Volatile copper roars back in front of EU summit

NEW YORK/LONDON Fri Oct 21, 2011 2:36pm EDT

A worker walks amidst high purity aluminium ingots at the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk, May 18, 2011.   REUTERS/Ilya Naymushin

A worker walks amidst high purity aluminium ingots at the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk, May 18, 2011.

Credit: Reuters/Ilya Naymushin

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NEW YORK/LONDON (Reuters) - Copper ended a volatile week on firmer footing Friday, rallying 6 percent in its largest one-day advance since early 2010, as opportunistic buyers stepped up purchases on the eve of a European Union debt-crisis summit.

A day removed from its worst one-day collapse in four weeks, copper bounced back strongly to lead all gainers in the Reuters-Jefferies CRB index .CRB, as investors grew hopeful for a near-term solution to the euro zone debt crisis. The metal was also helped by Chinese buying signals.

Gains spanned the entire base metals complex. Aluminum tacked on 4 percent, zinc jumped nearly 5 percent, lead was up more than 6 percent, tin better than 4 percent, and nickel over 5 percent.

"Yesterday was very odd," said Edward Meir, commodity analyst at MF Global. "(Copper) just collapsed and we weren't seeing any weakness in anything else. I think people may have thought it got a bit overdone yesterday.

"The metals are under a two-track attack: One from the debt crisis and one as equally important, China. That is weighing much more heavily, especially on copper," he said.

London Metal Exchange (LME) benchmark copper shot up by $410 or 6 percent to end at $7,145 per tonne -- its best one-day performance on a percentage basis since February 11, 2010.

In New York, the key December COMEX contract surged by 16.55 cents or 5.4 percent to settle at $3.2230 per lb, near the upper end of its $3.0770 to $3.2405 session range.

Despite the magnitude of the price rally, volumes were not as strong. A little more than 55,000 lots traded in New York, largely in line with the 30-day average, according to preliminary Thomson Reuters data.

Copper and the industrial metals have been whipsawed in recent days by a lack of clarity surrounding Europe's ability to get its debt problems under control.

France's push to use more European Central Bank money to fight the euro zone debt crisis ran into strong resistance from Germany and other EU partners ahead of two meetings on Sunday and Wednesday.

"If they don't come up with something credible by either Sunday or Wednesday, we are really in deep trouble in all of these markets," Meir went on to say.

"People are expecting so much. This whole rally over the last two to three weeks has been in anticipation that they will come up with something. If they fall short, all bets are off again."

Traders said many short copper positions -- bets on lower prices -- taken on Thursday were being squared ahead of the weekend meeting and this explained in part why copper was showing gains.

"Anybody who is long is either crazy or has information that I don't have," a metals trader said. "I'm waiting for the results of the pillow fight between France and Germany."

SPLIT ON CHINA

A plus for the bulls was the volume of copper stocks in LME-approved warehouses. More than 3,000 tonnes were set for withdrawal on Thursday, leaving total inventory levels at 447,800 tonnes -- down nearly 6 percent since early October.

Traders say much of this metal has gone to China, whose copper appetite accounts for about 40 percent of the world's demand, and that there are more deliveries in the pipeline to the world's largest consumer of industrial metals.

"Chinese consumers are showing a lot of interest," the metals trader said. "There's a lot more to come."

That interest can be seen in the high level of canceled warrants -- material tagged for delivery -- in LME-approved warehouses located in South Korea. About 20,000 tonnes of metal is earmarked to leave warehouses in Busan and Gwangyang.

But some negative sentiment is based on the premise that much of the metal consumed in China is actually exported in the form of copper products to the United States and Europe.

(Additional reporting by Maytaal Angel in London; editing by Anthony Barker, James Jukwey and Bob Burgdofer)

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