copper up as market eyes 2011 demand boost

By Chris Kelly and Michael Taylor

NEW YORK/LONDON, Dec 17 (Reuters) - Copper closed up on Friday, notching its third consecutive week of gains, as short-term technical momentum and bullish demand prospects from China in the new year kept prices buoyant near all-time record peaks.

Copper bulls were unfazed by a broad-based drop in global equity markets and a rallying dollar, and instead focused on a positive stream of economic data that suggested improved demand conditions in the year ahead.

"All of the signals are there that we are going to see demand continue at a very brisk pace all throughout 2011," said Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.

"These markets have shown an ability over the course of the year to withstand moves in the euro/dollar relationship. I think the supply/demand fundamentals are strong enough to triumph, or continue to triumph," he said.

London Metal Exchange (LME) benchmark copper CMCU3 ended up $79 at $9,070 a tonne, nearly $200 away from its all-time record peak at $9,267.50 hit on Dec. 14.

COMEX copper for March delivery HGH1 climbed 4.30 cents, or 1 percent, to settle at $4.1590 per lb.

On Tuesday, it hit its own all-time high at $4.2290.

Copper has rallied more than 50 percent since early June, with much of the rise in recent weeks tied to speculation that China will return to the global copper market early next year after a period of destocking.

"Chinese re-stocking next year is possible and on the plus-side," Edward Meir, energy and metals analyst for MF Global in New York. "On the minus-side, continued tightening would crimp demand."

"We can maybe get to $10,000 as a high (in 2011) ... but if you get to $11,000 or $12,000, you're definitely going to have an impact on demand," he added. "There will be more substitution -- people will use more scrap."

In the currency markets, the euro came under pressure after Moody's Investors Service slashed Ireland's credit rating by five notches and warned further downgrades could follow if Ireland was unable to stabilize its debt situation. [USD/]

A higher dollar makes metals priced in the U.S. currency more expensive for holders of other currencies.

COMPARABLE

Stocks of copper in LME warehouses rose for the fifth day in a row. Latest data showed a small increase of 600 tonnes, to 361,400 tonnes. That is little more than seven days of global consumption, however. <0#LME-STOCKS>

Inventories in warehouses monitored by the Shanghai Futures Exchange rose 10 percent on the week. [ID:nTST000714]

(Global stocks graphic: link.reuters.com/deg67n )

Overall, global stocks estimated at above 1.2 million tonnes account for more than three weeks of global consumption.

"When the Chinese come back into the market in the first or second quarter next year, copper will do very well," Michael Widmer, analyst at BoA Merrill Lynch said. "Reported stocks could fall below one week's worth of demand next year, that's uncharted territory."

Widmer is expecting copper to average above $11,000 a tonne next year and is expecting global demand -- estimated at around 19 million tonnes this year -- to exceed supplies this year and next.

Concern about supplies is one reason for a premium -- about $40 a tonne -- for the cash contract over the three-month contract. MCU0-3

Also on the radar are the physical base metal exchange traded products listed in London by ETF Securities.

Latest data from ETF Securities showed that the amount of copper held to back a physical copper exchange traded product PHCU.L jumped by about 570 tonnes to 595.2 tonnes as of Dec. 16, from Dec.14. [ID:nWLA1161]

Total holdings in the physical nickel PHNI.L and physical tin PHSN.L ETPs rose by 60 tonnes to around 66 tonnes and by 75 tonnes to 80 tonnes, respectively. Metal Prices at 1708 GMT COMEX copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Pct Move End 2009 Ytd Pct

move COMEX Cu 416.90 5.30 +1.29 334.65 24.58 LME Alum 2334.00 13.00 +0.56 2230.00 4.66 LME Cu 9070.00 79.00 +0.88 7375.00 22.98 LME Lead 2420.00 50.00 +2.11 2432.00 -0.49 LME Nickel 24995.00 295.00 +1.19 18525.00 34.93 LME Tin 26000.00 -100.00 -0.38 16950.00 53.39 LME Zinc 2274.00 54.00 +2.43 2560.00 -11.17 SHFE Alu 16570.00 30.00 +0.18 17160.00 -3.44 SHFE Cu* 68430.00 1260.00 +1.88 59900.00 14.24 SHFE Zin 18780.00 265.00 +1.43 21195.00 -11.39 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Pratima Desai in London; editing by Anthony Barker)

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