Copper Heads for Largest Monthly Gain Since 1987 on Disruption
April 28 (Bloomberg) -- Copper headed for its biggest monthly gain in 18 years as workers at a Chilean mine voted to strike, adding to global supply disruptions.
Workers at Falconbridge Ltd.'s Lomas Bayas mine decided yesterday to walk out on May 2 after their Canadian employer rejected demands for a pay increase. Output has been lost during a monthlong stoppage at the La Caridad mine, owned by Grupo Mexico SA. First-quarter output was lower at Freeport-McMoRan Copper & Gold Inc.'s Grasberg mine because of lower-grade ore.
``The supply side is only going to continue to suffer from disruption,'' said Kevin Tuohy, a trader at Man Financial Ltd., one of the 11 companies trading on the floor of the London Metal Exchange.
Copper for delivery in three months on the London Metal Exchange rose $110, or 1.6 percent, to $7,165 a metric ton as of 11:42 a.m. local time. The metal, which traded at a record $7,385 a ton on April 26, has gained 33 percent this month, the biggest monthly increase since November 1987.
Lomas Bayas produced about 63,000 tons of copper last year. The strike would probably reduce output by half, mine union president Elias Andronico said in an interview.
``Strikes, low grades, and other production problems have plagued the copper industry and are likely to continue to be feature of the market for the next several years,'' said UBS AG analysts led by Daniel Brebner in London, in a report today.
Production Shortfall
Copper demand this year will rise 6 percent to 17.8 million tons, beating production by 200,000 tons, UBS said. Consumers may have to rely on stockpiles to fill the shortfall. Inventory monitored by commodity exchanges in London, New York and Shanghai has dropped 13 percent this month to 168,278 tons, according to data compiled by Bloomberg.
The production deficit forecast for copper and other metals is attracting buying from investment funds, which are betting commodities will outpace other assets such as stocks and bonds. Investments in commodities may exceed $120 billion by 2008, compared with $80 billion at the end of 2005, Barclays Plc's commodity research director Kevin Norrish said April 26.
The increase in speculative buying has left the metal overvalued, according to Sumitomo Metal Mining Co., Japan's second-biggest copper smelter.
``Sales of copper aren't expected to decline, but the current price is not reflecting the actual situation of supply and demand,'' said Naoki Tajiri, general manager of Sumitomo Metal's finance and accounting department. ``Copper is trading in the $7,000 a ton-range now, but about half of that price is because of investment funds. They'll eventually back out of the market, which will drive down prices.''
`Some Correction'
Aluminum also gained on the LME, rising $37, or 1.4 percent, to $2,777 a ton. The metal, which is used to make beverage cans and car parts, has soared 22 percent this year. It traded on April 26 at a 17-year high of $2,845.
``At some point, we expect there will be some correction from cyclical highs that we are seeing now,'' said Richard Evans, chief executive officer of Montreal-based Alcan Inc., the world's second-largest aluminum producer. ``One reason is simply currency; the weak U.S. dollar means that everything denominated in U.S. dollars is worth more in dollars.''
Among other metals for delivery in three months on the LME, zinc was $28 higher at $3,220 and tin gained $90 to $9,300. Nickel dropped $25 to $18,775 and lead was unchanged at $1,215.
