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Zinc climbs 1.4%, Copper Extends Advance in London on Stimulus Support Outlook: LME Preview
By Glenys Sim - Oct 5, 2010 11:23 PM PT

Copper in London and New York climbed for a second day to the highest level in almost 27 months on expectations the dollar will weaken further as the Federal Reserve may join Japan’s central bank in taking quantitative easing measures to stimulate growth. Tin advanced to a record.

Copper for three-month delivery on the London Metal Exchange rose as much as 1.6 percent to $8,308 a metric ton, the highest price since July 15, 2008, and traded at $8,287 at 2:13 p.m. in Singapore. Zinc, lead, nickel and aluminum increased to five-month highs.

The December-delivery contract on the Comex in New York gained as much as 1.5 percent to $3.7805 a pound, also the highest level since July 15, 2008. The Shanghai Futures Exchange is closed until Oct. 7 for the National Day holiday.

“Accelerating weakness in the U.S. currency, driven by fears of renewed quantitative easing to confront sluggish growth, is proving to be a boon to commodity markets, especially as growth risks from the European sovereign debt crisis, policy tightening in China and high unemployment in the U.S. and Europe persist,” Morgan Stanley analysts including Peter Richardson wrote in a quarterly report today.

The dollar declined for a second day to the lowest level since January against a six-currency basket including the yen and euro. The Bank of Japan yesterday cut borrowing costs for the first time since 2008 and set up a 5 trillion yen ($60 billion) fund to buy state bonds and other assets.

U.S. initial jobless claims increased by 2,000 to 455,000 in the week ended Oct. 2, according to a Bloomberg News survey of economists ahead of tomorrow’s data, adding to expectations that the Fed will take steps to boost the world’s biggest economy. The unemployment rate climbed to 9.7 percent in September from 9.6 percent in August, according to a separate survey before an Oct. 8 report.

Copper Targets

Morgan Stanley today raised its copper forecasts through 2012 on “resilient Chinese demand.” The metal may average $3.31 a pound ($7,300 a ton) this year, up 3 percent from an earlier target of $3.21, the bank said in the report. It may average $3.60 in 2011 and $3.80 in 2012, up as much as 10 percent from previous estimates, the report said. The metal used in construction and appliances peaked at $8,940 on July 2, 2008.

Morgan Stanley joins Goldman Sachs Group Inc. in predicting higher prices. Goldman yesterday estimated copper would trade at $11,000 a ton in a year, up 37 percent from a previous estimate, as demand is expected to outpace supplies. The metal will be at $8,500 in three months and $8,800 in six months, the bank’s analysts including Joshua Crumb said in a report yesterday. Goldman also forecast copper to average $7,475 a ton in 2010 and $9,300 a ton in 2011. The metal has averaged $7,220 a ton so far this year.

Tin Record

Tin, the London Metal Exchange’s best performer this year, advanced to a record for a second day as shrinking global inventories and output disruptions raised concerns that supply may lag behind demand. The metal gained 2.6 percent to $26,600 a ton, a 55 percent jump this year.

Stockpiles tracked by the London Metal Exchange have dropped 53 percent this year, falling to a 17-month low of 12,495 tons on Oct. 1. Exports from Indonesia, the world’s biggest, declined for the first eight months of this year to 60,107 tons from 67,797.54 tons a year earlier, the Ministry of Trade in Jakarta said on Sept. 22.

Output in China, the world’s largest producer, may be restricted through the end of the year because of limitations on power use, tin industry group ITRI Ltd. said on Sept. 29. A general ban on mining was imposed last month in three eastern provinces in the Democratic Republic of Congo, Africa’s largest tin producer.

Metals, Equities

Zinc, the LME’s worst performer, rose as much as 1.4 percent to $2,345 a ton, the highest price since April 29. Nickel gained as much as 1.9 percent to $25,200 a ton, the highest level since May 4.

Aluminum rose as much as 0.9 percent to $2,400.50 a ton, the highest since April 21. Lead added as much as 1.5 percent to $2,345, the highest since April 26.

“The combined influence of improving physical market fundamentals, continued investment demand and, in some cases, inventory financing arrangements or exchange-traded funds” will drive base metals prices higher, said Richardson.

Morgan Stanley’s top picks for metals are copper, tin and nickel as they have the “potent combination of sustained emerging market demand growth, limited refined production growth and low inventories.”

The rally in metals prices drove gains in related equities. The MCSI World/Materials Index, a measure of mining and chemical companies, rose for a second day to the highest level since April 16. BHP Billiton Ltd., the world’s biggest mining company, gained as much as 2.6 percent in Sydney, and shares of Rio Tinto Group, the world’s third-largest mining company, jumped to the highest price since April 21.

http://www.bloomberg.com/news/2010-10-06/copper-in-london-new-york-surge-to-27-month-highs-tin-advances-to-record.html