Copper Rises on Speculation Drop From Record Was Overplayed
2006-06-15 14:58 (New York)
By Katy Watson
June 15 (Bloomberg) -- Copper rose the most in three weeks
on speculation that the metal's 25 percent decline from a record
high last month was exaggerated as mine output fails to keep
pace with demand. Aluminum, nickel and zinc also gained.
Global copper production may drop by 226,000 metric tons
this year because of disruptions at mines, Citigroup Inc. said
in a June 11 report, up 46 percent from its estimate on May 8.
Copper's slide since May 11 was fueled by concern that rising
interest rates will slow the economy and hurt metals demand.
``The underlying supply-demand positions are looking
strong,'' said Peter Kettle, an analyst in London at CRU
International, a metals-consulting company. Recent price
declines were ``a correction rather than the beginning of the
end'' for the rally, he said.
Copper for delivery in three months rose $365, or 5.5
percent, to $6,995 a metric ton at 6:56 p.m. on the London Metal
Exchange, the biggest gain since May 23. Prices yesterday rose
for the first day in five, gaining 0.9 percent from a seven-week
low. Copper has more than doubled in the past two years, and
reached a record $8,800 on May 11.
On the Comex division of the New York Mercantile Exchange,
copper futures for July delivery rose 15.15 cents, or 5.1
percent, to $3.1315 a pound, the most since May 23. Prices
reached a record $4.04 on May 11. A futures contract is an
obligation to sell or to buy a commodity at a fixed price for a
specific delivery date.
Growth Concerns
Before today, copper had fallen 26 percent from its record
in New York partly on concern that two years of U.S. interest-
rate increases by the Federal Reserve is starting to restrict
growth. The U.S. is the world's second-largest user of copper,
used in pipes and wires.
The Federal Reserve Bank of New York said today its general
economic index climbed to 29, the highest reading in three
months, from 12.9 in May. Economists forecast a reading of 11.
Manufacturers in the survey reported the biggest increase in new
orders since September 2001 and said they are getting higher
prices for their products.
In the Philadelphia area, manufacturers this month notched
the biggest increase in new orders since September 2001. The
Philadelphia Fed's general economic index fell to 13.1 in June
from 14.4 in May, still higher than the median forecast of 11 in
a Bloomberg News survey.
``We are still bullish on commodities,'' David Tice, who
manages the $600 million Prudent Bear Fund said from St. Thomas,
U.S. Virgin Islands. ``As we transition to a more Asia-growth-
centric model, we think commodity prices over all in the next
five years will be up.''
Rising Rates
Central banks across the world are raising interest rates
to rein in inflation. The European Central Bank, which on June 8
increased its benchmark rate for the third time in six months,
said in its monthly report today that borrowing costs are still
low and there's a risk inflation will accelerate. South Korea,
India and South Africa increased rates last week.
Higher gasoline costs and rents boosted U.S. consumer
prices last month, fuelling speculation that the Fed will raise
the benchmark rate at the next meeting June 29. The central bank
has increased rates 16 times since May 2004.
``Fundamentals are still supportive of prices, but some
investors are more concerned with risk reduction because of a
possible Fed rate hike,'' said Shen Haihua, vice president at
Maike Futures Co. in Shanghai.
China, the world's largest metal user, said yesterday that
industrial production rose 17.9 percent to 706 billion yuan in
May, the biggest gain in two years. Adjusting for distortions
caused by the timing of the week-long Lunar New Year holiday,
the increase was the biggest since April 2004.
Copper production may lag behind consumption by 34,000 tons
this year, Citigroup analyst John Hill in San Francisco said
June 11.
Among other metals traded on the LME, aluminum rose $55, or
2.2 percent, to $2,565 a ton; zinc rose $115 to $3,075 a ton;
nickel gained $990 to $18,900 a ton, and tin added $175 to
$7,950 a ton.
--With reporting by Choy Leng Yeong in Seattle, Chia-Peck Wong
in Singapore, Meeyoung Song in Seoul and Matthew Brockett in
Frankfurt. Editors: Carrigan (sds). |
