Copper prices have risen in recent weeks, as demand remains strong. On March 31 copper rallied four per cent to a record $5605 a tonne in the London Market. The market was caught a little short and many were expecting some correction. Some dealers expected a correction by Easter, suggesting fund selling could push copper, used in construction and electronics down to $4800 a ton.
The Benchmark London Metal Exchange (LME) copper futures for delivery in three months MCU3 peaked at a record-breaking $5,510 in electronic trade on March 31, up $95 from earlier day’s close and about 5 percent higher for the week. “It is impossible to say when the downturn will be — we will see some profit-taking for sure — but in a bull market you never try to call the top,” a fund source said.
Dealers said buying was driven by supply concerns due to industrial action in Mexico and production and environmental problems in Indonesia and Chile, aggravated by low global inventories. The latest problem was at the 400,000 tonne-per-year Collahuasi mine in Chile. Warehouse stocks on the three major metal exchanges — the LME, the Shanghai Futures Exchange and COMEX in New York — stood at 174.534 tons, equivalent to around 3.5 days of global use. Three years ago LME stocks alone were 800,000 tons. Dealers said end-of-quarter window dressing by fund managers might also be lifting prices.
Copper has risen by around 25 per cent this year on fund buying prompted by global inventory declines and supply worries in Indonesia, Zambia, Mexico and Chile. Striking miners at Grupo Mexico’s La Caridad copper mine dug in their heels on April 2, and vowed to continue their walkout, a day after employees at a nearby lime plant joined the strike, the union said.
Macquarie said in its latest note: “Six months ago it looked as though the refined copper market would be in surplus by around 380,000 tons in 2006”. “By the beginning of this year that surplus had been cut to just over 200,000 tons, and now we believe that the refined copper market will be in deficit by around 50,000 tons in 2006.”
Copper is set on a course up towards $6,000 a ton as speculative buying of key industrial metals overwhelms producers’ ability to raise output, analysts said “Copper has exceeded even the most bullish analysts’ targets and it is a futile exercise calling the peak. We have gone up so much in the last few days and it looks to be heading to $6,000,” Stephen Briggs, analyst at investment bank, SGCIB, said.
“It’s a combination of the massive flow of fund money and the copper industry’s failure to meet production targets,” he said. Briggs said the only thing that could stop copper would be a long series of weak US economic data.
On the London Metal Exchange copper for delivery in three months MCU3 was down $73 at $5,542 from its close on April 3, when it touched a record high of $5,616.
“Copper has now hit $5,600 and it is only a matter of time before we see $6,000 as fund money flowing into commodities seems almost limitless at this stage,” a Hong Kong-based metals trader said.
Copper, used in construction and electronics, has risen nearly 28 per cent this year as global inventories have fallen and as worries have mounted over deliveries from leading producing countries such as Indonesia, Zambia, Mexico and Chile.
Gold
GOLD prices have risen by 38 per cent in the past 12 months and now target the next big level of $600 an ounce, with funds and investors positive about the outlook.
“We are still well above the $580 level and it looks pretty good that we are going to get above $600 at some stage,” said Michael Widmer, analyst at Macquarie Bank. “The fund money is the main driver in the market and that has not changed since the cycle began.” Investors were being drawn to precious metals by inflation concerns, speculation about purchases by central banks and worries about Iran’s nuclear programme, he said.
Dealers said a rise to $592-$596 might prompt selling, while a drop to around $575-$582 would bring in fresh buyers. High and volatile prices have hit physical demand. Turkish gold imports fell 56.8 per cent to 36.2 tons in the first quarter to 2006 from the same period last year, while demand in India, the world’s top consumer, was expected to remain subdued.
Virtual Metals, a UK-based consultancy, said the gold market would swing to a surplus of 422 tons in 2006 from a deficit of 310 tons in 2005 if prices remained firm.
In industry news, the European Central Bank said it had sold 57 tons of gold, and planned no more in the second year of the Central banks’ Gold Agreement that stipulates banks should cap total sales at 2,500 tons during 2004-09.
Oil
IN the London market, world oil prices rose towards $68.0 per barrel, as traders fretted over tensions in major crude producers Iran and Nigeria and as investment funds flowed into the market, dealers said.
New York’s main contract, light sweet crude for delivery in May, surged by 1.02 dollars to 67.65 dollars per barrel in pit trading on April 3, after earlier hitting 67.90 dollars — the best level since February 1. In London, the price of Brent North Sea crude for May delivery jumped 1.73 dollars to 67.64 dollars per barrel in electronic deals. The contract earlier struck 67.93 dollar — the highest peak for seven months and near its record of 68.89 dollars, hit in August 2005.
Iran is under pressure from the UN Security Council to halt uranium enrichment amid fears it is seeking to develop a nuclear bomb. Traders fear that UN action might curtail exports from Iran, which is the world’s fourth biggest producer of crude.
According to Barclays Capital analyst Kevin Norrish, the latest Iran developments were “likely to keep geopolitics at the forefront of oil market concerns, as is news of further flashes between militants and the Nigerian army at Shell’s abandoned oil operations in the Niger Delta region.”
A drop in gasoline (petrol) stocks in the US is of particular concern ahead of the driving season, beginning in May, when American drivers take to the open roads on vacation.
The US Department of Energy said gasoline stocks fell by 2.3 million barrels in the third week of March, to 221.6 million barrels. Analysts had expected them to drop by only one million barrels. Despite the drop they are marginally higher than at this time last year. The Department of Energy said that crude oil inventories slipped by 1.3 million barrels last week to total 338.6 million. However, they are still nearly 9 percent above their levels a year ago.
