Copper Rises to 31-Month High on Comex

Copper Rises to 31-Month High on Comex, Record Price in London

December 07, 2010, 9:14 AM EST

By Glenys Sim and Maria Kolesnikova

Dec. 7 (Bloomberg) — Copper rose to a 31-month high in New York and reached a record in London as an extension of U.S. tax cuts reduced concern

Europe’s debt crisis may spread and weighed on the dollar.

President Barack Obama said he’ll agree to a two-year extension on all Bush-era tax cuts. The dollar weakened, making metals priced in the currency

cheaper in terms of other monies. Copper also gained as China’s benchmark money-market rate fell the most in three years and inventories tracked by the

London Metal Exchange shrank further.

“Prices are up again today as favorable messages surrounding stimulus in the U.S. and continued demand in China emerge,” John Meyer, an analyst at

Fairfax IS said in a report.

Copper for March delivery added 11 cents, or 2.7 percent, to $4.118 a pound at 8:42 a.m. on the Comex in New York. Prices reached $4.1225, the highest

level since May 5, 2008, when they touched a record $4.2605.

Copper for three-month delivery climbed as high as $9,044 a metric ton on the LME, surpassing the previous peak of $8,966 on Nov. 11. The contract was

last up 2.8 percent at $9,013, for a 22 percent gain this year.

Open interest in dollar-denominated LME copper, or futures outstanding, rose to a record 310,740 contracts yesterday, according to data compiled by

Bloomberg.

Bullish Bets

“The recent trend of rising open interest and higher prices suggests that the addition of new long positions has been the main driver of the latest move,” Leon

Westgate, a London- based analyst at Standard Bank Plc, wrote in a report today, referring to bets on higher prices. Some traders have also been buying

contracts to close out bets that prices would decline, “exacerbating some of the price action,” he said.

The European Union is set to approve Ireland’s rescue package, while the region’s finance ministers ruled out immediate aid for Portugal and Spain or an

increase in the 750 billion-euro ($1 trillion) debt crisis fund.

Copper stockpiles in LME warehouses have shrunk 30 percent this year, dropping to 351,375 tons, the lowest level since October 2009, exchange data show.

Inventories monitored by the Shanghai Futures Exchange fell last week for a second week.

Falling Inventories

Demand will outpace supply by 367,500 tons next year, enough for wires, pipes and appliances in about 1.8 million U.S. homes, according to the median

forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an all-time low of less than one week’s usage, according to Michael Widmer, a

London- based metals analyst at Bank of America Merrill Lynch.

Copper gained on speculation the Federal Reserve may increase asset purchases, hurting the dollar and boosting demand for commodities as an alternative

investment. Federal Reserve Chairman Ben S. Bernanke said the economy is barely expanding at a sustainable pace and the Fed may need more stimulus.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, dropped as much as 0.5 percent today, after increasing yesterday for the first time in

four days. A weaker dollar also spurs demand for commodities as an alternative investment.

Demand for copper, used in everything from smart phones to brake pads, will increase 4.2 percent next year, compared with a 2.6 percent gain in production,

Barclays Capital said in a report Nov. 11. Supplies fell 363,000 tons short of demand in the first eight months of this year, the International Copper Study

Group said Nov. 23.

Ore Quality

Mining companies have failed to keep pace with demand because new reserves are harder to find and the quality of ore is declining, meaning less metal is

extracted from each ton of earth. Average grades declined to about 1.1 percent this year from 1.6 percent in 1990, according to Guildford, England-based

researcher Brook Hunt, a Wood Mackenzie company.

The potential for exchange-traded products has helped the rally. ETF Securities Ltd., BlackRock Inc. and JPMorgan Chase & Co. have said they plan to start

funds backed by the metal.

One unidentified company held between 50 percent and 79 percent of LME copper stockpiles from Nov. 22 to Dec. 2, exchange data show. Buyers on Dec. 1

paid $74 a ton, the largest premium in two years, for immediate supply relative to the three-month contract. The gap was last at $50.

Workers at Anglo American Plc and Xstrata Plc’s Collahuasi venture in Chile accepted a wage offer yesterday, ending a month-long strike at the world’s thirdlargest

copper mine. The strike was the longest recorded dispute at a major copper mine in Chile, the world’s biggest producing nation.

Tin for three-month delivery on the LME rose 3.1 percent to $26,265 a ton. Prices reached a record $27,500 on Nov. 9.