Copper Futures Rise to Five-Week High on Freeport Woes

Copper futures rose to a five-week high on mounting concern that a deadly accident at the world’s second-biggest mine may crimp supplies as a recovering housing market boosts metal demand in the U.S.

Operations will remain suspended at Freeport-McMoRan Copper & Gold Inc. (FCX)’s Grasberg complex in Indonesia until a probe of a tunnel collapse that killed 28 people is concluded, the government said yesterday. Sales of existing U.S. homes in April were the highest since November 2009, a report from the National Association of Realtors showed today.

Last month, a wall collapsed at a Rio Tinto Group copper mine in Utah, sparking supply concerns after the outlook for a global surplus pushed prices down 13 percent this year through April 30. There are “growing signs of an improvement in both supply and demand fundamentals” because of the accidents, along with a decline in the availability of scrap and Chinese demand, Morgan Stanley today in a report.

“At the very minimum, we may see a longer halt to operations than expected at Grasberg,” Adrian Day, who manages about $120 million of assets as president of Adrian Day Asset Management in Annapolis, Maryland, said in a telephone interview. “The forecasts for a surplus are largely based on the assumption that nothing goes wrong at mines. But as we’re seeing, that’s not the case.”

Copper futures for July delivery advanced 1.1 percent to $3.3805 a pound at 1:13 p.m. on the Comex in New York. Earlier, the price reached $3.418, the highest for a most-active contract since April 12.

Trading was 19 percent above the 100-day average for this time, according to data compiled by Bloomberg. China is the top copper consumer, followed by the U.S.

Bingham Canyon

Rio Tinto said last month that full-year output of refined copper may be 100,000 metric tons less than estimated at its Bingham Canyon site, the biggest man-made hole. BHP Billiton Ltd. (BHP)’s Escondida mine in Chile is the largest.

“A supply outage in Indonesia’s Grasberg mine after a terrible mining disaster is being followed by the market,” Mark Pervan, an analyst at Australia & New Zealand Banking Group Ltd. (ANZ) in Melbourne, said in a report. “Any prolonged shutdown will likely impact supplies.”

The Copper Development Association says construction generates about 40 percent of demand for the metal. In April, U.S. building permits, a proxy for future construction, were the highest in almost five years, figures showed last week.

On the London Metal Exchange, copper for delivery in three months climbed 1.4 percent to $7,475 a ton ($3.39 a pound), after topping $7,480 for the first time since April 12. Marex Spectron Group said on May 17 that a move above that price would make a rally to $7,645 more likely.

“The market is heavily short and a continued melt-up through $7,500 could entice further short-covering” George Adcock, an analyst at Marex Spectron in London, said today in an e-mail.

Zinc, lead, aluminum, nickel and tin climbed on the LME.

To contact the reporters on this story: Joe Richter in New York at jrichter1@bloomberg.net; Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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