Copper price boom may last

Shanghai/Singapore - Copper hit 16-month highs on Wednesday, with London metal up nearly 1%, piercing $7 300 for the second day running, defying a stronger dollar on confidence about the trend into 2010.

The US dollar hit a two-month high against the yen on Wednesday and also gained versus a basket of six other major currencies, keeping the firm tone that has developed in the past few weeks.

But industrial metals seemed immune to the strength in dollar, which usually exhibits an inverse relationship with commodities.

"The rebound in dollar had little impact on copper, as the bull run is expected to continue into January, thanks to speculative buying," said a Shanghai-based trader.

Shanghai's benchmark third-month copper futures contract rose 1.1% to end at 58 990 yuan a tonne, after hitting 59 000 yuan, a new 16-month high.

The most-active contract for April delivery ended up nearly 1% at 59 130 yuan per tonne.

Three-month copper at the London Metal Exchange was up $50 at $7 325/tonne by 09:01, after hitting a near-16 month high of $7 344.25.

Both markets are on course for annual rises of 140 to 150%, with LME copper set for its biggest annual rise in at least three decades and Shanghai for its biggest rise ever.

Copper has rallied every quarter this year, its longest run of gains since breaking a run of nine quarterly increases at the end of 2006.

'Speculative froth'

Average quarterly gains for LME copper in 2009 were 24%, pipping 1987's average of 20%. By comparison, the Dow Jones Industrial Average rose an average of 5.3% each quarter this year, while its strongest performance in the past half century was a 9.2% average quarterly gain in 1975.

"It looks like copper's amazing bull run will continue into next year, for a while at least. But there is a lot of speculative froth in these prices and valuations have very little to do with current fundamentals," a dealer in Hong Kong said.

Supporting fundamentals, strike votes at Codelco's giant Chuquicamata mine and Xstrata PLC's Altonorte smelter will focus attention away from rising stockpiles of metal in LME warehouses.

Market opaque after first quarter

But given industrial action in Chile tends to be of a short, sharp shock nature, they are unlikely to eat significantly into the almost 600 000 tonnes in LME and Shanghai exchange warehouses, enough to cover the lost output at Chuquicamata for more than a year.

"The strength in copper may remain in the first quarter of next year, but after that the market will face a lot of uncertainties - how the dollar will move, how China's copper imports will change, what will happen to the high stocks," said Liu Xu, an analyst at China International Futures.

LME zinc hit $2 595/tonne, its highest since March 2008, before easing to $2 585. Shanghai zinc rose 1.8% to 20 715 yuan/tonne, after reaching its strongest in more than 21 months at 20 735 yuan.

Both Shanghai and LME zinc are set for annual rises of about 110%.

- Reuters