Copper surges to record as China holds off rate hike

Copper futures climbed to an all-time high after China refrained from raising borrowing costs, and increased copper output and imports by the world’s largest consumer boosted the outlook for demand.

The People’s Bank of China, which on Dec. 10 raised reserve-requirement ratios for banks by half a%age point, didn’t increase interest rates at the weekend even as consumer prices jumped 5.1% in November. Copper and lead output in China, the largest consumer of both metals, advanced to records in November as producers increased production following price gains. Aluminum output declined for a third month. China also said Dec. 10 imports of copper and copper products into the country gained for the first time in three months.

“Good economic data from China （despite CPI）, very firm Asian equity markets, which is a sign of high risk appetite, no interest rate hike, monthly records of copper output in China in November” all helped copper break the previous record, said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.

Copper for delivery in three months gained as much as 1.8% to US$9,150 a metric ton, and traded at US$9,131.75 at 9:51 a.m. on the London Metal Exchange. The contract breached the previous high of US$9,091 a ton, which was set on Dec. 9. Copper for delivery in March rose to a 31-month high of US$4.1795 a pound and last traded at US$4.1685 a pound on the Comex in New York. All of the six main metals traded on the LME gained, with lead and zinc advancing the most.

“I don’t think that the rally will stall,” Mr. Briesemann said. “It will rather continue during next year. US$10,000 are definitely in sight.”

Exchange-Traded Products

Copper in London has surged 24% this year on expectations that supply won’t keep up with demand, depleting stockpiles, and as the introduction of exchange-traded products backed by the metal boosted usage. Copper has also gained as investors sought to hedge rising prices and weaker currencies.

UBS AG was among firms predicting a rate increase in China at the weekend as the statistics bureau brought forward the release of the inflation data to Dec. 11, and after the Communist Party’s Politburo said the nation would shift to a tighter, “prudent” monetary policy next year.

Imports of copper and products by China rose 29% last month to 351,597 tons compared with October, the General Administration of Customs said on Dec. 10. Shipments were 21% higher than a year earlier, according to Bloomberg data. Imports in the first 11 months of this year gained 0.7% to 3.95 million tons.

‘Maintain Market Momentum’

The nation’s output of refined copper climbed to 443,000 tons last month, 4.5% higher than the month before, while production of refined lead gained 29.5% to 448,000 tons, the statistics bureau said today. Those are monthly records, according to traders and analysts.

ETFS Physical Copper, started by ETF Securities Ltd., began trade on the London Stock Exchange on Dec. 10.

“Chinese import data for November, falling LME inventories and the launch of the first ETC emphasized the strengthening demand outlook,” Morgan Stanley analyst Hussein Allidina said in a report today. “We expect the twin themes of improving physical demand and heightened investor interest will maintain market momentum going into 2011.”

LME inventories of copper have shrunk 30% this year, set for the first annual drop since 2004. They rose for a first day in six today to 350,450 tons, daily exchange figures showed.

Premium Advances

Hedge-fund managers and other large speculators increased their net-long position in New York copper futures in the week ended Dec. 7, the U.S. Commodity Futures Trading Commission said Dec. 10. Speculative long positions, or bets prices will rise, outnumbered short positions by 26,432 contracts on the Comex. Net-long positions rose by 5,325 contracts, or 25%, from a week earlier.

Immediate-delivery LME copper’s premium to three-month metal rose for a fourth day, gaining 40% to US$60 a ton. Prices moved on Nov. 8 to a so-called backwardation, when nearby metal trades above longer-term contracts, potentially signaling supply concern.

The fee to borrow copper for next-day delivery, the so-called tom-next spread, was last at a premium of 50 cents, compared with the 75 cents discount at the close on Dec. 10. An increase in the fee would indicate tightening supply.

The fee to borrow aluminum for next-day delivery jumped threefold to a premium of US$4.50, the highest since August. The tom-next spread for lead jumped to a premium of US$2.50, the highest since May 2009, from a discount of 60 cents on Dec. 10.

Tin for three-month delivery on the LME rose 0.6% to US$25,950 a ton. Prices reached a record US$27,500 on Nov. 9. The metal has jumped 53% this year, leading advances on the exchange, after production was disrupted in Indonesia and the Democratic Republic of the Congo.

Aluminum rose 1.6% to US$2,344 a ton and nickel climbed 1% to US$24,225 a ton. Lead gained 2.1% to US$2,440 a ton and zinc added 1.8% to US$2,314 a ton.

Bloomberg.com