Copper hit a 16-month high on Monday, building on gains of about 140 percent last year, on improved demand prospects following upbeat US data, strikes in top producer Chile and new investor cash. Benchmark copper on the London Metal Exchange ended at $7,500 a tonne from $7,375 at the close on Thursday.
The metal, used in power and construction, earlier touched $7,536, its highest since August 29, 2008. Data released earlier showed the US manufacturing sector grew for a fifth consecutive month in December, with an activity index hitting its highest since April 2006, and an employment and new orders index expanding strongly.
"If we're looking for the US economy to gain momentum then it's this sort of data that you'd expect to see," said Calyon analyst Robin Bhar. But he added: "To some extent that data was priced in, the expectation was that the ISM would come in OK." Also capping gains was data showing US construction spending fell more than expected in November to its lowest level in over six years.
Moreover, latest LME data showed copper stocks rose 75 tonnes to total 502,400 - their highest level since April. Aluminium inventories fell 4,475 tonnes but remain near record peaks above 4.6 million tonnes, while nickel stocks rose 414 tonnes to a new all-time high at 158,424 tonnes. "If you are trying to justify the moves over the last month, you will fail to find any real driver except exceptional demand in China," said Commerzbank analyst Eugen Weinberg. "Everywhere else we are seeing increased inventories."
"It is due to only one reason - demand from investors," he said, adding that the recent rise in the copper price due to supply concerns in Chile was overdone. Union workers at Chile's giant Chuquicamata copper complex, the world's second biggest, began a strike over pay early on Monday, hitting output from global No 1 producer Codelco.
Unprecedented Chinese buying, investor cash, a weaker dollar and improving economic data, helped the red metal to rally in every quarter last year. The outlook for China's economy, and thus for metals demand, remains robust after the manufacturing sector steamed ahead in December, with the official purchasing managers' index (PMI) hitting a 20-month high.
The dollar slid as investors locked in recent gains ahead of US economic data this week. A weak US currency makes metals priced in dollars less expensive for holders of other currencies. "It's more that people are selling the dollar to move into riskier assets, including metals," said David Wilson, director of metals research at Societe Generale.
"Index re-weightings are also happening over the next week or so." "Every indication is that indices will reduce percentage exposures to metals because they out-performed so dramatically last year," he added. "But we're still expecting indexes to take up more metal because of bigger flows of money coming in."
On the macro calendar, US December employment data due later this week will be watched for evidence of economic recovery and renewed demand. Other metals tracked copper, with aluminium, used in transport and packaging, ending at $2,266 versus $2,230, and stainless steel making ingredient nickel at $18,950 from $18,525
Battery material lead ended at $2,515 from $2,432, having earlier hit a one-month high of $2,512, while sister metal zinc finished at $2,570 from $2,560, down from a high at $2,640, its highest level since March 2008. Tin was last bid at $17,440 from $16,950. Tin, used in electrical solder, hit a 15-month high at $17,600.
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