By James Campbell
Of DOW JONES NEWSWIRES


SINGAPORE (Dow Jones)--Copper surged to a new record high on the London Metal Exchange Tuesday, with strong investor interest being driven by expectations of seasonal strength in China after the Lunar New Year holidays.

The timing of the rally is interesting, as many market participants were expecting trade to be rangebound ahead of the holidays after January proved volatile. The week-long holiday starts Wednesday.

Copper gained only 1.5% in the first month of the year, trading in a $548 band, despite bullish projections from analysts for 2011.

"Some macro investors are hoping that we will see a surge of Chinese buying after the holidays and this is driving the current move," said a Hong Kong-based broker.

At 0310 GMT, LME three-month copper was trading up 0.9% at $9,830 a metric ton, after breaking past the Jan. 19 high of $9,781 immediately after the open.

"Last time we were here (at record LME copper prices) Shanghai copper was trading at a $500 discount to the LME, and now it's just above $100, so the market has definitely changed," he said.

On the Shanghai Futures Exchange, May copper was trading at CNY74,860, up CNY1,310 and at a $141 discount to the LME price.

Copper in China has been trading at a persistent discount to LME prices since August, discouraging Chinese imports, and this has been one of the few drags on the red metal's performance in that time.

LME Copper rallied 35% over the period, which coincided with a renewed program of monetary stimulus from the U.S. Federal Reserve, improving U.S. economic data and healthy gains in U.S. equity markets.

Other metals were also up in Asia Tuesday, with LME three-month tin up 0.6% at a record high of $30,300/ton, and LME three-month nickel at $27,500/ton, up $150 and only a whisker from its highest level since May 2008.

"Copper's broken to the upside and that's given strong encouragement to the rest of the (metals) complex," said Yingxi Yu, commodity analyst at Barclays Capital in Singapore.

She said the latest rally is again being driven by investor interest rather than industry buying.

"I don't think anything fundamental has changed. There was some liquidation in January but the broad-based strength in commodities we saw last week has turned sentiment around," she said.

Metals were helped by Brent crude oil's push through the $100-a-barrel mark Monday, and by the continued strength of U.S. economic data, with the ISM-Chicago purchasing manufacturers index climbing to 68.8 in January. It was the highest barometer reading since July 1988 and marked the 16th straight month of economic expansion.

However, not everyone is convinced the post-Lunar New Year period will be plain sailing for copper and other metals, as indications from the physical market are still subdued.

Spot physical copper in Shanghai trades at a discount to futures, and physical premiums have dropped below $50 per ton from above $100 back in August.

"The Asian physical market is very price sensitive and it remains to be seen whether there will be a pick up strong enough to sustain prices around the $10,000 level," said the Hong Kong-based broker.

-By James Campbell, Dow Jones Newswires, +656415-4082; james.campbell@dowjones.com

Source: http://online.wsj.com/article/BT-CO-20110131-720541.html