The price of copper hit a four-month high on Thursday morning as continued optimism about Chinese demand buoyed the red metal amid tightening physical supplies.
Copper for delivery in three months gained 0.7 per cent to $7,675 a tonne on the London Metal Exchange, its highest since April and up 25 per cent since early June. That is just $400 short of the two-year peak above $8,000 it touched in April.
Many analysts believe copper is likely to break through that price and head for a new record high above $9,000 a tonne in the next year.
Supply has been falling, with the top four listed copper miners – Freeport-McMoRan, BHP Billiton, Xstrata and Rio Tinto – seeing their collective output drop 12 per cent from in the first half of 2010 from a year earlier.
That has meant copper – nicknamed “Dr Copper” for its qualities as a barometer of the global economy – has been relatively insensitive to fears of a double-dip recession in the US.
“Even if you make bearish assumptions about the global economic recovery, the copper market is still tight,” said Max Layton, analyst at Macquarie in London.
Ric Deverell, commodities analyst at Credit Suisse, said: “After moving in lock-step with other risk assets over the first half of the year, continued strong industrial demand has surprised many as metals have outperformed since mid year, as the fundamentals have begun to reassert themselves.”
The rise in Chinese purchasing managers’ indices reported on Wednesday was enough to refocus attention on copper’s supply-side problems.
Inventories of the metal at LME warehouses have fallen 28 per cent since February, and there has been a sharp rise in copper premiums – the cost of physical delivery of metal above the LME price.
“Discussions with producers continue to suggest that the physical market remains very tight for many metals, particularly copper,” Mr Deverell said. “Indeed, judging by base metals’ price changes over the past week of trading, investors may already have jumped on to this bandwagon.”
Other base metals were also higher on Thursday. Zinc for delivery in three months also touched a four-month high of $2,188 a tonne, while tin was at $21,525, just short of its two-year peak.
“We expect base metals to outperform from September, with copper likely to lead,” Mr Deverell said
Elsewhere, ICE October cotton gained 1.2 per cent to 91.25 cents a pound, just short of a 15-year peak.
Spot gold was just shy of $1,250 a troy ounce: analysts said investor demand had been building on the back of growing negativity about the US economy, and that any price dips were being bought by physical consumers of the yellow metal.
