Copper Rises to 6-Month High as Demand Growth Erodes Inventory
Sept. 27 (Bloomberg) -- Copper prices rose to a six-month high after a measure of global inventories fell the most since April 1997, indicating demand continues to outpace production.
Stockpiles monitored by the London Metal Exchange fell 3.7 percent to 94,725 metric tons, down 78 percent this year. Inventories tracked by the Shanghai Futures Exchange fell 21 percent last week to 23,375 tons. Copper prices rose 67 percent in the past year amid forecasts of a production deficit.
``That's a pretty sizable decline'' in inventories, said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis. ``If we see further withdrawals on the same scale, there will likely be more bullish interest.''
Copper futures for December delivery rose 2.05 cents, or 1.5 percent, to $1.378 a pound on the Comex division of the New York Mercantile Exchange, the highest for a most-active contract since March 19. Prices reached an eight-year high of $1.403 in March 2.
Global copper demand is expected to surpass production and scrap supplies by 701,000 tons this year, almost double last year's deficit of 376,000 tons, forcing manufacturers to dig deeper into stockpiles, the Lisbon-based International Copper Study Group said last week. Production exceeded demand in 2002 and 2001, when prices plunged to a 14-year low.
``China is a significant portion of copper demand,'' Vaught said. Price gains are ``also set against the backdrop of rebounding U.S. and Japanese economies,'' he said.
More New Construction
Sales of new homes in the U.S. surged 9.4 percent in August, propelled by the lowest mortgage rates in four months, the Commerce Department said. Single-family home sales rose to a 1.184 million annual pace last month from a July pace of 1.082 million that was lower than previously estimated.
Builders are the biggest users of copper, accounting for 40 percent of demand. An average single-family home contains about 400 pounds of the metal, according to the Copper Development Association, a New York-based industry group.
``There's no doubt that the fundamentals of the markets sustain these prices,'' Francisco Tomic, vice president of Codelco, the world's biggest copper miner, said in an interview on Sept. 23. Next year, ``other things remaining equal, will be a very good year,'' he said.
Tomic said a surge in supply of the metal probably won't occur. New mines opened in Chile in the 1990s, boosting sales. Chile is the world's biggest producer of copper.
Demand probably will outpace supply by about 100,000 metric tons next year, Tomic said, reiterating an estimate he made on Aug. 12.
``Chinese growth will continue to be very strong,'' he said. ``The recovery of other major economies that are consumers of copper has also been an element that has pushed from the demand side.''
Speculators increased holdings in futures for a third week to the highest since March 16, the U.S. Commodity Futures Trading Commission said Sept. 24.
Hedge funds and other large speculators bought 19,517 more contracts than they had sold as of Sept. 21, up 29 percent from the week before, the commission said.
To contact the reporter on this story:
Choy Leng Yeong in Seattle at clyeong@bloomberg.net
To contact the editor responsible for this story:
Steve Stroth at sstroth@bloomberg.net.
Last Updated: September 27, 2004 13:37 EDT
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