

"No labour agreement has been reached at the large Collahuasi copper mine, suggesting that the workers' union could enter into strike as early as Friday," Credit Suisse Private Banking said in a note.

"Copper prices are likely to face renewed upward pressure as the market balance continues to tighten."

VERY PUBLIC AUCTION

Industrial metal markets have in recent weeks started to fret that Chinese plans to restrict energy consumption to cut emissions would hamper the country's production capability.

"That is the overriding issue, I haven't heard that it is impacting copper smelters yet, but I think it will," Meyer said.

Analysts estimate that energy accounts for about 25 percent of production costs of industrial metals. [ID:nTOE69H066]

The number for aluminium is about 40 percent globally, while in China energy accounts for nearly 50 percent of total aluminium production costs.

Three-month aluminium CMAL3 was trading at $2,455 a tonne from $2,417 on Wednesday.

The metal used in transport and packaging has over the last year and a half been supported by financing deals that have tied up about 70 percent of stock in LME warehouses.

That has been reinforced by the potential launch of exchange traded products backed by physical metal.

Also on the radar are plans by China's State Reserves Bureau to sell 50,000 tonnes of zinc ingots. [ID:nBJI002437]

"The very public auction of zinc indicates the Chinese are trying to hold metals prices back in the face of the weakening dollar," Meyer said.

Zinc CMZN3 was trading at $2,484 a tonne from $2,405.

Battery material lead CMPB3 was trading at $2,494 a tonne from $2,435 on Wednesday, stainless steel metal nickel CMNI3 at $23,950 from $23,550 and tin CMSN3 at $26,000 from $25,850. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Technical outlook for copper

here

Asset returns

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Metal Prices at 1053 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 386.55 8.05 +2.13 334.65 15.51 LME Alum 2425.00 8.00 +0.33 2230.00 8.74 LME Cu 8390.00 70.00 +0.84 7375.00 13.76 LME Lead 2430.00 -5.00 -0.21 2432.00 -0.08 LME Nickel 23600.00 50.00 +0.21 18525.00 27.40 LME Tin 25650.00 -200.00 -0.77 16950.00 51.33 LME Zinc 2425.00 20.00 +0.83 2560.00 -5.27 SHFE Alu 16680.00 145.00 +0.88 17160.00 -2.80 SHFE Cu* 64460.00 620.00 +0.97 59900.00 7.61 SHFE Zin 20075.00 375.00 +1.90 21195.00 -5.28 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Editing by Anthony Barker)