LONDON (Thomson Financial) - Copper headed back towards 8,000 usd as a breakdown in talks between striking workers and management at the Collahuasi mine in Chile reignited market fears of a global supply crunch.
"That little bit of news has triggered some buying and short-covering as the market realises there are still all these supply problems out there," said BaseMetals.com analyst Martin Hayes at the LME.
"8,000 is the target the market is gunning for, and there seems to be enough oomph to get it above that level," he said.
At 3.28 pm, LME copper for three-month delivery was up to 7,930 usd a tonne from 7,915 usd at the close yesterday.
Prices briefly rose above 8,000 usd on Friday on the threat of tighter global supply, as industrial unrest in the Americas and a decline in stockpiles created a nervous market.
The strike at Collahuasi, Chile's third biggest mine, has now been running since Monday. The breakdown in talks signals there is no immediate end in sight.
Markets were already nervous after Codelco, the world's biggest copper producer, stopped operations at its Andina plant in Chile because of labour protests.
In Canada, the strike at Xstrata's Montreal copper refinery, which has been running since early June, continues to rumble on.
"(The copper price) has come up against a big technical level of 8,000 usd. People are sitting waiting to see if there's enough steam in the strikes to take us through," said Jon Bergtheil, an analyst at JP Morgan.
Copper is further supported by the dwindling inventories at London Metals Exchange certified warehouses, which have dropped below 100,000 tonnes after drawing for 12 consecutive days.
Stockpiles fell 1,025 tonnes to 99,350 tonnes in today's data.
But gains in copper are limited by concerns over the outlook for the US economy.
"We closed weaker overnight following worries coming out of the US over the subprime markets," said UBS analyst Robin Bhar.
"Base metals were rattled by concerns the world economy is going to be affected, which would obviously slow down demand."
A predicted drop in Chinese imports for the second half of this year is also weighing on prices. The world's largest copper consumer built up large stockpiles of the metal in the first two quarters.
Among other metals, lead hit a fresh all-time high of 3,015 usd, before easing to 2,975 usd. Lead closed at 2,930 usd yesterday.
"Investment funds have discovered that lead is a metal that can really move and that is probably the thing that is driving the market up today, as there's not really any new news," said Hayes at BaseMetals.com.
Lead has rallied to a succession of all-time highs in recent months after China imposed a 10 pct export tax on the metal to address internal shortages.
The tax exacerbated a global shortage of the metal linked to the suspension of exports from Australia's Port Esperance, through which lead is transported from the Magellan mine.
Some analysts are concerned that lead is overvalued, and could fall dramatically if the price rises too high. However, analysts' views are mixed on lead's potential.
"Someone said to me that lead could become another nickel," said Hayes at BaseMetals.com, referring to the white metal's loss of a third of its value since hitting nearly 52,000 usd in May on falling demand.
"But in the short-term, we don't see that happening."
Nickel recovered slightly today to 33,100 against 32,645 usd -- after dropping a hefty 5.1 pct yesterday,
Aluminium edged up to at 2,821 usd from 2,808 usd, and zinc rose to 3,440 usd from 3,405 usd. Tin was flat at 14,150 usd.
d.sheppard@thomson.com
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