Nickel hit a new record high on Monday on supply worries, lead scored a new peak, aluminium hit its best since last May and copper was firm on Asian demand.
Optimism in metals filtered through to London equities, helping Kazakhmys gain 1.9 percent, Anglo American add 0.8 percent and Xstrata rise 0.4 percent, against a FTSE index that was up 0.5 percent.
Nickel for delivery in three months on the London Metal Exchange closed kerb trading at $41,300 after earlier trading up to $41,500. On Friday it closed at 40,900. Strong demand from stainless steel mills, supply disruptions and project delays have boosted nickel prices, which have climbed nearly 70 percent since January 2006. "With nickel stocks at such low levels, no one really is prepared to go short," John Kemp, analyst at Sempra Metals, said.
Nickel inventories in LME warehouses stand at around 3,500 tonnes. But only about 1,880 - around half a day's global consumption - are available to the market.
Aluminium earlier hit $2,905, the highest since May 18 and about $400 below its record high of $3,310 set on May 11. It closed at $2,891, up $1 from Friday.
Analysts say the rally in aluminium prices is technical and triggered by a break of key resistance at around $2,850. Traders expect the market to aim for $3,000 over coming days. "When we've got to these levels before, though, producers have sold (aluminium)," a trader said. Traders have helped the price rise by buying aluminium futures to hedge the options they've sold.
The existence of more than 9,100 outstanding contracts - more than 200,000 tonnes - to buy three-month aluminium at $3,000 a tonne is likely to create more volatility in the run up to next week, when the contracts expire.
Copper earlier touched a two-month high of $6,374, a gain of more than 17 percent since a nine-month low of $5,250 at the start of February. It eased to close at $6,290 from $6,306. Prices have been trending upwards since early February, with buying fuelled by expectations that China's State Reserves Bureau will build up its depleted stockpiles.
"The market still expects Chinese demand for copper to push prices up and momentum investors jump on the bandwagon to fuel the rally further," analysts at Dresdner Kleinwort said in a market report, referring to speculative investors who follow price trends.
Some recent gains are due to a break through key resistance levels, which sparked buying by hedge funds that trade on buy or sell signals from black-box trading models. But on Monday a big impetus was buying from Shanghai, where copper futures rose by their four percent limit when the market reopened after the Lunar New Year holidays.
When the price limit is hit, Shanghai traders use the London Metal Exchange as an alternative. "There has been more short-covering in London and from Shanghai," a trader said. "It is tight and people are trying to get in before the China starts buying."
Short-covering refers to speculators buying back contracts they had sold on the expectation of lower prices in the future. Lead hit a new contract high of $1,955 a tonne and closed at $1,943, up $23 from Friday's close. Falling lead stocks at around 31,900 tonnes from around 117,000 tonnes in June 2006, helped boost sentiment.
Production problems in Australia resulting in the declaration of force majeure at a British refinery have encouraged speculative interest in the metal. "Lead prices have risen to record highs, after a strong drawdown in inventories, particularly in Europe," Calyon said in a research note. "Further drops in coming weeks could mean prices could spike higher." Zinc was unchanged at $3,600 and tin was quoted at $13,475/13,500 from Friday's last quote at $13,450/13.475.
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