Copper rallied to its highest level in four months on Tuesday, driven by supply fears as inventories fell and investment money poured into commodities. Copper for delivery in three months on the London Metal Exchange rose to $8,225 per tonne, its highest level since October 15, and ended at $8,195, up 2.8 percent from Monday's $7,970.
Lead jumped 4.1 percent to close at a three-month high of $3,150, against $3,025/3,030, fuelled by copper's rise. Falling LME stocks in lead, down by 525 tonnes to 46,325 attracted fund buying, traders said.
Copper stocks eased 4,025 tonnes, bringing the total to 140,350 tonnes - of which 108,950 are available to the market. "Falling inventories are actually providing a story there. They suggest that demand is strong," analyst Leon Westgate at Standard Bank said.
Stocks of copper in LME-registered warehouses have dropped by 30 percent since early January and they now equal less than three days of global consumption. The three-month price has risen by nearly 23 percent since the start of the year. Electricity shortages and disruptions in Chile, China and South Africa underpinned sentiment in base metals, traders said.
"Concern over the supply of natural gas in northern Chile has prompted fears over production cut-backs which has had a significant influence in extending the rally witnessed today," a Triland Metals report said. Chile's copper industry could struggle to maintain output this year as an energy crisis deepens.
Electricity shortages have also hit copper smelters in China, the world's top consumer and producer of the metal. Chinese imports of copper, used widely in the power and construction industries, rose by 6.7 percent in January from the previous month and analysts think imports will continue to rise. The Reuters/Jefferies CRB Index hit record highs for a third straight session as commodities chalked up hefty gains. By 1706 GMT, the index was up 2.25 percent at 392.86 points, off an earlier peak of 393.37. It has risen around 5 percent over the last week.
However, weaker demand growth from the developed world were likely to spark concerns over large surpluses in base metals, the commodity team at Investec Asset Management said in a report. "But for copper, lead, tin and aluminium, continued strong demand growth from the Middle East, China, and other Asian countries will fuel a recovery in prices before this year is out," the report said.
Aluminium rose $44 or 1.5 percent to $2,869. Aluminium is up 19 percent this year, supported by power outages in China, and an energy shortage in South Africa that prompted state generator Eskom to consider buying back all the power used to feed its 1.5 million tonne-per-year aluminium industry. Zinc closed at $2,445 versus $2,365, nickel gained $550 to $28,200 and tin ended at $17,045/17,050 versus $17,050/17,075 on Monday.
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