Copper, Zinc Rise to Records on Signs of Growing Chinese Demand
Jan. 25 (Bloomberg) -- Copper and zinc rose to record highs in London on speculation that sustained economic growth in China, the world's largest consumer of industrial metals, will boost demand for all commodities.
Copper used in wire and pipe has surged 56 percent in the past year, and zinc used in stainless steel is up 78 percent. China overtook the U.K. as the fourth-largest economy last year, fueling a four-year commodity rally as the country build more homes, power lines and appliances. The economy may expand 8.5 percent this year, the Chinese statistics bureau said yesterday.
``China's dependence on metals imports will continue to grow,'' Michael Lewis, head global head of commodities at Deutsche Bank in London, said today in a phone interview.
Copper for delivery in three months rose $113, or 2.4 percent, to $4,760 a metric ton at 3:15 p.m. on the London Metal Exchange, after earlier reaching a record $4,780. Zinc, the biggest gainer on the LME last year, today rose $46, or 2.1 percent, to $2.275 a ton, after reaching a record $2,305.30.
Returns from metals and energy outpaced equities last year, with the Reuters Jefferies CRB Index, which tracks 19 commodity futures, gaining 17 percent, compared with a 3 percent increase in the Standard & Poor's 500 Index of U.S. companies. Zinc jumped 53 percent last year, and copper rose almost 40 percent.
The CRB is up 3.9 percent this month and reached a record 347.82 two days ago.
Optimism
Prices probably will keep rising in the next two to three years because supply isn't expanding fast enough to meet demand from China, said Greig Gailey, chief executive officer of Zinifex Ltd., the world's second-largest zinc producer.
``It is difficult to see new mines coming in the next two to three years'' that are needed to meet rising demand, Gailey said in an interview from Davos, Switzerland, where he is attending the World Economic Forum. He declined to give a forecast for prices.
China's zinc consumption is expanding because of demand from steelmakers, who use the dark-gray metal to rust-proof steel. Chinese steel production rose 25 percent to a record last year, making it the world's biggest steelmaking nation.
Zinc will average 21 percent more in 2006 than last year, beating all other LME-traded metals for a second consecutive year, according to a Bloomberg News survey. The metal will rise to an average of $1,666 a this year, based on the average estimate of analysts in the survey.
Strike Disruption
A strike by more than 750 workers at Peru's largest zinc and lead producer Volcan Cia. Minera SA's Andaychagua, San Cristobal and Yauli mines began Jan. 18. The protest has fueled speculation of a wider production shortfall this year than analysts expected.
The strike will end tomorrow, Reuters reported yesterday, citing Luis Castillo, head of Peru's Mining Federation.
Lead for delivery in three months rose $48, or 4.6 percent, to a record $1,387 a ton.
Copper, the second-biggest gainer on the LME last year, has seen four consecutive years of supply shortfalls as miners haven't been able to beat demand from power cable and wire manufacturers. China accounts for nearly a quarter of global demand.
Copper may gain to an average of $2 a pound ($4,409.20) this year, up from $1.66 last year as the metal's inventories remain low, according to Alain William, a Paris-based analyst at ING Wholesale Banking.
Copper inventory monitored by the LME dropped 1.5 percent to 101,500 tons today, the LME said. That's equals to less than three days of global consumption.
Chinese processors, including cable makers, are buying copper to keep plants running during the Lunar New Year because Chinese markets are closed from Jan. 30 to Feb. 3.
Among other metals for delivery in three months traded on the LME, aluminum rose $43, or 1.8 percent, to $2,492 a ton. Nickel gained $250, or 1.8 percent, to $15,125 and tin rose $145, or 2 percent, to $7,500 a ton.
To contact the reporter on this story:
Julie Tay in London at jtay1@bloomberg.net;
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