Commodities | Apr 10 2006
Copper peaked at a record US$5830/t in trading on Friday. Reuters reports tight supplies, falling inventories, and soaring demand for new power plants and high-rises in China were the catalyst. The market is anticipating a breach of the previously unknown US$6000/t soon.
Fuelling the surge was the opinions presented by delegates at consulting group CRU’s fifth annual World Copper Conference in Santiago last week.
The view was that despite the state of demand and supply, the copper price was being driven hard by investment funds. While this might suggest concerns of a speculative bubble, industry players were not worried, Reuters reports.
"There are concerns that a wall of money will swamp this relatively small market," said CRU director Peter Kettle, but "our feeling is that everything that has happened to the price is justified".
Reuters reports one hedge fund trader, who declined to be named, suggested the traditional copper players were unjustifiably concerned that the fund money would suddenly stop, leaving them holding the bag. For that reason they are shorter than they should be, he noted.
This would only serve to increase upside risk in the price. A representative from COMEX also played down short term speculation fears, noting the funds have been in the market for two years and are investing in increasingly longer contract dates. Peter Kettle went on to say the greater liquidity that investment funds have brought to the market will actually work to protect the copper consumer from dramatic price falls.
Meanwhile, technical analysts at Barclays Capital are also bullish from a purely charting point of view. They note that while copper did not hold the price gain at US$5830/t (it closed slightly lower – otherwise it would have been the largest weekly price rise in six years), the ultimate 6.2% rise was pretty impressive.
Technical history shows that 6% plus weekly price gains have occurred nine times since 1989, and that each time the following week has ended higher still.