Copper Prices Rise on Speculation Demand by Funds to Increase
2006-07-06 10:27 (New York)
By Katy Watson
July 6 (Bloomberg) -- Copper prices rose on speculation
investment funds will keep buying the metal, increasing commodity
holdings to tap gains that have outpaced stocks and bonds.
Commodity investments held by hedge funds, banks and other
money managers have grown to about $130 billion, John Normand,
global currency and fixed income strategist, told the Commodity
Investment Summit in London yesterday. Some funds may choose to
allocate more money to commodities at the beginning of the third
quarter, according to John Kemp, an analyst at Sempra Metals.
``The hope and expectation is that that might come in, if not
yesterday and today, then within the next few days,'' London-based
Kemp said. Sempra Metals is one of 11 companies trading on the
floor of the London Metal Exchange.
Copper for delivery in three months on the LME rose $178, or
2.4 percent, to $7,548 a metric ton at 3:23 p.m. London time. The
metal, which is used to make wiring, has more than doubled in the
past year. It rose to a record $8,800 on May 11.
Copper futures for September delivery climbed 6.1 cents, or
1.8 percent, to $3.465 a pound on the Comex division of the New
York Mercantile Exchange. A futures contract is an obligation to
buy or sell a commodity at a fixed price for a specific delivery
date.
Pension funds and hedge funds buoyed copper prices by shifting
assets out of stocks and bonds into commodities in search of
greater returns. HSBC Holdings Plc, Europe's largest bank by market
value, said in a May 24 report about $100 billion will be invested
in commodity indexes by the end of this year, compared with $10
billion at the end of 2003.
Commodity Gains
The Reuters/Jefferies CRB Index, which tracks metals, energy
and grains, has gained 12 percent in 12 months. The S&P 500 Index
has risen 6.4 percent. The total return on government bonds from
the G7 fell 2 percent in the same period, according to Merrill
Lynch & Co. indexes.
Investment funds are having a greater impact on commodity
prices than demand from China, India and other emerging markets for
the underlying products, Normand said. Pension funds, which have
about $7 trillion in assets, may increase their commodities
holdings, which according to Normand stand at $21 billion.
``Financial investors are changing the rules of the game,''
Anthony Morris, who works in structured products research at
Zurich-based UBS AG, said yesterday at the London conference. ``In
commodities, the real big hitters are institutional investors
making portfolio decisions.''
Copper earlier fell as much as $40 to $7,330 a ton.
``Overall, liquidity is poor, volumes are thin, so these
things are moving around a bit,'' said Robin Bhar, a London-based
analyst at UBS Ltd. This will continue into the summer, a
traditionally quiet period for trading, he said.
Zambia
Vedanta Resources Plc's Zambian unit Konkola Copper Mines Plc,
Africa's biggest copper producer, yesterday halted output at its
Nchanga plant after a fire, said Augustine Seyuba, corporate
affairs director at Konkola.
The fire destroyed a section of a leaching plant at Nchanga,
northern Zambia, before being brought under control, Seyuba said in
a telephone interview from the capital Lusaka. Konkola's smelter at
Kitwe is operating normally, he added.
Copper production was halted, said Seyuba, who wouldn't say
how much copper is produced at Nchanga. The company will release a
more detailed statement today, he said.
Konkola plans to almost triple copper production to 6 million
metric tons a year from 2.35 million tons, Chairman Navin Agarwal
said June 25.
Among other LME metals, nickel gained $600, or 2.6 percent, to
$23,350 after reaching $23,400, the highest since at least 1987.
Zinc gained $120, or 3.7 percent, to $3,380 a ton. The
percentage gain was the biggest fluctuation of any commodity today.
Tin increased $125 to $8,475, and lead gained $8 at $1,018.
Aluminum rose $85, or 3.4 percent, to $2,565 after falling 4.3
percent yesterday.
``Within aluminum, there's a bit of a tussle between the bulls
and the bears,'' said Kemp.
--With reporting by Saijel Kishan in London. Editor: Casey
(slw/pjm) |
