LONDON – Copper touched a fresh record high on Thursday, as worries over tight supplies, offset persistent concerns about further monetary tightening efforts in top consumer China.
By 10:24 GMT, copper for three-month delivery on the London Metal Exchange traded at $9,041 a tonne from $9,015 at the close on Wednesday.
Prices of the metal used in power and construction, earlier hit a session high at $9,091, and have risen about 23% this year.
"Right now most of the market is talking about exchange traded funds coming," said Eugen Weinberg, an analyst at Commerzbank. "Nobody cared about this one month ago. The market is already in deficit, and will hold for several years, so don't underestimate if (more) investors come.
"We are already in unchartered territory ... (prices) may go much higher."
Earlier this week, ETF Securities said it would launch the first physically backed exchange-traded products (ETP) for base metals from Friday, although markets are concerned such products could tip an already tight copper market into a large deficit.
The UK-based company will initially offer products backed by physical copper, nickel.
But supply shortages have been a major factor behind the surge in copper prices in recent months, due to a combination of falling ore grades, labour problems and project delays.
Highlighting such concerns has been a growing trend of falling LME inventories. On Wednesday, copper stocks slipped 800 tonnes to 349,450 tonnes, having fallen from 6-1/2 year highs at 555,075 tonnes in mid-February.
Concerns about supplies in the near term have pushed the metal into a $35 a tonne backwardation -- premium for cash material over the three-month contract -- compared with a discount of $20 a tonne in late October.
Investors also eyed a dominant position controlling between 50% and 80% of cash warrants for tin, copper and nickel, subject to LME lending guidance.
CHINA RATE HIKE?
Fears of an interest rate hike in China, the world's second-largest economy, have stoked worries about demand from the world's top copper consumer.
China's annual inflation in November is likely to have been "a little bit" higher than October's 4.4 percent, but will be lower than market expectations, the official Securities Times reported, citing unnamed authoritative sources.
"The market is discussing right now, the possibility of rate hikes over the weekend," said Commerzbank's Weinberg.
China's key stock index closed down 1,3% at a two-month low on Thursday.
In other financial markets, the dollar's rally paused as US Treasury yields retreated from a dramatic climb, prompting investors to book profits on gains in the currency.
A weak US currency makes metals priced in dollars less expensive for holders of other currencies.
Among other metals, aluminium traded at $2388.50 versus $2,375, after earlier hitting a one month high at $2,408. LME stocks for the metal, used in transport and packaging, fell 3,125 tonnes to 4.27-million tonnes.
A large portion of those aluminium stocks are tied up in finance deals.
"The price of aluminium seems set to hold in a $2,250-$2,500 range over the next three months," Citi said in a note. "Global aluminium stocks should continue to gradually decline, however the pace of decline probably won't be sufficient to see fresh cycle highs.
"Fresh price cycle highs can be made in Q2 2011, as world economic growth broadens and/or a physically-backed aluminium ETF becomes a reality."
Steel-making ingredient nickel traded at $24,025 from $24,000 while battery material lead was at $2,407 from $2,405. Zinc traded at $2,280.50 a tonne from $2,314 and tin was at $25,820 from Wednesday closing bid at $25,600.
Boosting tin sentiment, tin cancelled warrants -- material already earmarked for delivery -- are up 340 tonnes and now stand at over 11 percent of total inventories at 15,755 tonnes.
