Chinese infrastructure spending pledge boosts base metals prices

Base metals prices have been boosted by China’s $600 billion economic stimulus plan. Nickel rose 13 percent and copper around 10 percent

LONDON (Reuters)  - 

Copper jumped almost 10 percent on Monday, pulling all industrial metals higher, on hopes that China's $600 billion economic stimulus plan will boost demand.

China, the world's biggest copper user, on Sunday approved 4 trillion yuan ($586 billion) in new government spending between now and 2010.

"Overall this is good news for metal consumption but it is going to take time," said Barclays Capital analyst Gayle Berry. "It was a slightly larger spending plan than our economists had expected but it is needed because the slowdown in the exports market has been so rapid."

London Metal Exchange copper rallied as high as $4,120.5 a tonne, up 9.7 percent, from $3,755 a tonne at the close on Friday. It was trading at $4,025 in official rings.

"While such an injection of cash is certainty constructive, we are skeptical about the "staying power" of this move on metal prices, and doubt it will be enough to propel the complex to a higher trading range," said MF Global in a note.

Prices for copper have slumped more than 50 percent from a record high of $8,940 in July amid slowing demand.

Inventories of the metal, used in construction and power, rose 6,050 tonnes to 260,850 tonnes, the highest since March 2004. Copper stocks have jumped almost 23,000 tonnes so far in November.

"This is not overly surprising given the state of the physical markets, particularly in the U.S. and Europe," Berry said.

China's stimulus plan and a pledge by the G20 group, representing 90 percent of the world's economy, to take all necessary measures to get financial markets back on their feet lifted all industrial metals as did the weaker dollar.

A weaker U.S. currency makes dollar-priced metals cheaper for holders of other currencies.

NICKEL VOLATILITY

Nickel jumped 13 percent helped by short-covering as investors who had bet on lower prices bought back their positions.

"We have seen that over the past couple of weeks where the gains from short covering have been really quite substantial and that is a reflection of how large a short position has been established on nickel," said Berry.

The volatility in nickel prices is likely to continue over the next few months, she added.

The metal soared as high as $12,400 a tonne, from Friday's last bid of $10,975, and was last quoted at $12,100/12,150 in official rings.

"Nickel has probably fallen further below production cost than any other base metal, so in the short term it also has the greatest potential for recovery," said Commerzbank in a note.

Prices have dropped over 50 percent so far this year on lower demand from stainless steel producers and have remained below $20,000 a tonne since Sept. 1.

Aluminium rose as high as $2,040, a 4.1 percent gain, from $1,960 on Friday. It last traded at $2,030.

LME inventories posted another jump -- up 11,125 to 1.55 million tonnes -- but prices were supported by an announcement that a $10.6 billion aluminium joint venture between Rio Tinto and Saudi-based Maaden could be delayed by one or two years due to the global financial crisis.

Zinc rallied 7.2 percent to a session high of $1,170 from a last bid of $1,091 a tonne. It last traded at $1,141.

Oz Minerals Ltd the world's second largest zinc miner and a major supplier of copper, lead and nickel to China, was the latest miner to say it is reviewing operations amid sharply lower metals prices and tighter credit markets.

Lead jumped 6.2 percent to $1,445, from $1,361 a tonne, and was quoted at $1,425/1,426. Tin gained 4.8 percent to a high of $15,300 and was bid at $15,100 a tonne from the last bid of $14,600 on Friday.

 (Reporting by Julie Crust; editing by William Hardy)

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