Copper soars on economic optimism

[] — Copper and aluminium prices struck multi-month highs on Friday, fuelled by economic data suggesting global economic recovery may be on the way, although analysts warned against high hopes.

Copper for three-months delivery on the London Metal Exchange hit $5,747 a tonne, its highest since early October. The metal used in power and construction traded at $5,692 at 0948 GMT from a close of $5,601 on Thursday.

Aluminium traded at $1,886 from $1,879, and earlier reached $1,894, its highest since mid-November.

“The factors are economic optimism, rising stock markets, and a weaker U.S. dollar, but not fundamentals,” Commerzbank analyst Eugen Weinberg said. “These hopes will fade then we’ll see quite a strong correction.”

Copper is up more than 80% so far in 2009 supported by buying from China, the world’s top copper consumer.

World stocks struck 9-1/2 month peaks, with investors continuing a recent spree of buying risky assets.

But analysts warned the journey out of the downturn was likely to be slow and investors were also cautious ahead of gross domestic product data from the United States, the world’s largest economy, later in the session.

China risk

A weaker dollar also aided copper, making dollar-priced material cheaper for holders of other currencies.

But rising stocks of copper in LME warehouses are starting to weigh on sentiment, analysts said.

Inventories rose 2,825 tonnes to 280,875 tonnes, the highest since mid-June. Stocks have been on the rise since mid-July, reversing this year’s trend of consistent falls.

Some analysts attribute this recent stocks rise to markets being in a traditionally quiet trading season.

Stocks of aluminium, used in transport and packaging, rose 17,350 tonnes to a record high in the region of 4.6 million tonnes, double the 2.3 million tonnes of the end of 2008.

“There are signs that underlying conditions are improving with early signs of life in OECD consumer buying and planned production increases by end-users,” Barclays Capital said in a note.

“A big slowdown in Chinese import buying is the biggest risk to metals prices, but there is little sign of that developing yet and a higher floor for metals prices has been established.”

Zinc, battery material lead and nickel all struck their highest levels since late September.

Underlining a fragile fundamental picture, miner Anglo American, posted a sharp fall in first-half profit and voiced wariness about recovery in commodity markets.

But Anglo also said it had made two new discoveries which boosted copper resources by about 50%.