Metals set to end year on climax

[] — COMMODITY markets were set to end 2010 on a high note, with copper powering to record highs and oil heading for its eighth rise in nine years, while investors set up for strong prices in 2011 on expectations of a continuation of this year’s recovery.

The precious metals complex has had a stellar run this year, led by palladium’s 94% rise, in a broad commodities rally which has pushed the 19-commodity Reuters-Jefferies CRB index up 15%.

Modest gains in the euro and another record high for the yuan at 6.6227 to the dollar, also supported prices.

Copper for delivery in three months on the London Metal Exchange hit a record high of $9,631.75 a tonne and was trading at $9,617.75 early Friday morning, up from $9,490 on Thursday.

Comex copper jumped 1.2% to a record 441.70 cents/lb and Shanghai metal rose to 71,970 yuan, its strongest since mid-2007.

The year-end fireworks in metals, which have seen copper post a 15% rise in December, its biggest since March 2009, may be a curtain-raiser for 2011.

Tight supply – inventories have fallen by a third to around 376,000 tonnes from earlier this year and expected to resume their decline after ticking up in December – is seen underpinning prices with most market watchers expecting prices to touch five digits in 2011.

Analysts are looking for copper demand to outstrip supply by between 250,000 tonnes and upwards of 800,000 tonnes, but some are little more cautious on the outlook, wondering, after two very positive years, do metals still have the stamina to finish 2011 as strongly as they ended 2010.

“As an asset class, metals has had an extraordinary year. If I were a money manager, I probably wouldn’t be massively overweight on metals going into the new year,” said a Singapore-based trader.

“Everyone is thinking they (metals) are gonna explode, but hang on, I just think they might have a good start of the year – metals have done a lot in the past two years.”

“The story is still relatively bullish on metals, but they ain’t cheap.”

Oil was set to close the year up 13% and average nearly $80 a barrel – the second highest on record – driven by a resurgence in global demand, an unusually cold winter and falling inventories.

After rallying since May to a 26-month high of $91.88 on Monday, US crude edged lower on Friday, with the February contract price down 0.20% at $89.84 a barrel.

“December is set to be the strongest month of the year in demand terms, with particularly strong indications of gasoline demand,” said analysts at Barclays Capital in a research note.

Core Opec ministers have indicated they would not provide more oil supplies to arrest oil’s rally, saying $100 crude was a fair price.

Gold edged up on the last trading day of the year, gearing towards its strongest annual gain in three years, supported by a languishing dollar and a firm outlook for precious metals into 2011.

Spot gold gained 0.4% to $1,409.50 an ounce, on course for a 29% annual gain and a fifth straight month of gains.

“It is still a positive picture for metals next year. There is sufficient demand from investment perspective to maintain a relatively bullish trend, in gold in particular,” said Darren Heathcote, head of trading at Investec Australia in Sydney.

Traders and analysts expect gold to break above $1,500 in 2011.