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    Copper Advances to Almost Two-Year High in London on Stockpiles

    By Chanyaporn Chanjaroen

    Feb. 21 (Bloomberg) -- Copper rose to the highest in almost two years in London on speculation increased demand will shrink stockpiles already at a 16-month low. Aluminum and zinc gained.

    Inventories at exchanges in London, New York and Shanghai were at 179,244 metric tons, a level unseen since October 2006. They averaged 3.5 days of global consumption, compared with last year's average of 4.9 days, according to Bloomberg calculations.

    ``The main drive has been strong demand,'' said Michael Widmer, head of metals research at Lehman Brothers Holdings Inc. in London. Traders and investors who sold borrowed metal on prospects of price declines are buying it back, he said.

    Copper for delivery in three months advanced $249, or 3.1 percent, to $8,399 a ton by 4:05 p.m. local time. It traded as high as $8,415 a ton, the highest intraday since May 30, 2006.

    The metal, which moves in line with industrial production, has rallied 26 percent this year after demand in China, the largest consumer, expanded 35 percent in 2007, according to estimates by the World Bureau of Metal Statistics.

    Precious metals also rose, with gold for immediate delivery topping $950 an ounce to reach a record. The UBS Bloomberg Constant Maturity Commodity Index tracking 26 commodities also rallied to the highest ever.

    ``The chance is definitely there'' that copper could rise to the record $8,800 a ton it touched on May 11, 2006, Widmer said. About a quarter of LME stockpiles were earmarked for withdrawal, signaling further inventory declines, he said.

    Short positions, or bets on price declines, exceeded bets on price gains through May, exchange data showed. Traders with short positions have sold borrowed futures and need to buy the contracts to close their positions as prices advance.

    Yunan Producers

    Yunnan Luoping Zinc & Electricity Co., a copper producer based in China's Yunnan province, said today it cut output because of a lack of power. Yunnan Chihong Zinc and Germanium Co. said yesterday it had reduced output since Feb. 11.

    Zinc and lead rose on speculation power shortages in China, the world's largest producer of both metals, will reduce supply after the country's worst snowstorms in decades halted smelters and mines, and cut transportation links from late January.

    Yunnan Luoping Zinc & Electricity Co., a producer of the metal based in China's Yunnan province, said today it cut output because of a lack of power. Yunnan Chihong Zinc and Germanium Co. said yesterday it had reduced output since Feb. 11.

    ``Damage to production areas in China is more significant than some had thought,'' said Alex Heath, head of industrial metals trading at RBC Capital Markets in London. People are buying the metal in ``panic,'' he said.

    Zinc Rally

    Zinc rose as much as $145, or 6 percent, to $2,555, the highest intraday price since Feb. 1. Shanghai zinc for May delivery rose by the exchange-imposed daily limit of 4 percent. Special high-grade zinc for immediate delivery in Changjiang, Shanghai's biggest cash market, gained as much as 7.2 percent.

    Stockpiles of the metal tracked by the LME rose to a four- month high of 121,050 tons. Still, its availability is limited as LME figures show one company controlled between 50 percent and 79 percent of total inventories as of Feb. 19.

    At today's cash price and excluding zinc earmarked for withdrawal, it would cost about $277.2 million to hold half of the LME-monitored stockpiles of the metal.

    Barclays Capital projected China's lost zinc output at about 45,000 tons, less than 1 percent of last year's total world production of 11.41 million tons estimated by the International Lead and Zinc Study Group. Stockpiles of the metal are adequate to fill any gap, the bank's analysts led by Kevin Norrish in London wrote today in a report.

    Outpacing Supply

    Zinc and lead consumption exceeded production last year, although the supply shortfall in both metals was lower than in 2006, according to Lisbon-based ILZSG.

    China's zinc demand expanded 15 percent last year, accounting for a third of world use. The country's demand for lead rose 15 percent in 2007. China is the world's largest user of both metals, the Lisbon-based group said Feb. 18.

    Lead climbed as much as $84.15, or 2.6 percent, to $3,360.15 a ton, the highest since Nov. 16.

    Aluminum gained as much as $88, or 3.1 percent, to $2,970 a ton, the highest since May 2006. The metal's 22 percent gain this year is due to concern power shortages in China and South Africa, the world's main production areas, will curb output.

    All futures rose across the price curve, indicating speculation on further gains. The contract maturing May 2010 climbed to a record $2,916 a ton yesterday.

    Among other metals traded on the LME, nickel added $1,000, or 3.6 percent, to $29,100 and tin advanced $275 to $17,400 a ton.

    To graph technical gauges for zinc: Moving Averages Relative Strength Index Fibonacci Back Test Technical Gauges

    To contact the reporter on this story: Chanyaporn Chanjaroen in London at [email protected]

    Last Updated: February 21, 2008 12:34 EST
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