LONDON, April 1 (Reuters) - Copper hit 20-month highs on Thursday, starting the second quarter in upbeat mood as improving demand sentiment and investor cash supported metals.
By 0927 GMT, copper for three month delivery CMCU3 on the London Metal Exchange traded at $7,928 a tonne from $7,780 at the close on Wednesday.
Copper, used in power and construction, earlier touched a peak at $7,938, levels not seen since August 2008 and inching closer to the psychological $8,000 level.
"Fresh highs are attracting more capital because people are becoming more and more convinced that growth will continue to be sustained," said Eugen Weinberg, an analyst at Commerzbank.
"Most people think that due to ... falling LME inventories, the prices are going higher -- but it's false," he added. "It is very typical for bubbles, that the price reaction is being mistaken for fundamentals."
Falling LME inventories have helped aid sentiment in recent weeks, with copper stocks dipping 1,875 tonnes to 512,450 tonnes, having hit 6-1/2 year highs at 555,075 in mid-February.
Aluminium CMAL3 traded at $2,359 versus $2,323, levels not seen since mid-January. LME stocks for the metal, used in transport and packaging, fell 5,850 tonnes to remain near record levels at 4.59 million tonnes. <0#LME-STOCKS>
A large portion of those aluminium stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than in money markets. [ID:nGEE5BA277]
Investors are also closely watching central bank moves on monetary policy, with China's central bank on Wednesday reaffirming its loose monetary stance while also saying it would implement policy more flexibly. [ID:nTOE62U078]
On Thursday, data showed that China's vast manufacturing sector picked up speed in March as orders climbed, pointing to brisk first-quarter GDP growth that could spur further policy tightening. [ID:nTOE63001J]
Buying from China, the world's largest metals consumer, has been partly responsible for copper's 140 percent gains in 2009 and 5.5 percent rise in the first quarter. [ID:nLDE62U1VJ]
Investors are looking for growth signs outside of China however, with U.S. non-farm payrolls data due on Friday.
NICKEL Q1 STAR PERFORMER
Nickel prices rose 34.9 percent in the first quarter of this year, outperforming other LME metals, on buying triggered by expectations of stronger demand from stainless steel mills.
On Thursday, steel making ingredient nickel CMNI3 traded at near two-year highs at $25,700 from $24,995. A series of strikes, project delays and production problems are expected to send the nickel market into deficit in 2010, the first time in four years. [ID:nLDE62L0X3] [ID:nSGE62I0A1]
LME nickel inventories hit a record high above 166,000 tonnes in early February, but despite rising 1,086 tonnes on Thursday to 157,512 tonnes, they remain at low levels not seen since late-2009.
"Nickel production over the past few months has been performing much weaker than the rest of the base metals," said Gayle Berry, an analyst at Barclays Capital. "This recovery in demand is only just getting going, and you will see it pick up momentum through the second quarter.
"Declines that you see in stocks are likely to continue."
Investors are also keeping close tabs on LME data, which showed a dominant position controlling between 50-80 percent of cash warrants for both nickel, tin and lead. [LME/WC]
Traders and market sources said New York based hedge fund Touradji Capital Management is betting on improved demand for nickel, helping it outperform other base metals this year. [ID:nLDE62S0ZI] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on first quarter price performances here For a TAKE A LOOK on nickel click [ID:nSGE62I0A1] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> In other metals, battery material lead CMPB3 was at one week highs at $2,218 from $2,145, zinc CMZN3 traded at two month highs at $2,430 a tonne from $2,375, tin CMSN3 was at $18,600 from $18,450, levels not seen since September 2008.
Metal Prices at 0938 GMT Metal Last Change Pct Move End 2009 Ytd Pct
move COMEX Cu 356.50 1.90 +0.54 332.75 7.14 LME Alum 2345.00 22.00 +0.95 2230.00 5.16 LME Cu 7921.00 141.00 +1.81 7375.00 7.40 LME Lead 2212.00 67.00 +3.12 2432.00 -9.05 LME Nickel 25600.00 605.00 +2.42 18525.00 38.19 LME Tin 18575.00 125.00 +0.68 16950.00 9.59 LME Zinc 2424.00 49.00 +2.06 2560.00 -5.31 SHFE Alu 16650.00 75.00 +0.45 17160.00 -2.97 SHFE Cu* 62200.00 880.00 +1.44 59900.00 3.84 SHFE Zin 19245.00 450.00 +2.39 21195.00 -9.20 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
(Reporting by Michael Taylor; editing by Keiron Henderson)
