Farallon Resources Ltd. (fka FRLIF)

[the cork]

Zinc falls, Copper Heads for Its Largest Quarterly Climb in a Year on Weakening Dollar
By Anna Stablum - Sep 30, 2010 6:04 AM PT

Copper, little changed in New York and London, headed for its biggest quarterly gain in a year, bolstered by a slumping dollar and the largest drop in stockpiles of metal since the second quarter of 2009.

The U.S. Dollar Index, a six-currency measure of the greenback’s value, has slid 8.7 percent this quarter. A weaker dollar makes metals priced in the currency cheaper in terms of other monies and encourages demand for raw materials as an alternative investment. Copper inventories tracked by the London Metal Exchange dropped 17 percent in the quarter.

“The main factor has been the depreciation of the dollar, which continues to fall,” Alex Heath, head of industrial-metals trading at Royal Bank of Canada Europe Ltd. in London, said by phone. “We could easily see higher prices.”

Copper for delivery in December slipped 0.05 cent to $3.661 a pound at 8:39 a.m. on the Comex in New York. The most-active contract is up 24 percent for the quarter. Prices yesterday reached the highest intraday level since April 12. Copper for delivery in three months fell 0.2 percent to $8,047 a ton on the LME.

The dollar index is on course for the biggest drop since 2002’s second quarter. The currency has retreated as economic figures indicated a faltering recovery and the Federal Reserve pledged to take more steps to aid growth if needed.

Inventories Contract

“It does appear as if the government there is ready to apply quantitative easing again in order to stimulate growth,” Heath said, referring to asset purchases by the Fed.

LME copper stockpiles fell for a fourth day to 374,150 tons, the lowest level since Nov. 4, daily exchange figures showed. Inventories posted a 31st weekly drop in a row last week and have slid 26 percent this year, on course for the first annual contraction since 2004. Stocks shrank for a seventh straight month in September.

Copper stockpiles monitored by the Shanghai Futures Exchange fell 6,918 tons to 87,447 tons this week, according to the exchange.

Orders to draw copper from LME inventories, or canceled warrants, slid for a seventh day, declining 1.5 percent to 21,750 tons.

Sterlite Industries (India) Ltd., the country’s biggest copper producer, began closing its Tuticorin smelter following a court order for breaching environment standards. Ore mined by the company can be sold elsewhere, helping to augment supply, because India imports most of its needs, said Nic Brown, an analyst at Natixis Commodity Markets Ltd. in London.

Mine Production

“I’d certainly expect them to sell concentrate to other producers, rather than reducing mine output,” he said. Mined copper production accounts for about 5 percent of total finished metal in India, according to estimates cited by Brown.

The current rally has boosted LME copper by 9.1 percent in 2010. Prices gained partly because of increased awareness that supplies of copper concentrate “are going to continue to create a supply deficit both for 2011 and increasingly for 2012,” RBC’s Heath said. Smelters process concentrate to make refined metal.

Copper may climb as high as $8,377 a ton in the first half of October, rising to $8,818 in next year’s first six months, Laredo, Texas-based researcher Harbor Intelligence said in a report. The predictions equate to Comex prices of $3.80 and $4 a pound.

“The structural constraints of the supply side of the copper market are getting increasingly evident and imply a challenging outlook ahead,” Harbor said. “Fundamental, technical and cyclical analyses point out that the underlying picture of the copper market will be bullish for a while.”

Supply Gap

Copper demand will exceed supply by 125,000 tons this year, with the deficit widening to 250,000 tons next year, according to the report.

Tin for three-month delivery on the LME gained 0.9 percent to the day’s high of $24,550 a ton, the highest intraday price since May 22, 2008. The metal is this year’s best LME performer, up 45 percent, beating the 26 percent advance by closest rival nickel. Production disruptions in Indonesia and Democratic Republic of Congo bolstered prices.

Aluminum rose 0.3 percent to $2,347 a ton after reaching $2,350, the highest intraday price since April 26. Nickel was little changed at $23,340 a ton, lead dropped 0.5 percent to $2,288 a ton and zinc fell 0.7 percent to $2,209 a ton.

http://www.bloomberg.com/news/2010-09-30/copper-heads-for-its-largest-quarterly-climb-in-a-year-on-weakening-dollar.html