BLBG: Copper Rises to Record as Inflation Speeds Up in China, Biggest Consumer
Copper rose to a record in London as inflation reached a two-year high in China, the world’s biggest consumer of the metal, stoking demand for commodities as a hedge against rising consumer prices.
Consumer prices gained a more-than-forecast 4.4 percent from a year earlier in October, a statistics bureau report showed in Beijing today. Yesterday the government increased bank reserve requirements. China also reported a decrease in its copper production.
“Expectations of higher inflation are what’s provided the additional catalyst to take copper above the previous record,” Gayle Berry, an analyst at Barclays Capital in London, said by telephone. “It’s the picture painted by the confluence of data that came out today. When you look at the fundamentals, there is a lot there to find support as well.”
Copper for three-month delivery on the London Metal Exchange climbed as high as $8,966 a metric ton, surpassing the previous peak of $8,940 set in July 2008. The contract was up $166, or 1.9 percent, at $8,926 at 9:51 a.m. local time, for a 21 percent increase this year.
Copper for December delivery added 2.4 percent to $4.065 a pound on the Comex in New York. Prices touched $4.0835, the highest level since May 2008, when the most-active contract reached a record $4.2605.
Retail Sales
Industrial production in China advanced 13.1 percent and retail sales rose 18.6 percent in October from a year earlier, the government also said. The country’s refined-copper production dropped 1.2 percent to 400,000 tons last month, the National Bureau of Statistics said.
“The latest Chinese production data masks underlying strong copper demand,” Berry said. “And when you look at the economic data, it’s also suggestive of continued strong growth in metals demand.”
Codelco, the world’s biggest copper producer, is increasing the surcharge on sales to South Korea next year by 32 percent, the second straight annual gain, said three industry executives with direct knowledge of the matter.
Copper will rise to $11,250 a ton next year, above a prior forecast of $8,000, Bank of America-Merrill Lynch said in a report.
Exchange-Traded Funds
“Heavily driven by continued tight mine supplies, copper has the strongest structural fundamentals among the base metals,” BofA-ML analyst Jason Fairclough said. The planned introduction of exchange-traded funds “should add to upward pressure on prices and physical premia,” he said.
Refined-copper output will lag behind demand by 435,000 tons next year, the first shortage since 2007, according to the International Copper Study Group.
Copper’s “supply-demand deficits look set to grow on emerging-market demand strength and improving demand from developed economies,” Goldman Sachs Group Inc. analysts including Jeffrey Currie wrote in a Nov. 9 report. The rundown in stockpiles may cause “periods of extreme volatility and price spikes.”
Copper also has gained on speculation that Federal Reserve asset purchases, or quantitative easing, will hurt the dollar, boosting demand for commodities as an alternative investment. The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, has dropped 12 percent from its 2010 peak on June 7.
Smaller Inventories
Copper stockpiles in LME warehouses have shrunk 28 percent this year, on course for the first annual decline since 2004. Inventories were 362,950 tons today, the lowest level since October 2009.
Immediate-delivery copper’s premium to the three-month contract rose 17 percent to $7 a ton yesterday. Prices moved on Nov. 8 to a so-called backwardation, when nearby metal trades above longer-dated contracts, potentially indicating concern about near-term supply. The backwardation is set to increase as supply drops and prices rise, BofA-ML’s Fairclough said.
Copper will likely rise further to $9,095 a ton, according to technical analysis from Barclays Capital. The metal is “only a short step away” from the “psychologically important” $9,000 level, according to the bank.
Copper is the second metal on the LME after tin to set a record this year as the global economy recovers from its worst recession since World War II. Tin, up 60 percent this year, reached $27,500 a ton on Nov. 9 after production was disrupted in Indonesia, the biggest exporter, and the Democratic Republic of Congo.
Tin for three-month delivery on the LME rose 0.4 percent to $27,050 a ton, lead gained 1.2 percent to $2,634.50 a ton and zinc added 1.6 percent to $2,565 a ton. Aluminum rose 1.2 percent to $2,477 a ton and nickel climbed 1.2 percent to $24,449 a ton.
To contact the reporters on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at ccarpenter@bloomberg.net; James Poole at jpoole4@bloomberg.net
