Copper Rises to Record on Speculation About Global Shortage

Jan. 19 （Bloomberg） -- Copper rose to a record in London on speculation that demand will outpace supply as the global economy extends a recovery.

Supply of refined copper may fall short of demand by as much as 600,000 metric tons this year, JPMorgan Securities Ltd. strategist Michael Jansen said on Jan. 15. Prices also gained today as the dollar fell to a five-week low against the euro and orders to draw copper from London Metal Exchange inventories rose after five days of declines.

“Speculation that the global economy will continue to recover and that demand will continue to outstrip supply has lifted prices up to a new record today,” John Meyer, an analyst at Fairfax IS in London, said in a report.

Copper for three-month delivery climbed as high as $9,781 a ton on the LME and was up 25, or 0.3 percent, at $9,725 at 10:29 a.m. local time. The metal for March delivery added 0.3 percent to $4.4395 a pound on the Comex in New York. All of the six main metals traded on the LME advanced except lead.

Macquarie Group Ltd. has estimated this year’s potential copper deficit at 550,000 tons, and the International Copper Study Group has predicted a shortfall of 435,000 tons. The metal, often regarded as an economic gauge because it’s used in construction and electrical applications, surged 30 percent in 2010 as the global economy rebounded from recession.

Relative Strength

LME copper’s 14-day relative strength index, a gauge of whether a commodity is overbought or oversold, rose above 67, nearing the level of 70 that some analysts who study technical charts view as a sign of a possible impending drop. China, the world’s biggest consumer of the metal, is moving to slow inflation that’s running at the fastest pace in more than two years, and the central bank raised interest rates on Dec. 25.

“If anything, the risk is for a correction lower,” said Nic Brown, an analyst at Natixis Commodity Markets Ltd. in London. “With the gradual tightening of monetary conditions in China and other developing countries, we share the more cautious outlook indicated by developing-country equity markets and do not expect copper prices to push materially higher until or unless inflation begins to moderate.”

Prices are unlikely to exceed $10,000 a ton and may fall back as far as about $8,500, he said. Trafigura Beheer BV, which considers itself the world’s second-largest trader of industrial metals, in December predicted a peak above $10,000 in this year’s second quarter.

GDP in China

The benchmark Shanghai Composite Index of Chinese equities today gained the most in five weeks on speculation that a government report tomorrow will show cooling inflation. Separate figures will show that the country’s gross domestic product expanded by more than 9 percent last year, according to economists surveyed by Bloomberg.

A report due at 1:30 p.m. London time today probably will show that builders in the U.S. began work on fewer homes in December, a sign the industry that triggered the recession continues to struggle more than a year into the U.S. economic recovery, economists said.

The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.7 percent as it dropped for a seventh day in eight. A weaker dollar makes metals priced in the currency cheaper in terms of other monies and stokes demand for raw materials as an alternative investment.

Canceled warrants, as the inventory orders are known, rose 2.8 percent to 31,675 tons. Stockpiles of copper tracked by the LME climbed 1 percent to 381,750 tons.

Lead for three-month delivery on the LME slid 0.7 percent to $2,604.50 a ton. LME stockpiles rose 7.4 percent today to 261,925 tons after yesterday’s 14 percent increase, the biggest since October 2007. Inventories are at the highest level since 1995. Prices reached $2,712.75, the highest intraday level since May 2008, on Jan. 6.

Nickel gained 0.2 percent to $26,150 a ton and aluminum climbed 0.7 percent to $2,467.50 a ton. Zinc was little changed at $2,436.75 a ton and tin increased 0.3 percent to $27,000 a ton.