Copper Extends Gains on Speculation of U.S. Factory Rebound
By Claudia Carpenter
April 2 (Bloomberg) -- Copper rose for a third day in London on expectations for a rebound in U.S. factory orders, fueling prospects of improved demand for industrial metals. Lead and aluminum also climbed.
Copper prices have increased 5.9 percent in three days on signs the world economy is stabilizing after recessions in the U.S., Japan and Germany curbed metals usage. Factory orders in the U.S. jumped 1.5 percent last month, the first increase since July, the Commerce Department will report today, according to the median forecast of 64 economists surveyed by Bloomberg News.
“There are signs of stability in the U.S. economy, which is encouraging,” said Eliane Tanner, an analyst at Credit Suisse Group in Zurich. “If the factory orders report is positive, it’s certainly positive for sentiment.”
Copper for delivery in three months jumped $80, or 2 percent, to $4,140 a metric ton at 12:48 p.m. on the London Metal Exchange. The contract earlier climbed to $4,167.75, the highest this week. The factory orders report is set for release at 3 p.m. London time.
Yesterday’s report of an increase in new manufacturing orders in the U.S. “suggests the U.S. industrial production cycle has bottomed,” Citigroup Inc. analyst David Thurtell in London said. “Metal consumption should pick up.”
The Institute for Supply Management’s gauge of new orders rose to 41.2 in March from 33.1 in February. Industrial metals prices as measured by the LME Index “can easily gain 20 percent over the next six months,” he said.
The LME Index is up 11 percent this year, paced by copper, lead and zinc.
Damage Done
“A significant recovery may be some time off but most of the worst damage has already been done,” said Tim Mercer, chief investment manager at Hong Kong-based hedge fund Musashi Capital Ltd. Mercer said he isn’t buying commodities but “looking again seriously for the first time in quite a while.”
Traders who had sold copper “short” betting on lower prices may buy the contracts back, helping to send the metal up to $4,300 a ton in the next few days, Credit Suisse’s Tanner said.
Prices of copper, used in home wiring and power cables and an indicator of global economic growth, have risen 35 percent this year, partly after China, the world’s largest buyer, purchased metal for stockpiles, according to Macquarie Group Ltd.
Fed Signal
“China is buying large amounts of copper,” Chilean Mining Minister Santiago Gonzalez said in an interview in Santiago yesterday. Chile is the largest producer of copper. Prices have reached the bottom and are making “systematic” gains, he said.
Interest rate cuts and securities purchases by the Federal Reserve signal that “growth in real consumer durable spending should bounce back soon,” Thurtell wrote in a report yesterday. “U.S. consumer sentiment has stabilized at low levels, also hinting that the worst of the spending downturn” has passed.
Inventories of copper climbed 5,200 tons to 506,975 tons, the LME said in a daily report today. They are still down 7.6 percent from a five-year high of 548,400 tons on Feb. 25.
“Inventories have stopped rising due to China’s buying,” Tanner of Credit Suisse said. “When China’s buying abates, we could see renewed increases in inventories and then prices would come under pressure. We are still quite bearish on the copper prices on the three- to four-month horizon.”
Aluminum Stockpiles
Aluminum for three-month delivery added $34, or 2.5 percent, to $1,419 a ton. Inventories dropped 775 tons to 3.47 million tons, according to the LME’s daily warehouse report. They have jumped 49 percent this year.
Nickel rose $350, or 3.5 percent, to $10,450 a ton and earlier traded at $10,540, the highest since Feb. 13. Usage of nickel to make stainless steel will rise 30 percent to 795,000 tons in 2010 this year, researcher Heinz H. Pariser Alloy Metals & Steel forecast at a British Stainless Steel Association meeting in Sheffield, England, today. Stainless steel accounts for about half of nickel demand.
Lead for three-month delivery jumped $45, or 3.7 percent, to $1,265 a ton. Inventories of the metal used in car batteries dropped 150 tons to 61,475 tons, the second consecutive daily decline.
Zinc added $28.50, or 2.2 percent, to $1,340.50 a ton and tin climbed $300, or 2.9 percent, to $10,750 a ton. Tin earlier rose to $10,790 a ton, the highest since March 12.
To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net
Last Updated: April 2, 2009 07:52 EDT
