US copper futures rallied to life-of-contract highs on Tuesday as a bout of speculative short-covering gained momentum when London copper breached $8,000 a tonne, analysts said.
"The $8,000 level was a big area for the market. There just does not seem to be any real selling. A lot of it, I think, is still reflective of the world economy just being strong and absorbing what supplies are out there for now," said Steve Platt, analyst with Archer Financial Services in Chicago.
Most-active July copper surged 13.70 cents or nearly 3.9 percent to settle at $3.6790 per lb on the New York Mercantile Exchange's Comex division, easing back from a new contract peak of $3.6970.
Copper for May delivery ended up 13.75 cents at $3.6770 after climbing to a new life-of-contract high of $3.6975. Estimated copper futures volumes just before the close slowed to only 2,655 lots, compared with the 16,150 lots recorded on Monday.
Open interest in copper futures rose 333 lots to 78,212 contracts on April 16.
Analysts noted copper's latest leg higher was fuelled by investor nervousness tied to potential labour strife at the massive Grasberg copper mine in Indonesia.
Workers from US mining firm Freeport McMoRan Copper & Gold's Grasberg mine called off planned talks with the company over a labour dispute on Tuesday and said they would go ahead with a protest rally.
Output at the Grasberg mine believed to have the world's third-largest copper reserves and one of the biggest gold deposits is expected to reach 1.1 billion lbs. of copper in 2007, down slightly from 1.2 billion in 2006, a spokesman said.
"This is all in the background keeping people nervous and limited in terms of their selling," Platt said. Sharp declines in the dollar were also seen supporting the red metal's advance on Tuesday, traders said, as a softer dollar typically makes dollar-denominated assets like copper less expensive to overseas investors.
The dollar fell to a two-year low against the euro after US economic data showed core US consumer prices rose less than expected in March, supporting the view the Federal Reserve may be more inclined to cut interest rates.
Consumer prices rose 0.6 percent last month, the Labour Department said, although excluding food and energy costs, they expanded 0.1 percent, below economists' median forecast for a 0.2 percent increase.
Another US government report showed that the pace of home construction rose 0.8 percent in March to a rate that beat analysts' predictions, although the rise was well below the previous month's increase.
Looking at supply-side fundamentals, London Metal Exchange (LME) stocks declined 2,575 tonnes to 172,025 tonnes on Tuesday, while Comex stocks fell by 112 short tons to 35,796 short tons on Monday. LME three-month copper reached $8,090 a tonne, it's highest since September 7, before settling up $320 or 4 percent at $8,050.