Copper retreats, but $10,000 still in sight

Copper rushed towards a record high on Wednesday, nearing $10,000 a tonne before losing momentum, but solid manufacturing data that pointed to higher demand for the industrial metal suggested gains further ahead.

Three-month copper on the London Metal Exchange did not trade in official rings, but was bid at $9,919/9,920 a tonne, compared with $9,945 at the close on Tuesday. It earlier hit a record of $9,988.25.

Copper gained more than 60 percent since last June when markets tumbled, fearing sovereign default in euro zone countries such as Greece.

"It's not just copper, everything else has come back as well," said analyst Michael Widmer of Bank of America-Merril Lynch, citing concerns over a euro zone rescue package.

He said that week-long holidays in top consumer China, which began today also drained volumes and acted as a brake on prices.

"But a break towards $10,000 is still on the cards near term."

The dollar clawed back some losses while the euro slipped on Wednesday after an apparent lack of consensus about a euro zone rescue fund highlighted ongoing uncertainty about how to solve the region's debt problems.

A more robust dollar makes copper more expensive for holders of other currencies.

Still, given the solid fundamental outlook for copper with constrained supply and a recovery in demand, consensus remains for higher prices.

"The copper market is supply starved as demand rebounds strongly, even more strongly with the U.S. recovering and the rest of the world getting stronger, reinforcing the growth trends that out of Asia, particularly the BRIC economies of China and India," analyst Robin Bhar of Credit Agricole said.

HSBC's China Purchasing Manager Index data on Tuesday showed stronger growth in the country's manufacturing sector, followed by figures showing an acceleration in manufacturing in the euro zone and in the United States, which expanded at its fastest pace in nearly seven years.

Copper earlier led strong gains across the broader base metals complex, with tin hitting a record high, nickel touching its highest since May 2008, zinc at a 10-week high and aluminium near its highest since September 2008.

Meanwhile, U.S. private employers added 187,000 jobs in January compared with a revised gain of 247,000 jobs in December, a report by a payrolls processor showed on Wednesday. .

The jobs data is closely watched ahead of a key report on Friday that is expected to support indications the US recovery is steadily improving, and with it metals demand.

OPEN INTEREST

Data shows that since February 2009, copper prices have tripled, while open interest has risen by 25 per cent and trade volumes by 50 percent, suggesting a rise in short-term trading and longer-term investment.

Traders said there was significant pent up speculative demand for metals and other commodities, and that fund money could force prices to overshoot.

"All the funds are doing is reinforcing the trends that are already there," Bhar said. Some money has trickled into ETF Securities' physical copper exchange traded products. The amount of metal in the copper product rose by 125 tonnes to 2,070 tonnes as of Feb. 1, according to ETF Securities website on Tuesday.

But runaway prices mean consumers in countries like China, which accounts for around 40 per cent of the world's copper use, will limit their purchases.

Analysts say global copper supplies will remain tight and help propel prices to $12,000 a tonne and higher as output struggles to keep up with demand into 2012 and perhaps beyond with the lack of new big mines coming through.

Nickel was at $27,850 in rings from $27,950, aluminium was quoted at $2,532/2,533 from $2,551. Benchmark lead was also untraded but quoted at $2,536/2,537 from $2,535 and zinc bid at $2,465 compared with $2,472.

Tin, which hit a record high of $30,790 earlier traded at $30,500 in rings, up from $30,155 on Tuesday.