Copper prices rallied to an all-time high on Tuesday as shipment delays in top producer Chile and robust demand prospects in China underscored the red metal’s tightening supply-demand balance.
A sluggish supply-side response following 2008’s global economic downturn and the unexpected resurgence of worldwide demand for the industrial metal were seen keeping the fund-inspired rally this year fully intact.
“It’s a tight market ... it’s probably the tightest metals market out there from a supply-demand balance,” said Evan Smith, co-manager of the U.S. Global Investors Global Resources Fund, with about $850-million (U.S.) in assets under management.
“Copper looks to be in a fairly significant (supply) deficit in 2011 ... demand is climbing and supply is not keeping pace.”
On the London Metal Exchange, benchmark copper for three-month delivery soared $191 to a record $9,392 a tonne. It went untraded on the kerb, but was last bid at $9,365/9,370, up from Monday’s close at $9,201.
On the New York Mercantile Exchange, COMEX copper for March delivery closed up 7.00 cents, or 1.7 per cent, at $4.2760 per lb, near an earlier record at $4.2895 per lb.
Prices have risen for three consecutive trading sessions, moving up 4.01 per cent in the biggest three-day rally since Dec. 3.
Despite the impending Christmas Day holiday on Friday, volumes remained relatively firm at 27,660 lots – up nearly 2 per cent from Monday’s total, but 41 per cent below the 30-day moving average, according to Thomson Reuters preliminary data.
Copper prices are up nearly 26 per cent on the year, building upon a staggering 140 per cent increase in 2009.
Threats to an already tight supply chain escalated Monday after the world’s No. 3 copper mine, Chile’s Collahuasi, halted shipments of copper concentrate following a weekend accident that shut its key ocean export terminal.
“The small accident with Collahuasi ... reinforces the outlook copper supplies are tightening,” said Andrey Kryuchenkov of VTB Capital.
Still, the incident was not expected to cause a major near-term impact on Chinese copper smelters.
Collahuasi was in talks with officials of the nearby Patillos port to resume copper shipments from there.
“It’s temporary, but it seems like many of these temporary disruptions are keeping a lid on supply while demand continues to rebound from the 2009 lows,” Global Investors’s Smith said.
Another copper demand factor in development is the growing investment in physically backed exchange-traded products.
The amount of copper held to back the exchange traded product increased by some 850.5 tonnes to 1,445.5 tonnes, according to ETF Securities’ website on Dec. 21.
“Investors have taken to investing in commodities through ETFs, particularly ones that are backed by physical metal rather than futures ... that’s probably going to be the driver for the next leg up in copper in 2011,” Smith said.
CHINA TRADE
Worries about supply in the near term have moved copper into a $37.50 a tonne backwardation – premium for cash material over the three-month contract – compared with a discount of $20 a tonne in late October.
Copper stocks have climbed for the past seven sessions, but at 362,725 tonnes, are still down by over one-third from cycle highs of 555,075 tonnes hit in mid-February.
Consumption in China is expected to be robust in 2011. The latest data on Tuesday showed China’s imports of refined copper rose nearly 37 per cent in November from a year earlier, reversing a nearly 30 per cent fall in October.
Traders also noted a new influx of funds into the copper market.
“There has been CTA/fresh fund buying again in copper, but the market hasn’t got much to sell,” said one London metals trader.
He noted $9,390 as a possible chart-based resistance level. CTAs, or commodity trade advisers, typically use strategies based on chart patterns and algorithms to buy or sell.
In wider markets, risk aversion appeared to be pushed to the back burner, even as ratings agency Moody’s put Portugal on review for a possible credit downgrade, as mergers and acquisitions, and rising commodity prices helped stock markets to rally.
“The euro is not in very good shape at the moment. The U.S. also does not look very good with the monetary easing,” said Herwig Schmidt, head of sales at Triland Metals. “With interest rates at (close to) zero, people can’t even invest in bonds ... So people flee to commodities.”
Among other metals, aluminium closed up $57 at $2,435 a tonne, having hit its highest level in more than one month. LME stocks for the metal slipped 3,325 tonnes to 4.27 million tonnes.
Aluminium is the top base metal pick for the next six months, Castlestone Management said late on Monday, with prices likely to hit $2,500 a tonne next year as Chinese smelters cut output.