World Business

Demand revival likely to push copper futures past $8,000

By Glenys Sim (China Daily)
Updated: 2010-04-06 11:00

SINGAPORE: Copper futures in London may advance to more than $8,000 a metric ton this week for the first time since the collapse of Lehman Brothers Holdings Inc in 2008, buoyed by a revival in demand that's more than doubled prices.

The metal for three-month delivery on the London Metal Exchange touched $7,939.75 a ton on April 1, the highest level since Aug 1, 2008, when it last traded at more than $8,000. LME trading resumes on Tuesday after the Easter holiday.

Copper's revival underscores the rebound of the global economy, which was tipped into the deepest recession since World War II by Lehman's collapse and the freezing of credit markets. The commodity, used in houses and autos, can set the pace for other industrial metals such as nickel and zinc.

"We have embedded in our forecasts for copper to go above $8,000 sometime in the second quarter," Yingxi Yu, an analyst at Barclays Capital, said from Singapore today. "Copper's had a robust performance and sentiment is still positive," Yu said, citing declining stockpiles and positive economic data.

Former Federal Reserve Chairman Alan Greenspan said that there is "momentum building up" in the US economy, the world's second-largest copper user. Manufacturing in China, the largest user of the metal, grew for a 13th month in March, according to data released on Friday.

"We're in the first third of a very strong, sustainable recovery here," Jesper Koll, Tokyo-based head of equity research at JPMorgan Chase & Co, said in a Bloomberg Television interview. "Here in Asia, things are growing very fast."

Copper reached a record $8,940 a ton on July 2, 2008, two months before Lehman's failure. The metal then lost 68 percent of its value in the following five-and-a-half months as factories reduced purchases and investors fled commodity holdings. Government stimulus packages, including China's $586 billion program, drove a doubling of prices last year.

Futures in New York jumped to a 20-month high after reports last week showed manufacturing expanded in India, the US and Europe, as well as China, and after US payrolls expanded by the most in three years. The May-delivery contract gained 1.1 percent to $3.625 a pound at 11:46 am in Singapore.

Inventories tallied by the LME have fallen 7.7 percent since reaching a six-and-a-half-year high in February. They stood at 512,757 tons on April 2. Stockpiles in Shanghai fell for a second week last week from the highest since at least 2003.

Copper may rise this week as stronger manufacturing figures feed speculation demand is improving, according to a Bloomberg survey published April 2. Eleven of 20 analysts, investors and traders in the survey, or 55 percent, said the metal will climb, while eight forecast lower prices and one expected little change.

The trading direction in copper this week will come from what people say at Cesco, said Barclays Capital's Yu, referring to an annual gathering in Chile. Traders, investors and executives are meeting in Santiago at metals conferences, including a dinner organized by Chilean research group known as Cesco, or the Center for Copper and Mining Studies.

Prices are almost double the level that copper was trading at before Cesco last year, while stockpiles are also "much higher", said Macquarie Group Ltd analysts including Jim Lennon. "Information that demand is improving will be a focus of the market at Cesco," Lennon wrote in an April 2 report.

Bloomberg News