Copper briefly surpassed $6,000 a ton and headed for the biggest weekly rally ever as the metal became the target of Chinese speculators and bets that Donald Trump will pour money into U.S. infrastructure.
Copper rose as much as 7.6 percent to $6,025.50, the biggest intraday increase since 2009. Prices were at $5,915 as of 12:17 p.m. in London. For the week, the metal is up 19 per cent, the most in records stretching back to 1986.
The rally, which started three weeks ago, has been fueled by speculative trading in China, which will cool later this year, Citigroup Inc. said in a note. As the most-traded base metal and a barometer of economic growth, copper is also a proxy for investors' views that Trump's presidency will boost government spending on bridges, roads and airports.
"It's going crazy," Robin Bhar, an analyst at Societe Generale SA, said by phone. "This is spillover buying from what's happening in China."
The rally has been overdone, but he's recommending that clients wait before making bets that prices will fall. Copper's 14-day relative strength index was at 92, the highest recorded. A reading above 70 suggests an asset is overbought.
"It's too early to get short. Don't stand in front of a speeding train," Bhar said. "Prices are going to come down at some stage."
Goldman Sachs Group Inc. analysts including Max Layton and Jeff Currie said in a research note that copper's rally could reverse abruptly in the first quarter on a pickup in supply and slowing demand and credit growth in China. The bank favors zinc and nickel in 2017, which are either in deficit or more directly exposed to U.S. stimulus, it said.
On the Comex in New York, about 104,000 contracts changed hands on Friday, about four times the average for the time of day, according to data compiled by Bloomberg.
Other bullish factors include falling stockpiles and optimism following LME Week. Hedge funds and other large speculators boosted their long positions by 20 percent to a record 67,806 U.S. copper futures and options contracts in the week ended Nov. 1, according to Commodity Futures Trading Commission data released Friday.
Stockpiles on the LME have fallen steadily since the end of September, declining 29 per cent to 270,850 tons. Antofagasta Plc's top executive said he was less pessimistic on copper after meeting customers and traders during LME Week.
An increase in trading fees and margins on Chinese commodities exchanges is prompting speculators to trade copper on the LME, Citigroup analysts including David Wilson wrote in an e-mailed note.
The Shanghai Futures Exchange on Thursday raised margin requirements for aluminum and other metals, after trading terms for iron ore, coal and other commodities were tightened by Chinese bourses.
While the surge "appears premature" and prices may fall toward the end of the year, stronger-than-expected Chinese factory data, falling global inventories, and additional spending by China on its power network all point to higher prices in the medium term, according to Citigroup.
"Fundamentals haven't changed," Mikinobu Ogata, senior managing executive officer of Sumitomo Metal Mining Co., said in Tokyo on Friday. "I don't think there's any change in supply and demand."
Mining stocks were muted. Chilean copper producer Antofagasta Plc advanced 0.6 per cent after soaring 11 per cent yesterday. Glencore Plc, Anglo American Plc and Rio Tinto Group declined slightly.
Other industrial metals also climbed, with nickel up 2 per cent and zinc 0.9 per cent higher. Nickel gained 13 per cent this week, the most since 2009.