Nickel made its lows around mid-morning, then pushed back over the $13 mark where it held, just barely, closing at $13.0045/lb., up better than 14 cents. Zinc traded jaggedly around the $1 mark but couldn’t hold it, ending at $0.9987/lb., down just under a half-cent. Aluminum was off sharply through the whole day, barely coming off its intraday low to $1.333/lb., down more than 4 cents, while lead also plummeted, shedding nearly 4 cents to its intraday low of $1.2293/lb.

Copper sagged as the appreciating dollar made commodities less attractive for hedging purposes.

In addition, the market could not ignore the dismal new home sales numbers. Richard Adkerson, CEO of Freeport-McMoRan Copper & Gold Inc., the world’s second-leading producer, said that, “Economic conditions in the U.S. are affecting copper consumption.”

U.S. consumption of the metal was off 3.3% last year, according to data from the International Copper Study Group.

Still, miners are “struggling to produce at full capacity,” said Evy Hambro, managing director of BlackRock Investment Management’s World Mining Fund, and the “supply-side has been heavily disrupted this year.”

Emblematic of those disruptions is the Chilean standoff between a subcontractor’s union and state-owned Codelco. Yesterday, the company halted work at Teniente, the world’s biggest underground copper mine, after permanent workers vowed to stay away until it halts violent protests by their subcontract colleagues.

Subcontractors at Teniente hurled stones at buses transporting permanent workers, injuring two people. Codelco said Teniente would stay shut at least until today, while the Andina and Salvador operations have been closed for nine days.

In company news, Freeport McMoRan announced stellar results for the first quarter of 2008. Revenue surged from $2.25 billion to $5.67 billion, year-over-year, while net income soared to $1.1 billion from $476 million.

And Russian aluminum giant Rusal announced that it has acquired a 25% stake in Norilsk Nickel. Analysts believe Rusal is aiming to eventually gain a controlling interest in Norilsk. That would create one of the world’s largest metals and mining conglomerates, a mega-business with a market cap of more than $100 billion.

Copper surged the most in seven weeks, closing above $4 for the first time and approaching its alltime intraday record price of $4.04, set in May of 2006.

While the uptrend was not completely unexpected, it caught many offguard.

Although global copper demand “remains strong and there are challenges to the industry to provide supplies of copper,” said Richard Adkerson, chief executive officer of Freeport-McMoRan Copper & Gold, “To have copper approaching $4 a pound is remarkable.”

Yes, as Citigroup reported this week, a “tidal wave” of $70 billion has poured into commodity markets this year from hedge funds and other investors.

And there are many who agree with Tobias Levkovich, Citigroup’s chief U.S. equity strategist, who claims there is a commodity “bubble” that is poised to burst.

But it is physical demand, not speculative investment, that is driving copper prices, says Bret Clayton, CEO of Rio Tinto Group’s copper division. “We see a very strong market,” Clayton says. “We are in a very finely balanced market, with very low stock levels.”

Maybe we should just split the difference.

“The main drivers for copper have been in place for some time,” says Ron Goodis, a of Equidex Brokerage Group in Closter, New Jersey. “There’s continuing global growth that’s been pushing demand. When you combine that with the push from speculators, you have this huge move.”

In company news, rumors continued that Baosteel, China’s biggest steelmaker, was on the prowl to acquire a muti-billion dollar stake in BHP Billiton.

And the country’s state-owned aluminum giant, Chinalco, fresh off its partnership with Alcoa in grabbing a major stake in Rio Tinto, said it is not done. It’s actively looking to pick up some more mining assets, particularly in copper.

Asked if Chinalco was looking in South America or Africa for mining projects, Xioaling Ren, the company’s vice president of marketing replied simply: “Wherever possible.”