Copper rallied to a record high on Tuesday above $9,000 (U.S.) a tonne on rising demand expectations for 2011 against a backdrop of tight supply, while a softer dollar against the euro triggered a burst of short-covering.
Benchmark copper on the London Metal Exchange traded at $8,990 a tonne at 1104 GMT, having earlier reached a record at $9,014 a tonne.
The metal used in power and construction has jumped almost 20 per cent this year. It finished at $8,770 a tonne on Monday.
On the fundamental side, expectations of dwindling supply and growing emerging market demand next year are "certainly supportive for prices," said analyst Leon Westgate of Standard Bank.
The International Copper Study Group sees the global market for refined copper in a 400,000-tonne deficit next year as increased economic activity boosts demand to outstrip growth of refined production.
However, short-covering also provided fuel for the rally, Mr. Westgate said.
"Initially it was a weak start in Asia, and then (copper) just swept higher and took out stops, which triggered short-covering," he said.
Traders said some Chinese speculators who have hoarded physical copper have hedged their exposure on the LME.
"It's short-covering from Chinese," said one London trader. "They may be long copper overall - but that is physical in China - they are short the LME," he added.
Apart from the potential launch of exchange-traded products, which could suck away some 180,000 tonnes of refined metal from the market, prospects are for higher prices when consumers need to restock early next year, analysts said.
"The deficit (is seen) increasing by varying estimates of between 200,000 and 400,000 tons during 2011 and 2012 at a time when consumers are still operating low inventory levels," said Sucden Financial in a research note.
Meanwhile, dollar weakness was also a factor, a trader said, as the euro edged higher on optimism Ireland will pass an austerity budget later in the day.
Dollar weakness makes commodities cheaper for holders of other currencies.
The latest LME data showed that exchange stocks fell by 1,000 tonnes to 351,375 tonnes. They have now dropped by 37 per cent since February, when stockpiles at LME warehouses stood at 555,075 the highest level since October 2003.
"The ever depleting stocks are signalling increasing levels of consumption," added Sucden.
A lack of copper supply from December has underpinned prices of the three-month contract, with the price of metal for nearby delivery having traded at a premium against the benchmark contract since early November.
While the premium has softened a little this last week on expectations demand will moderate into year end as inventories are downsized for cash and tax purposes, it still remains at lofty levels.
On the exchange, volumes have been solid, with over 12,000 lots of the three-month contract having changed hands. On the back of copper's performance, momentum across other metals gained steam with zinc and lead climbing over three per cent, while nickel hit its highest in one month.
Zinc rose 3.6 per cent to $2,300, up from the $2,220 close, lead rallied 3.3 per cent to $2,429 a tonne from $2,353 a tonne, while nickel at $24,015 a tonne advanced from the $23,600 close.
Elsewhere, aluminium traded at $2,345 a tonne, rising from $2,305 and tin ticked up to $26,250 from $25,450.