Copper on track to settle above $4/lb as combination of factors weighs
mineweb.com
Falling warehouse stocks, continuing strong demand from China and India and supply worries, exacerbated by latest Chilean copper mine strike are all combining to push, and maintain, the copper price above $4/lb.
Posted: Thursday , 17 Apr 2008
NEW YORK (Reuters) - Investors who have bet on copper prices climbing to new record highs need not press the panic button, even though numerous price spikes this year have failed to keep U.S. futures above the important chart level of $4.00 a lb.
Bullish technical indications, favorable investment flows and positive supply/demand fundamentals suggest copper has not yet reached its top, traders and analysts said this week.
"The outlook looks very good in this market," said Matthew Zeman, head of trading with LaSalle Futures Group in Chicago. "Any pullbacks right now, looking longer term, are good buying opportunities."
Copper prices on the New York Mercantile Exchange's COMEX division surpassed the $4.00 level on six different occasions this year. But while copper has flirted with the record high spot price at $4.16 set in May 2006, its failure to carry through has prompted investors to pocket profits.
"I would look for some consecutive closes over $4 to confirm that we're moving on to a new, higher trading range," Zeman said, adding he did not see prices pulling back too far in the meantime.
Scott Meyers, senior trading analyst with Pioneer Futures in New York, believed the $4 level should at some point turn into support.
"You will start to see it vacillate through $4.00 more frequently as opposed to just getting there and backing off," he said.
Copper for delivery in three months on the London Metal Exchange soared to a new all-time high at $8,880 a tonne on Thursday, breaching its previous peak of $8,820 set in March.
The copper market has benefited from a flow of investment fund money this year as investors looked to diversify their portfolios away from weaker performing equities and bonds and into the high-flying commodities sector.
"Copper is not going to new multimonth highs, and then shooting higher by accident. It's got to be something fundamentally driving those prices higher," said Adam Sarhan, founder of GlobalMacroResearch.com in New York.
Indeed, an environment of U.S. dollar weakness, tighter global exchange-monitored warehouse stocks, optimistic demand outlooks from emerging markets like India and China, and the ever-present threat of supply disruptions from unstable producing regions around the globe have all combined to keep the red metal's prospects high.
Copper inventories at warehouses for exchanges in London, Shanghai and the United States have declined by nearly 22 percent since the end of 2007.
"All of the fundamental factors should remain in place," LaSalle Futures Group's Zeman said.
That favorable outlook was confirmed by copper producers and investors at last week's CRU/Cesco 7th World Copper Conference in Santiago, Chile, where merger and acquisition rumblings, stronger demand growth from China and supply issues dominated the headlines.
Those supply concerns were realized this week when subcontractors from the Confederation of Copper Workers in Chile began a strike across all divisions of the world's No. 1 copper producer, Codelco.
The strike action paralyzed output at the company's Salvador and Andina divisions, and helped boost COMEX copper prices to new contract highs Thursday.
"That is adding a fear premium to the market right now," Zeman said. "People are very nervous about output quotas and supply, so copper's probably not going to go anywhere but higher from here." (Reporting by Chris Kelly; editing by Jim Marshall) |
