Copper surged to a record in London and New York, and climbed to a 3-1/2 year high in Shanghai on optimism the global economic recovery is gaining momentum and as investors sought commodities to hedge against inflation and currency debasement.
Three-month copper on the London Metal Exchange rose as much as 1.4 percent to an all-time high of $9,631.75 a metric ton and traded at $9,614.75 a ton at 7:46 a.m. London time, up 30 percent this year, and heading for a second annual increase.
“The recent rally has been mostly speculative buying as there’s really not much physical buying at these prices,” said Chen Yonglin, an analyst at CITIC Newedge Futures Co. “That said, the global economy seems to be in quite a good shape, which gives investors the confidence that demand will remain robust next year.”
March-delivery futures on the Comex in New York gained as much as 1.3 percent to $4.4170 a pound, the highest ever for a most-active contract, up 32 percent this year. The metal for April-delivery on the Shanghai Futures Exchange added as much as 1.8 percent to 72,770 yuan ($11,039) a ton, the highest price since May 2007.
Copper has rallied this year on expectations usage will outpace supplies next year as the global economy extends a recovery and mining companies fail to keep up with demand as new reserves become harder to find and the quality of ore declines.
“Copper is very much an economic indicator so if expectations are for the recovery to continue, then prices can only go higher,” Xue Feng, an analyst at Citic Securities Co., said from Shanghai. “The excess liquidity still in the system will also drive prices higher.”
The potential for exchange-traded products, or ETPs, has also increased investor interest in the metal used in cars and household appliances. ETF Securities Ltd. introduced ETPs backed by copper, tin and nickel on Dec. 10. BlackRock Inc. and JPMorgan Chase & Co. have said they plan to start funds backed by copper.
The International Copper Study Group is expecting a 435,000-ton global deficit in the refined metal next year, prompting analysts including those at Goldman Sachs Group Inc. and Standard Chartered Plc to forecast higher prices in 2011. Jeremy Gray, Standard Chartered’s global head of equity research for resources, forecast in an August report that copper may rise to $12,000 a ton in the next two years.
Copper stockpiles in LME warehouses have shrunk 25 percent this year, on course for the first annual decline since 2004. Inventories monitored by the Shanghai Futures Exchange have dropped 30 percent from this year’s high of 189,441 tons in April, boosting the demand outlook in China, the world’s largest user.
Copper’s “supply-demand deficits look set to grow on emerging-market demand strength and improving demand from developed economies,” Goldman Sachs Group Inc. analysts including Jeffrey Currie wrote in a Nov. 9 report. The rundown in stockpiles may cause “periods of extreme volatility and price spikes.”
Copper is the second metal on the LME after tin to set a record this year as the global economy recovered from its worst recession since World War II. Tin, the LME’s best performer this year, reached a record $27,500 a ton on Nov. 9 as production was limited in Indonesia, China and the Democratic Republic of Congo.
A La Nina weather event has brought heavier-than-usual rainfall to parts of Australia and Asia this year, curbing tin production in Indonesia, the biggest exporter. Power cuts in China, the world’s largest producer, also curbed output. In the Democratic Republic Congo, Africa’s largest producer of the metal used in soldering, a general ban on mining was imposed in September in three eastern provinces.
Tin in London was little changed at $26,500 a ton, while aluminum fell 0.2 percent to $2,449 a ton. Zinc was little changed at $2,410 a ton, nickel gained 0.5 percent to $24,420 a ton, and lead climbed 0.8 percent to $2,537 a ton.