Supply woes push copper to a record high

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Supply woes push copper to a record high
Singapore | November 14, 2005 5:47:17 PM IST

Copper hit a record high of $4,120/$4,130 a tonne on Monday as investors waited for signals on supplies and further action by China to cap rocketing prices.

The price for three-month copper on the London Metal Exchange surpassed the record of $4,105 that the industrial metal set in London trading last Friday.

Analysts said copper could find support from tight world supplies as funds increasingly seek to diversify their portfolios to other commodities, such as metals, given the volatility in oil prices.

And this was likely to more than offset plans by China's State Reserves Bureau (SRB) to sell copper in its market as analysts believe the government agency may not have enough of the metal to make an impact on the market.

''We could see the market rising to around $4,150 this week,'' said a Tokyo-based trader. ''The supply fears are still there and most investors in Asia are waiting to watch how LME warehouse stocks move later in the day before building positions.'' Barclays Capital said in a research note that copper had broken out of an important range and now the trend pointed higher.

''Initial resistance is the trend line at $4,110 but the width of the range in October suggests gains beyond that to $4,250 before the next meaningful pause.'' Copper is up 30 per cent on the year, fuelled by China's insatiable appetite and demand from the investment funds.

MODERATE IMPACT FROM ASARCO News that Asarco's striking copper miners in the United States could return to work on Tuesday may remove some upward pressure, but some traders said the market had largely digested this news.

''It's possible the market is a bit subdued because of Asarco,'' said Gerard Burg, minerals and energy economist at the National Australia Bank. ''This should see more copper coming to the market in coming months and could cool things down a bit.'' Asian investors were waiting to see stock movements at LME warehouses later when the London market opens.

On Friday, as LME copper stocks fell 1,100 tonnes to 65,350 tonnes, cash metal hit $4,271 -- the highest price ever paid.

China's SRB said on Friday it held 1.3 million tonnes of copper, but traders believe the reserves are probably more in the 200,000-400,000 tonne range.

''We have seen little reaction to the SRB news. Probably, the market wants to see if the metal actually hits the market or not,'' Burg said.

Volumes remained subdued in Shanghai as Chinese buyers were not very keen to snap up the metal at current high prices.

''It's difficult to convince Chinese buyers at these prices,'' said a trader.

The most active January copper contract on the Shanghai Futures Exchange rose 490 yuan to 37,580 yuan a tonne from the previous settlement price.

The U.S. dollar held below two-year highs against the euro and the yen on Monday as investors looked ahead to a hearing on Ben Bernanke's nomination to take charge of the Federal Reserve. As of 0623 GMT (1153 IST), the dollar was was at 117.92 yen.

A stronger U.S. currency makes dollar-denominated commodities expensive to holders of other currencies and makes metals a less attractive investment tool.

Aluminium fell to $2,051/$2,056 a tonne from London's close of $2,058.

Nickel was at $11,800/$11,950 a tonne. Zinc was trading at $1,606/$1,611. Tin was at $6,200/$6,250. Lead was at $984/$988.