Zinc/Copper Pension Funds = NO BRAINER
Copper, Zinc, Lead Prices Climb as Funds Seek Higher Returns
Feb. 3 (Bloomberg) -- Copper, zinc and lead prices rose to records in London on demand from pension systems and mutual funds seeking returns unavailable in the stock and bond markets.
``In recent months we have seen a whole different type of fund come in,'' said Angus MacMillan, an analyst at Bache Financial in London. ``Myself and a number of my colleagues who have been in this business for years have never seen anything like this.''
Copper for delivery in three months rose $26.50, or 0.5 percent, to $5,020 a ton on the London Metal Exchange after reaching a record $5,050. Zinc rose $25, or 1.1 percent, to $2,408 after reaching $2,416. Lead climbed as high as $1,435 before erasing gains.
An index of LME base metals, including copper, lead and zinc, has gained 49 percent in the past year. The MSCI World Index, which measures stocks in 23 major markets, has climbed 13 percent in the past 12 months. The MSCI World Sovereign Index, which includes the debt of 21 major markets, has dropped 0.4 percent.
Fund investments in commodities will soar almost 50 percent to $120 billion this year, Standard Bank in London said in a report yesterday. Hermes Pension Management Ltd., which oversees the biggest U.K. pension fund, said last month it is investing 1 billion pounds ($1.8 billion) of BT Group Plc's retirement plan in commodities, its first such investment.
``With this cash influx, the market has become something of a self-fulfilling prophecy,'' said Standard Bank, which trades metals on the LME. ``As new money enters, it takes prices higher, attracting further money to capitalize on the returns.''
Copper Demand
Copper also gained amid forecasts that demand may outpace production in 2006. The deficit will be 147,000 tons, Morgan Stanley said last month. A production shortfall in 2005 boosted LME copper prices 40 percent.
Mine disruptions may also curb production. Rio Tinto Group, the world's third-largest mining company, said today it plans a temporary shutdown of a plant at its Kennecott Utah copper project in the third quarter. The shutdown will last for as long as 50 days.
Manufacturing in the euro zone grew for a seventh month in January, according to data released Feb. 1 by NTC Research Ltd.
``There are definitely signs that consumer demand has been picking up,'' said Adam Rowley, an analyst in London at Macquarie Bank. ``Funds are buying heavily.''
Still, some analysts are predicting copper will slump in 2006 because record prices will spur higher production by mining companies. Maqsood Ahmed, an analyst at London-based Calyon Global Trading, one of 11 companies trading on the floor of the LME, said today in a report that an extra 1 million tons of mine output may come to the market in 2006.
`Surprised Us All'
``The copper rally has surprised us all, even the die-hard bulls among us,'' Edward Meir, an analyst for Man Financial in Darien, Connecticut, said in a report. In a December and January survey by Bloomberg, Man forecast copper would average $4,365 a ton in 2006.
Zinc demand this year is also forecast to exceed production. Canadian miner Teck Cominco Ltd. said yesterday zinc output at its jointly owned Antamina mine in Peru may fall 30 percent this year because of changes in ore mix and grades.
Nick Hatch, an analyst at Investec Securities in London, estimates zinc use will exceed global output this year by 310,000 metric tons. Demand for the metal, mostly used to protect steel from corrosion, is rising in China, the world's largest consumer.
``We believe this a long-term event, and potentially could last for a decade,'' Greig Gailey, chief executive officer of Australian zinc miner Zinifex Ltd., said in an interview. ``It's a fundamental change in the demand for metals.''
In London, lead dropped $15, or 1.1 percent, to $1,400 a ton. Aluminum gained $15, or 0.6 percent, to $2,633. Nickel was unchanged at $15,200. Tin dropped $155, or 1.6 percent, to $7,750.
Copper futures for March delivery was little changed at $2.308 a pound on the Comex division of the New York Mercantile Exchange.
To contact the reporter on this story:
Simon Casey in London at scasey4@bloomberg.net
Last Updated: February 3, 2006 15:27 EST
