Copper gains, Red Kite warns prices need to fall 20 pct

* Copper trades around $9,900 a tonne, $300 off recent
record

 * Hedge fund Red Kite warns prices too high, need to correct
20 pct

 * Lead rises after leap in canceled warrants ration to 7 pct

 (Updates prices, adds quotes, details)	

 By Nick Trevethan	

 SINGAPORE, Feb 17 (Reuters) - London copper rose 0.7 percent
on Thursday, trading just above $9,900, but worries about
inflation and the demand-stifling effect of prices near highs
could keep the market check.	

 Three-month copper on the London Metal Exchange rose
$65.25 to $9,908.25 a tonne by 0414 GMT, after having touched a
record $10,190 on Tuesday.	

 But those high prices are cutting off demand from copper
consumers.	

 Metals-focused hedge fund Red Kite said the record highs in
copper were unsustainable and prices needed to fall 20 percent
or so to attract top buyer China back into the market in a big
way.	

 "The price needs to come down to around $7,500 to $8,000 a
tonne," Scott Hobart, portfolio manager at HFZ Capital
Management Ltd in Hong Kong, a unit of New York-based Red Kite,
said on the sidelines of a hedge fund industry event hosted by
Reuters. 	

 "It has to come down for China to start restocking on copper
and take stockpiles off the physical market. Without China
restocking, which is what the market is really hanging its hat
on at the moment, stocks will continue to build," Hobart said.  
  	

 Shanghai's most active copper contract dropped 0.9
percent to 74,960 yuan.	

 Prices were expected to fall to 73,850 yuan per tonne as a
five-wave cycle has completed with a correction on the way, said
Reuters analyst Wang Tao.	

 A fall from Tuesday's high has adopted a five-wave mode on
five-minute chart, signaling a short-term downtrend has
established, with a bearish target at 73,850 yuan, the 38.2
percent Fibonacci retracement on the rise from 69,900 yuan to
76,290 yuan. 	

 Inflation pressures in China, consumer of 40 percent of the
world's copper, and elsewhere, have sparked anxiety amongst
investors.	

 Food inflation is a particular problem for China, and higher
prices for basic staples could eat into the disposable income of
millions of would-be consumers.	

 U.S. core wholesale prices rose in January at their fastest
in more than two years, raising some concerns about inflation,
but economists said the recovery was too weak for a big spike in
consumer prices. 	

 Investors are waiting for a batch of data including
January's consumer prices and weekly jobless claims later in the
day, to assess the pace of the economic recovery. 	

 Lead rose 0.7 percent to $2,612, following a fall of
1.6 percent. On Wednesday, LME data showed a 16,000 tonne leap
in canceled warrants to 21,575 tonnes or more than 7 percent of
the total stockpile 	

 The lead market has seen a dominant cash position
controlling 50-80 percent of the market, and analysts linked the
fresh cancellations, focused on material Antwerp with that.
 	

 Some speculated that the material may be destined for
battery makers dealing with strong demand for auto batteries
after a chilly northern hemisphere winter.	

 For a graphic, click:
 here

   	
 Base metals prices at 0414 GMT
 Metal              Last       Change   Pct Move YTD pct chg
 LME Cu            9908.25     65.25     +0.66      3.21
 SHFE CU FUT MAY1    74960      -700     -0.93      4.33
 LME Alum          2510.00      6.00     +0.24      1.62
 SHFE AL FUT MAY1    17160       -70     -0.41      1.90
 HG COPPER MAR1     450.10     -6.55     +0.69      1.39
 LME Zinc          2511.00     25.00     +1.01      2.32
 SHFE ZN FUT MAY1    19780      -175     -0.88      1.57
 LME Nickel       28700.00    150.00     +0.53     15.96
 LME Lead          2612.00     17.00     +0.66      2.43
 LME Tin          32450.00    -50.00     -0.15     20.63
 LME/Shanghai arb^          1372
 Dollar/yuan          6.5845 \ 6.5858
 Shanghai and COMEX contracts show most
  active months
 ^ LME 3-m copper in yuan, including 17 pct
  VAT, minus SHFE  third 
 month
	
 (Reporting by Nick Trevethan; Editing by Ed Lane)

(Source: http://af.reuters.com/article/metalsNews/idAFL3E7DH05I20110217)