Copper slides as investors flee on inflation fears


Copper, one of the key drivers of a boom in the commodities sector in the past few years, tumbled on Monday as investors fled the metals complex on fears that rising interest rates could slow global economic growth.

Monday's decline in copper prices on the London Metal Exchange dragged sharply down prices for other industrial metals and futures markets in Shanghai and New York.

By 04:06 GMT the benchmark LME copper contract was at $6 950/$6 990 a ton, down $270 or 3,7 percent from Friday's London close. It had earlier bid as low as $6 940/$6 990, the lowest since April 25.

On Friday, the red metal lost $90, or 1,2 percent, to close at $7 220.

"It might be technical selling after the copper market failed to hold the $7 250 and then $7 000," said a metals dealer with a major Japanese trading house.

Consumers in Asia were largely staying on the sidelines on hopes for further declines in copper prices after the market fell below $7 000 a ton, he said, putting major support for copper at the 100-day moving average of around $6 000.

Market sentiment remained depressed due to a strong dollar and fears of slowing global economic growth and inflation, which in turn could dampen demand for industrial metals, while supportive fundamentals in base metals had been largely ignored.

China's imports of copper and copper products in the first five months of 2006 fell 23 percent from a year earlier, while primary aluminium and aluminium alloy exports fell 22,2 percent, customs figures showed on Monday.

"It's very much driven by liquidity," said Rick Holmes, director of Mitsui Bussan Commodities in Sydney.

"At the present moment, you've got the US dollar strengthening, you've got fears of inflation and you've got strong belief that the United States will raise rates ... which gradually means that liquidity is going to tighten up."

Prices for copper, used in wiring, tubes and coins, reached an all-time high of $8 800 on May 11, having jumped more than six-fold since late 2001 on strong demand in China and India, supply disruptions and relentless fund buying.

Since then, copper has retreated as much as 21 percent, but is still up around 58 percent since the end of last year.

In electronic trade, copper for July delivery fell 7,25 cents to $3,1950 a lb after trading as high as $3,2600 on the New York Mercantile Exchange's COMEX division.

Meanwhile, the latest Commitments of Traders data issued late Friday by the Commodity Futures Trading Commission showed that net non-commercial short positions for copper rose to 7 302 lots in the week ended June 6, from 6 372 lots the previous week.

Non-reportable net long positions fell to 83 lots, compared with 453 lots in the week ended May 30.

Shanghai copper futures fell by their daily trading limits on Monday, with the most active August contract down 5 percent, or 3 340 yuan, from the previous settlement to end the morning session at 63 280 yuan a ton.

It was also down 3 290 yuan from the previous close.

Shanghai aluminium futures were also lower, with the most active August contract losing 150 yuan to end the morning session at 20 410 yuan a ton.

LME aluminium was at $2 485/$2 495 a ton versus $2 510 on Friday, while zinc was at $3 270/$3 295 a ton against $3 320.

In other commodities, oil prices held steady below $72 a barrel, while gold edged down below $625 an ounce on a firmer dollar, weakness in global equity markets and losses in industrial metals.

Copper Futures Fall, Posting Biggest 3-Day Decline in 20 Months

June 12 (Bloomberg) -- Copper futures in London fell, staging their biggest three-day decline since October 2004, on concern a rally that drove the metal to a record last month was overdone. Prices in China also tumbled.

Copper has dropped about 20 percent from its all-time peak, and other commodities including gold, silver and zinc have declined, on concern that rising interest rates will slow global economic growth. Central banks from Asia to Europe boosted interest rates last week in a bid to curb inflation.

``Consumption has suffered because buyers are wary of price volatility,'' said Shen Haihua, Vice President of Maike Futures Co. by phone from Shanghai today. ``Consumers aren't buying because they hope prices will fall further.''

Copper for delivery in three months on the LME dropped as much as $340, or 4.7 percent, to $6,880 a ton today. Metal for delivery in August in Shanghai fell as much as 3,340 yuan, or 5 percent, to 63,280 yuan ($7,900) a ton. The contract has fallen about a quarter since reaching a record on May 15.

``Investment funds have probably withdrawn money from commodities,'' said Yuan Fang, a trader at Shanghai Dongya Futures Co., by phone. ``The rally was overdone. Shanghai prices fell more aggressively than London after stockpiles rose.''

Copper inventories in Shanghai rose about 11 percent last week to their highest since Feb. 23. Stockpiles in exchange warehouses in London, New York and Shanghai jumped 3 percent to 172,503 tons as of June 9 from June 1, Bloomberg figures show.


Investment Funds

Speculators have been attracted to copper by forecasts that global demand will outstrip supply this year. Investment funds have increased their holdings of commodities to gain greater returns than those available from stocks and bonds.

HSBC Holdings Plc estimated last month that about $100 billion will be invested in commodity indexes by the end of 2006, compared with $10 billion at the end of 2003.

Five out of eight traders, analysts and investors surveyed by Bloomberg News on June 8 and 9 said copper will drop on the London Metal Exchange this week. Three forecast a rise.

``A 50 percent decline in price would still leave copper at the previous all-time high,'' David Threlkeld, president of Resolved Inc., a copper trading company in Scottsdale, Arizona, said in the Bloomberg News survey.

Hedge Funds

Hedge-fund managers and other large speculators increased their net-short position in New York copper futures in the week ended June 6, according to U.S. Commodity Futures Trading Commission data released on June 9.

Speculative short positions, or bets prices will fall, outnumbered long positions by 7,302 contracts on Comex, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 930 contracts, or 15 percent, from a week earlier.

Metals extend declines to test resistance levels. By Kevin Morrison. June 12 2006

Metal prices extended their declines on Monday to test key resistance levels, which, if broken, could trigger further price falls. The copper price, which was the focal point of the metal price boom, fell below $7,000 a tonne for the first time since April 28. It hit $6,980 a tonne in late trade on the London Metal Exchange, down $240 on the day.

The copper price has now fallen 20 per cent from a record $8,790 a month ago.

In spite of the fall in the three-month price, the copper cash price is $7,231, suggesting that the availability of the metal is still very tight.

London-based metal traders said that if the copper price failed to hold at about $7,000, the red metals price next support level was about $6,500, and then $6,000. However, the fall has been accompanied by low volumes.

Other base metals were also weaker. Three-month aluminium was heading to finish below $2,500 a tonne for the first time since April 4. It was quoted at $2,495 a tonne in late London trade, down $20 on the day, and 25 per cent below its record peak of $3,300 a month ago.

Zinc prices, which doubled in price from the start of the year to a peak of $4,000 a tonne almost a month ago, dropped to $3,200, its lowest level in three weeks.

Nickel prices fell to $19,100 a tonne, their lowest level in more than a month.

Precious metals also tested key support levels. Gold hovered just above the $600 a troy ounce, a level it has remained above since mid-April.

The bullion price fell to a low of $603, before recovering to $609.70, up $2 on the day.

Gold has fallen more than 16 per cent from its 25-year peak of $707 a month ago. The latest data from the Commodity Futures Trading Commission showed that the non-commercial position on Comex gold futures fell for the fourth successive week, suggesting that investors are unwinding their positions.

Silvers decline has been more dramatic. The silver price fell below $11 for the first time since the end of March, before recovering to $11.10 a troy ounce, down 5 cents on the day. The silver price has fallen almost 28 per cent from its peak of $15.17 on May 11.

What has held commodities back for the past 200 years?             By Dr Marc Faber.
09.06.2006


I have great sympathy for the view that over the last 200 or so years investments in commodities performed poorly when compared to cash flow-producing assets such as stocks and bonds. I also agree that, as the team at GaveKal suggests, "every so often, we experience a massive break higher in commodity prices in which commodity indices triple in less than three years," which is then followed by a period of poor performance.
Still, we need to ask ourselves why in the last 200 years, commodities, adjusted for inflation, were in a continuous downtrend and whether it is possible that something might have changed in the last few years, which would suggest that this downtrend is about to give way to a sustained out-performance of commodities compared to the US GDP deflator.
The other question is of a more near-term nature. Should commodities, having approximately trebled in price since 2001, be sold, or should we expect far more substantial price increases? I have to confess that I have little confidence that I can answer these questions satisfactorily. Still, the following should be considered.
In the 19th century, and for most of the 20th, industrialisation was concentrated in a few countries, which for simplicity we shall call the Western industrialised world. The world's economy was at the time characterised by an abundance of land, resources, and cheap labour (certainly in the colonies and later in the developing countries) and a relatively limited supply of manufactured goods.
At the same time, growth and progress was concentrated among a very small part of the global economy - either in the Western industrialised countries or among a tiny part of the population (the elite) in developing countries. In addition, there were hardly any other sectors in the economy where productivity improvements were as high as in agriculture and mining.
These factors - abundance of land, labour, and resources combined with huge productivity improvements and limited demand from the then still small industrialised world - may, at least partially, explain why commodity prices failed to match consumer price increases for much of the last 200 years.
Remember that in the first half of the 19th century, manufacturing was concentrated in England with a tiny population, while the British Empire could draw on the supply of commodities from an enormous territory. Then, in the second half of the 20th century, we experienced the socialist and communist ideology, and in India policies of self-reliance and isolation.
As a result, about half the world's population remained largely absent as consumers of goods. (How many motorcycles and cars were there in the Soviet Union, China, India, and Vietnam 25 years ago?) But, while largely absent as consumers, people in these countries continued to produce raw materials and agricultural products.
Therefore, I suspect that the removal of approximately half the world's population as consumers through socialism and communism may have been an important factor in the poor long-term performance of commodities compared to the US GDP deflator, and other assets such as equities.
Since the breakdown of communism and socialism, the world's economic fundamentals seem to have changed very importantly. Initially, the impact of the end of socialism was muted. Production shifted to China, but as had been the case with production shifting from the West to Japan, South Korea, and Taiwan between 1960 and 1990, rising industrial production in former communist countries largely substituted for production in the West.
But over time, in countries such as China, rising investments and industrial production boosted real per capita incomes considerably and made way for a tidal wave of new consumers. In turn, these additional new consumers lifted industrial production further in order to satisfy not only the demand from their export markets but their own needs as well.
Thus, industrial production and capital spending increased further. This led to additional income and employment gains, further domestic demand increases and so on (multiplier effects).
In short, the opening of China and of other countries has permanently shifted the demand curve for consumer goods and services (for example, transportation) to the right and along with it the demand for industrial commodities and, notably, energy.
Now, if all goes well in India (a big if, I concede), then the demand for goods, services, and hence commodities will continue to increase very substantially for another 10 to 20 years.
Indian oil consumption has just recently started to turn up. Should its demand now accelerate, as we believe it will do, it is very likely that China's and India's oil demand could double in the next eight years.
There are a few more points to consider. For much of the last 200 years, developing countries, where many of the world's natural resources are located, had trade and current account deficits with the industrialised world.
These deficits were a constant drag on these countries'
ability to accumulate wealth. But now, through its current account deficit, the United States is shifting around $800 billion annually to the economically emerging world.
This represents a huge shift in wealth from the rich United States to the current account surplus countries.
That this shift in wealth stimulates their economies and consumption, and along with it their own demand for commodities, should be clear. (Rising domestic energy demand in Indonesia amidst falling production has turned the country into an oil net importer!)
Now, for most countries a current account deficit the size of that of the United States would lead to some sort of crisis (for example, the Asian crisis of 1997) and then to a curbing of consumption. However, in the case of the United States, which is endowed with a reserve currency, trade and current account deficits are simply financed by "money printing."
So, at least for a while (but not forever), the shift in wealth to the emerging world won't have a negative impact on America's economy and consumption. And, at least for now, rising demand and wealth in the rest of the world won't be offset by declining demand and shrinking wealth in the United States.
On the contrary, the global imbalances arising from "over-consumption" in the United States have brought about a global economic expansion, which, while unsustainable in the long run, is nevertheless firing on all four cylinders at present.
Simply put, the excess liquidity which the Fed has created - and which it is still creating, I might add - has led to a global and synchronized economic boom. (If money were tight, the asset markets wouldn't rise.)
The following point regarding the demand for commodities is frequently overlooked. In the developed countries, commodities account for a very small part of the economy. As a result, price increases for oil and other commodities have a very minor impact on growth rates and on consumption. However, in the commodity-producing countries (Middle East, Africa, Russia, Latin America), commodity production is an important part of the economy.
So, when commodity prices rise, their economies are, as in the case of the Middle East, turbo-charged. GDP per capita then soars and leads to a consumption and investment boom, which then increases these countries' own demand for commodities.
This is particularly true for resource-rich countries that have a large population and also explains why, in the 19th century, when agriculture was still the dominant sector in the US economy, rising grain prices led to economic booms, while declining commodity prices were associated with crises. (In recent years, financial markets have begun to have a similar impact on economic activity as agriculture had in the 19th century: rising stock markets = boom; falling stock markets = bust.)
In sum, we could argue that the emergence of a large number of new consumers in the world following the breakdown of communism, expansionary monetary policies in the United States, which have led to a rapidly growing current account deficit, the US dollar's position as a reserve currency, which enables the Fed to create an almost endless supply of dollars, and new demand from the commodity producers themselves, have all led to a significant increase in the demand for raw materials.
I am not predicting here that, from now on, the demand for commodities will always outstrip the supply. In time, new technologies (in particular, in the field of nanotechnology), which will permit resources to be used more efficiently, and conservation will curtail demand for raw materials. But until the effects of these factors kick in, a tight balance between rising demand and existing supplies could remain in place for quite some time.

The commodities boom may last another 14 years.                By Jonathan R Laing.                11 June 2006

So claims Jim Rogers, legendary 1970s hedge fund guru and unapologetic commodities bull.

WITH the prices of oil and industrial metals such as copper, zinc and nickel screaming higher in recent months, such observers as Warren Buffett and Morgan Stanleys Steve Roach have proclaimed that commodity markets are in a bubble destined to burst soon.
But Jim Rogers, fabled hedge-fund manager of the 1970s and now ardent commodity bull, finds such talk ridiculous. Indeed, he has been pounding the drum for investing in commodities in recent years in numerous speeches and media interviews, even writing Hot Commodities, a book propitiously published in late 2004 that predicted a coming price boom in everything from aluminium to zinc.
Barrons caught up with Rogers on a recent rainy morning as he worked out on a stationary bike in the fourth-floor exercise room of his five-floor mansion on New Yorks Upper West Side. Bloomberg Radio droned in the background as he talked while occasionally glancing at a laptop computer, perched precariously on the machines handlebars. How can anybody say that a bubble has developed in commodities yet brief pant with sugar 80% below, silver 75% below and corn and cotton less than half their all-time price highs? he huffed. You cant have a bubble when the media has only begun to pay attention to commodities in recent months after years of disinterest. Were now only in the early part of a long-term commodity price boom that has years to run and will likely see literally dozens of raw material prices make new highs. Even crude oil and copper have a long way to go, even though they recently set price records.
How long will the surge run? Based on the past longevity of commodity bull markets (Rogers mentions ones that, by his reckoning, lasted from 1906 to 1922, 1933 to 1953 and 1968 to 1982), the current boom could last eight to 14 more years. The commodities-bubble crowd scoffs at that, just as sceptics did when Rogers predicted the current boom a few years ago
Commodity price booms, says Rogers, are typically the product of years of underinvestment in new productive capacity whether in exploration for new oil or metal deposits, construction of new smelters and refineries or planting of new orange or rubber trees in response to low prices. Meanwhile, demand creeps up all but unnoticed until imbalances suddenly erupt and prices surge. Producers with the possible exceptions of grain farmers and cattle ranchers cant respond quickly because of the long lead times required to finance and build new capacity.
Over the years, commodity prices have tended to surge during periods when the stock and bond markets have laboured, exhibiting what modern portfolio theorists call non-correlation with the financial markets. For instance, commodities did poorly during the stock market booms of the Roaring Twenties and the post-1982 bull market, while outpacing stocks during the Great Depression and the 1970s, Rogers notes.
Recent studies seem to bolster this observation. One, superintended by capital-goods analyst Barry Bannister, now of Stifel Nicolaus, found that over the past 130 years, commodities and stocks have alternated performance leadership in regular cycles, averaging about 18 years. A 2004 study by Gary Gorton of the University of Pennsylvania and K Geert Rouwenhorst of the Yale School of Management that examined market returns from July 1959 through December 2004 concluded that passive, systematic long investments in commodity futures generated total returns comparable to the S&P 500s, while both asset classes smoked the corporate bond market. Even better, the two academics concluded, commodities were less volatile and hence less risky than stocks over those 54 years. And their lack of correlation with stocks made them worthy diversification tools.
Its no surprise, perhaps, that commodities march to a different beat than stocks and bonds. Unlike their financial counterparts, commodities are hard assets that both contribute to and benefit from inflation particularly, unanticipated inflation. Rising inflation hurts stocks by crimping companies profit margins and consumers purchasing power. Inflations fraternal twin, rising interest rates, likewise can savage bond returns by sapping the real value of interest and principal payments.
To Rogers, the past few years have witnessed another changing of the guard; commodities will rule over stocks and bonds for the next decade or more. Inflation will continue to flare and not just because of rising raw-material prices. According to Rogers, new Fed Chairman Ben Bernanke is an amateur with no knowledge of markets whose academic work revolved around how nations could avoid depressions by printing more money. And, finally, he throws into this witches brew the likelihood of a collapse in the dollar as a result of Americas accelerating debtor status. Rogers views commodities as the ultimate refuge from these scourges.
Fundamentals will tell the tale for commodities. Rogers invariably points out in speeches that no major oil fields have been discovered in more than 35 years, nor major new metal-mine shafts sunk in 20 years. And many existing elephant oil reservoirs, such as those in the North Slope and the North Sea, are fast depleting. And who can trust the Saudis to tell the truth about their real oil reserves? That leaves the global market depending on production gains in Russia (a bunch of mafiosi who have probably already reached their peak production level) and such basket cases as Nigeria and Venezuela.
Sure, oil from the Caspian Sea and the Alberta tar sands eventually will hit the market. Wind, solar and geothermal hold promise, as do biomass-generated power and other alternative energy sources. But tapping them will take lots of time and money, warns Rogers.
On the demand side, theres the US consumer, who in the 1990s considered McMansions, gas-guzzling SUVs, fancy appliances and ubiquitous electronics a national birthright, gobbling up petrol, natural gas, electricity, timber, steel, aluminium and lead (for batteries) at a fearful rate. Add to that 1.3bn Chinese and 1.1bn Indians all largely walled off from the global economy during the last commodities boom joining the global scrum for natural resources.
China is now the No 1 consumer of copper, steel and iron ore, and No 2 in the use of oil and energy products to feed its industrial maw, which is growing at a prodigious rate of nearly 20% a year. And the torrent of textiles, refrigerators, colour TVs and computers arent just flowing to overseas outlets like Wal-Mart. Burgeoning economic growth is also creating a Chinese middle class aspiring to better meals and more creature comforts. In Rogers; view, it;s delusional to deny that competition for commodities will continue to heat up as a result of Chinas pell-mell rush from a peasant economy to economic giant. Today, there are only 30m private vehicles on the roads in China, versus 235m passenger vehicles in the US, even though China has almost 4.5 times as many people.

The large commercial interests that trade commodities arent about to let speculators wrest control of prices. ExxonMobil can drown all the index funds, hedge funds and other speculators in the energy markets if anyone tries to manipulate prices, Rogers asserts. Its largely the surging global demand for raw materials that is pushing prices up.
Rogers is the first to concede that the bull market in commodities will have plenty of nasty corrections and volatility along the way. Thats the nature of bull markets. Gold, on its way to its record of $850 an ounce in 1980, suffered a 50% correction in the mid-1970s, falling from nearly $200 to $100. The Rogers Index itself dipped some 25% in the months following 9/11. Then, it resumed its upward trajectory.
Obviously, a major terrorist incident, a bird-flu epidemic, a global financial crisis or a hard landing in the Chinese economy could trip up the commodities bull. But, according to Rogers, any slide would likely be temporary and offer a good buying opportunity.
None of these events change the underlying dynamics of the global economy. Supply will remain constrained for some time. And demand wont disappear. Not with Chinas 1.3bn people, fired by rising aspirations and epic entrepreneurial zeal, driving the market. Consumption is likely to outstrip supply if only because of the developing worlds hunger for a better life.

i wish it would start again now!!!

Gold Prices Plunge in Asia as Investors Expect Higher Rates, Rising Dollar

June 14 (Bloomberg) -- Gold in Asia plunged to its lowest in three months on concern the U.S. Federal Reserve may keep raising rates to contain inflation, reducing the precious metal's appeal as an investment. Silver also declined.

Gold for immediate delivery posted its steepest one-day decline in 23 years yesterday as a report showed U.S. producer prices rose the most in three months in May. The rising cost of gasoline propelled U.S. consumer prices higher last month, economists expect a report today to show.

``We can see funds coming out of gold in a hurry,'' said Ramaswamy Iyer, chief executive officer at Mumbai-based Brics Commodities Pvt. ``Gold will likely continue falling until people are reassured there are no more rate hikes.''

Gold for immediate delivery fell as much as $19.60 an ounce, or 3.5 percent, to $542.45 an ounce. The metal traded at $552.25 at 3:26 p.m. Sydney time.

Spot gold fell 7 percent yesterday, the steepest one-day percentage decline since February 28, 1983. Gold futures in New York fell 7.3 percent, the most in 15 years.

The Labor Department's consumer price index probably climbed 0.4 percent in May due to higher gasoline prices, according to a survey. U.S. interest-rate futures show traders are pricing in about an 86 percent chance the Fed will push its key rate to 5.25 percent at its next meeting on June 28-29, up from 72 percent on May 31.

``People are increasingly pessimistic about the interest rate outlook,'' said Darren Heathcote, head of trading at N.M. Rothschild and Sons (Australia) Ltd., in Sydney.

Higher rates boost the dollar's appeal and the return on assets such as bonds, and increase costs for investors borrowing funds to buy gold.

Silver, Zinc, Copper

Spot gold has fallen 25 percent since touching a 26-year high of $730.40 on May 12. Other metals including silver, zinc, and copper have also dropped in the past month on concern higher interest rates will slow global economic growth and hurt demand for raw materials.

Silver for immediate delivery fell as much as 11 cents, or 1.2 percent, to $9.48 an ounce today. The metal traded at $9.59 at 3:25 p.m. Sydney time.

Gold for August delivery fell as much as $20.40, or 3.6 percent, to $546.40 an ounce in after-hours trade on the Comex division of the New York Mercantile Exchange. The contract traded at $556.50 at 3:26 p.m. Sydney time.

``It's hard to predict, for now, when and where prices of gold will find a near-term floor,'' Tsuyoshi Furukawa, a commodity strategist at Taiheiyo Bussan Co., said in Tokyo. ``In just one month, gold dived below $600 from prices in the $700s in May.''

In India, the world's biggest gold consumer, gold prices for August delivery fell 161 rupees, or 1.9 percent, to 8,407 rupees per 10 grams, or 26,145 rupees ($569) per ounce, at 10:42 a.m. on the Multi Commodity Exchange of India Ltd. in Mumbai.

China's import of copper falls 23 percent
Last Updated(Beijing Time):2006-06-14 10:16

China's import of copper and copper related products came to 821,465 tons in the first five months of this year, down 23 percent from the same period a year earlier.

This was attributed to the country's macro-control policy on the sector, which came into effect late last year, Shanghai Securities News said Tuesday.

Copper prices, which were higher on the international market than the domestic market, also dampened the enthusiasm of importers and speculators, the paper quoted Hu Bin, an analyst of Zhejiang Yong'an Futures Company as saying.

Hu said copper importers were losing 5,000-6,000 yuan (625-750 U.S. dollars) per ton due to the price gap.

Spurred by surging copper prices and high profit, Chinese copper enterprises have been expanding smelting capacity since 2003.

The expansion has resulted in excessive production capacity, experts said, warning that the rapid growth of copper smelting could leave domestic raw materials in short supply.

In the late 2005, five ministries, including the National Development and Reform Commission and the Ministry of Finance, jointly published a circular restricting investment in copper smelting.

It is expected that China's copper output will grow over 8 percent to around 2.8 million tons in 2006. In the first four months this year, China's refined copper output grew 26.7 percent to 937,000 tons.

Do your own research but metals are about to bounce upwards. A really good value stock right now is Central African Mining (CFM). Excellent value with a ton of upside.

DJ Comex Copper Review: Bounces On Short Covering

DOW JONES NEWSWIRES


Short covering enabled copper futures to post a bounce Wednesday following a
heavy sell-off in this and other metals on Tuesday, traders reported. Much of
the activity was said to be in the spreads.

The most-active July copper contract rose 4.55 cents to settle at $3.0560 per
pound on the Comex division of the New York Mercantile Exchange. On Tuesday,
the contract had lost 21.80 cents.

September copper added 2.30 cents to $2.9800.

"We got some short covering after the rout that we've seen as of late," said
Scott Meyers, senior trading analyst with Pioneer Futures.

This was encouraged when the July futures held right around the $3 area both
Tuesday and Wednesday, forming a double bottom at least for now.

"That's a psychological support level," Meyers said. "But if they take out
$3, there could be another 10 to 15 cents on the downside. So it's a critical
level."

A floor trader reported that much of the activity was in the July-September
spread as traders begin the rollover, although there has also been some
July-August.

"Other than that, the ring was a little long early," he said. "They rallied
it up. Then there was short covering afterward with continued fund-type buying.
Other than that, it's been quiet."

Still another trader said Comex copper was underpinned after metal found
"good scaled-down buying" in activity on the London Metal Exchange.

Inventories of copper in London Metal Exchange warehouses fell 950 metric
tons Wednesday, leaving them at 104,550 metric tons. The most recent Comex
stocks data, released late Tuesday afternoon, were unchanged at 8,842 short
tons.

Copper Rebounds on Speculation Drop Was Exaggerated (Correct)

(Corrects industrial production in second paragraph.)

June 14 (Bloomberg) -- Copper rose for the first day in five in London, leading other metals such as aluminum and zinc higher on speculation an earlier decline was exaggerated.

China, the largest consumer of metals including copper and aluminum, said today its industrial production rose 17.9 percent in May, the biggest gain in two years. Metals fell yesterday on concern that rising global interest rates may curb economic growth and the demand for industrial raw materials.

``Nothing goes in a straight line,'' said Jeremy Goldwyn, global head of industrial commodities at Sucden U.K. Plc in London. ``We would expect pockets of corrections and support.''

Copper for delivery in three months on the LME rose as much as $155, or 2.4 percent, to $6,725 a metric ton, after earlier falling as much as 2.4 percent. The metal traded at $6,685 as of 8:58 a.m. London time.

Zinc rose $40, or 1.4 percent, to $3,000 a ton, nickel gained $325 to $17,850 and aluminum added $11 to $2,466. Tin was unchanged at $7,700 and lead dropped $10 to $985.

Metals - Copper gains as inflationary concerns offset by strong fundamentals

LONDON, Jun 17, 2006 (XFN-ASIA via COMTEX) -- Copper turned higher, after trading lower earlier in the session, as concerns over inflation were offset by China's move to hike banks' deposit reserve ratio requirements in a bid to curb liquidity-fuelled lending and surging investments.

At 4.04 pm in London, LME copper for 3-month delivery touched 7,035 usd a tonne -- up 40 usd from yesterday's close -- while 3-month LME zinc was up 15 usd at 3,090 usd and 3-month nickel was up 150 usd at 19,050 usd.

In a widely anticipated move, the People's Bank of China (PBoC) said today it will raise the required deposit reserve ratio of commercial banks by half a percentage point from July 5.

The move marked the latest in a series of measures designed to stem a rising tide of liquidity-fuelled bank lending, which has seen investments surging.

Barclays Capital analyst Kevin Norrish said the move "represents a degree of credit tightening" on the part of the PBoC and that although it was widely anticipated, traders were surprised by how quickly it happened.

He said commodities gained on the news because it essentially showed that what Chinese policy makers were responding to was "stronger-than-expected growth".

"To our mind this is positive for commodities in the sense that it means commodity demand is stronger than expected (so) its not a reason to go short but rather a sign of fundamental strength of the sector," he said.

Other analysts pointed out that even if the move serves to cool China's appetite for commodities near term, it could act as a brake on global inflation in the process.

"If anything, I would emphasis the positive ... It might keep global inflation tame," said Julian Jessop, an economist at Capital Economics in London.

Most global commodities have suffered heavy losses over the past month, prompted by fears that central banks may hike interest rates to combat rising inflation, thereby crimping growth and demand.

"We anticipate current nervous conditions and volatile price action to persist in the near term as market participants focus on inflationary fears, monetary policy tightening and risks to growth," said Norrish.

He added, however, that with "workers at Chile's Esconida copper mine voting on a package of contract demands on Sunday, this remains a market that few will want to be short in." maytaal.angel@afxnews.com ma/jsa

Daily Telegraph. By Malcolm Moore in Rome (Filed: 17/06/2006)


Record copper prices power China's blackmarket demand for hot metal


The recent record price of copper has led to a spate of robberies in Italy and Western Europe, as gangs of thieves seek to sell the metal to China on the black market.

In the past six months at least 10 major copper robberies have been foiled by Italian investigators. The latest was on Tuesday, when Naples police uncovered a criminal ring that had stolen 175 tonnes of copper wiring, worth as much as 1m (682,000), and were about to ship it to China.

Five men were arrested, and a further 17 are under investigation. Police added that the network of copper smugglers included companies at the port in Salerno, as well as shipping and container businesses.

Although the price of copper has fallen in the past few weeks, the commodity has spiked over the past two-and-a-half years thanks to an incessant thirst for copper wiring from Chinese manufacturers.

The global stockpile of copper has been depleted to only three days of current production, and since January 2004 the price of the metal has risen from just over $2,000 (1,080) a tonne to a recent peak of almost $9,000. On the black market, a tonne of copper now sells for as much as $5,000.

Police in Naples found thieves were stealing copper wiring from the construction site of a high-speed rail link between Rome and Naples. Since much of Italy's rail network is electrified, thieves have persistently targeted railway stations.

Two men were recently arrested in the southern city of Catanzaro for stripping wire from a railway station. In the Piedmont and the Aosta Valley, police have arrested 11 people in the past month. The value of the copper they had stolen was about 3m. In March, police in Brescia recovered a similar amount of copper in nine anti-fraud operations.

"The phenomenon was restricted to a few places, but with the rise in price, it is much more widespread," said Claudio Di Cani, head of the Italian Association of Non-Ferrous Metal Producers and Smelters.

Copper gangs are also at work in Germany, France, Sweden and Ireland. In France, repair work on the TGV rail lines is now under police guard. In Scotland last week, 40,000 of copper was stolen from a building site at Edinburgh University.

Church roofs have been targeted, and in Kansas, the Apostolic Church of Jesus had the copper stolen from its air-conditioning system.

Copper Rises for 3rd Day on Speculation Metal Demand Won't Slow

June 16 (Bloomberg) -- Copper rose for the third straight day on speculation that a decline in prices this month, the biggest since May 1999, was exaggerated because economic growth may sustain metals demand.

Copper in New York has plunged more than 12 percent this month, leading a drop in industrial metals as central banks raised interest rates to rein in inflation. Federal Reserve Chairman Ben S. Bernanke, who on June 5 pledged to fight U.S. inflation, said yesterday that the world's biggest economy can withstand rising energy costs.

``What Bernanke said helped the mood'' of copper traders by signaling the Fed's inflation fighting won't kill economic growth, said Edward Meir, a commodity analyst at Man Financial Ltd. in Darien, Connecticut. ``His whole tone was a little bit more muted.''

Copper for September delivery rose 5.35 cents, or 1.7 percent, to $3.185 a pound at 12:36 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would leave copper down 2.5 percent for the week. The metal reached a record $4.04 on May 11. A futures contract is an obligation to sell or to buy a commodity at a fixed price for a specific delivery date.

On the London Metal Exchange, copper for delivery in three months rose $25, or 0.4 percent, to $7,020 a metric ton, after rising as much as 1.9 percent. Prices have more than doubled in the past year.

Reduced Inventories

Inventory in Comex-monitored warehouses fell 8.3 percent to 7,929 short tons yesterday, the biggest decline since April 3. The New York Mercantile Exchange said yesterday it will reduce the limit of outstanding copper contracts traders can hold in the spot month by 30 percent to 175 contracts as warehouse inventory fell to almost a five-month low.

The change, beginning with the June 2006 contract, will be effective at the close of business today. Stockpiles in LME warehouses have fallen 85 percent in the past three years.

``The fundamentals remain very, very strong,'' said James Koppel, managing director at SG Commodities Group, a New York- based trading unit of France's Societe Generale SA. ``You take a look at the LME stock and they are still very, very low.''

Consumer confidence in the U.S., the world's second-largest copper user after China, unexpectedly rose for the first time in three months in June. The University of Michigan's preliminary index of consumer sentiment rose to 82.4 this month from the final May reading of 79.1.

The measure has averaged 88.1 since monthly data were first compiled in 1978. Economists expected the Michigan gauge to fall to 79, based on the median of 60 forecasts in a Bloomberg survey.

Copper, aluminum hold value on world market

Jun 18, 2006 (The Paducah Sun - Knight Ridder/Tribune Business News via COMTEX)

While they aren't "precious" by Wall Street standards, industrial metals such as copper and aluminum have exploded in cost over the past year for similar reasons as gold, silver and platinum.

Yet prices have dropped in the last month because of fears that higher interest rates will slow world economic growth and hurt demand for raw materials. Copper declined more last week than it had in a decade, reminding investors just how volatile the commodities market can be.

Previously, copper prices had almost tripled since early 2005 with demand for many metals shooting up worldwide, especially in rapidly expanding nations like China.

Because scrap copper is totally recyclable, greed fostered enough thievery that the Kentucky Public Service Commission warned May 31 that stealing copper electrical wire can have lethal consequences.

PSC Chairman David Guess said there had been at least three electrocution deaths since March associated with the theft or removal of electric wire. He was backed by representatives of the Kentucky Association of Electric Cooperatives and five power companies including Kentucky Utilities, which has customers in western Kentucky.

"Certainly the amount of money one can gain from copper theft does not compare to the value of his or her life," said Bob Shurtlett, safety and health manager for American Electric/Kentucky Power.

Thieves in Metropolis, Ill., either didn't hear or heed the warning. Sheriff's deputies say copper wire stolen earlier this month from utility poles of the Southern Illinois Electric Co-op may be the work of people driving sport utility vehicles with "Pole Inspector" printed on the sides. Co-op officials say the SUVs aren't theirs.

News reports around the country echo the increased thefts of industrial metals. Aluminum products have been targeted for months as they moved toward an 18-year high.

In December, two Gilbertsville men were jailed on charges of stealing items including aluminum stripped from a pontoon boat on Kentucky Lake. Sheriff's deputies said the men admitted taking the aluminum to a recycling facility.

Peddler trade at recycling firm Tri-State Industrial Services on Moody Road off Cairo Road has increased by about 50 percent in the last six months with escalating metal prices. About 40 percent of Tri-State's business is from people who collect and drop off materials, and 60 percent is commercial.

Aside from foreign demand, particularly in Asia, domestic demand for industrial metal also has increased with a manufacturing surge, Tri-State Controller David Crowell said. "Everything metal-related is pretty hot, and the market looks good."

Even with the recent plunges, both copper and aluminum prices are historically high. Tri-State was paying $2.15 a pound Friday for top-quality copper.

"The normal price for copper has been 80 cents to $1 a pound during the 15 years I've been here," Crowell said.

He said aluminum, which typically sells for 35 to 45 cents a pound, recently has brought 55 cents.

Despite rising prices, theft hasn't been a problem at Tri-State.

However, Crowell recalls a visit earlier this year to an old, 10-acre munitions plant in Jeffersonville, Ind., where a man was electrocuted when he inadvertently grabbed a hot line while trying to steal copper wire.

Copper Drops in London as Investors Sell Metal on Interest Rate Concerns

June 19 (Bloomberg) -- Copper dropped in London as investors sold the metal on speculation the U.S. Federal Reserve will raise interest rates, slowing economic growth and crimping demand for metals. Nickel, aluminum and zinc also fell.

Fed Bank of Atlanta President Jack Guynn will speak today on the U.S. economic outlook after Fed Governor Donald Kohn on June 16 said accelerating inflation may fuel inflation expectations. That prompted investors to increase bets the Fed will increase rates on June 29, slowing economic growth and demand for copper, used to make cables and wires.

Copper for delivery in three months on the London Metal Exchange slid $183, or 2.6 percent, to $6,797 a metric ton as of 12:04 p.m. local time. The metal has dropped 21 percent from a May 11 record of $8,800.

It's ``a reaction to a range of economic news that's causing people some concern about the demand growth outlook,'' said Adam Rowley, an analyst in London at Macquarie Bank Ltd.

The dollar today rose to an eight-week high against the yen, and climbed against the euro, on speculation stronger growth will prompt the Fed to raise interest rates twice more this year.

Central banks in Europe, India and South Korea 11 days ago raised rates to curb inflation.

Among other LME metals, nickel dropped $390, or 2 percent, to $18,800 a ton, aluminum declined $73, or 2.9 percent, to $2,492 and zinc fell $95, or 3.1 percent, to $2,980.

The declines contributed to a drop in commodity indexes that track a selection of metals and other commodities. The Goldman Sachs Commodity Index fell 1.3 percent to 463.37.

Commodity Indexes

Funds that use commodity indexes as a benchmark buy and sell the underlying commodities. The money managed by those funds will rise 38 percent this year to $110 billion, according to Barclays Capital.

The metals ``tend to be moving together,'' said Jon Bergtheil, head of global metals strategy at JPMorgan Chase & Co. in London. ``The lack of performance that oil is generating'' also contributed to declines in metals as investors cut commodity holdings, Bergtheil said.

Oil fell below $70 a barrel in New York on concern the U.S. will raise interest rates. Crude for July delivery fell as much as 74 cents, or 1.1 percent, to $69.21 a barrel in after-hours trading on the New York Mercantile Exchange.

Copper also fell on speculation that China's demand for the metal may fall after the government ordered banks to increase capital reserves to help curb an investment boom. The country is the world's biggest copper user.

Cooling Growth

The People's Bank of China raised the required reserve ratio for commercial lenders by 0.5 percentage point on June 16.

``This measure may have some impact on consumption, as metal buyers find it harder to secure loans,'' said Yuan Fang, a metals trader at Shanghai Dongya Futures Co. The Chinese central bank said today it will curb loans and investment.

Hedge-fund managers and other large speculators decreased their net-short position in New York copper futures, or bets prices will drop, in the week ended Jun. 13, according to U.S. Commodity Futures Trading Commission data.

Speculative short positions, or bets prices will fall, outnumbered long positions by 5,656 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- short positions fell by 1,646 contracts, or 23 percent, from a week earlier.

Metals - Copper sharply lower on strong dollar, Chinese moves to slow economy

LONDON, Jun 20, 2006 (XFN-ASIA via COMTEX) -- Copper prices were sharply lower, under pressure from a strong US dollar and moves by top consumer China to slow its booming economy by raising bank reserve requirements.

At 4.42 pm, LME copper for 3-month delivery down 255 usd at 6975 usd a tonne, while 3-month LME zinc was up 50 usd at 3,020 usd and 3-month nickel was up 250 usd at 18,850 usd.

"While supply and fundamentals remain intact, the decision by China's central bank (has) exerted some downward pressure on prices," said Barclays Capital analyst Kevin Norrish.

The People's Bank of China decided on Friday to raise the required deposit reserve ratio of commercial banks by half a percentage point, in a bid to stem liquidity-fuelled lending and surging investments.

Jeremy Goldwyn, global head of industrial base metals at Sucden, said traders were concerned the move will impact domestic demand for industrial metals in China.

He added that China aside, base metals were also being pressured by lower oil prices and by a stronger US dollar.

The dollar, which hit an 8-week high against the yen in Asian trade, is being boosted by expectations the Federal Reserve will raise interest rates again at its June 29 meeting, in a bid to curb inflation.

Tuesday June 20, 06:56 AM

FTSE 100 set to fall

LONDON (Reuters) - Blue chip stocks are expected to fall 20-25 points in early Tuesday trade, financial bookmakers predict, erasing most of Monday's rise when the index closed at 5,626.1 points.

Weaker equity markets in the U.S. and Asia could weigh on investor sentiment in Europe, dealers say, with only British Energy (LSE: BGY.L - news) among FTSE 100 (news) companies delivering results.

"With relatively little on the economic or corporate calendars, it's difficult to see where any real upside may come from," said Matthew Buckland, a trader at CMC Markets.

Lower commodity prices could dent the market, with stocks such as miner Rio Tinto (LSE: RIO.L - news) falling in Australian trade as fears about economic growth in the U.S. and China hurt copper prices and a stronger dollar knocks the cost of gold.

"With little economic data this week the market is likely to yo-yo along as its mood changes daily," said Oliver Stevens, a trader at IG Index.

20 June 2006
Copper slightly down after erratic session: LME

Source: Dow Jones

London Metal Exchange copper ended slightly lower Tuesday after an erratic trading session with limited trading interest.

Three-month prices drifted lower on bearish technical indicators in the pre-market session after touching an intraday high of $6,870 a metric ton.

Analysts forecast a fall to the next major support level at $6,200/ton but trade buying helped prevent further falls until the afternoon, when prices reversed down in illiquid trade in response to a stronger dollar against the euro.

Source: FN Arena News 21 June 2006

Putting the bull/bear base metal argument into perspective


Uncertainty is the mother of volatility and recent volatility in base metal markets (and subsequently in resources stocks) only goes to prove there is little consensus of opinion on the "where to from here?" question. Even if opinions are held one way or another, they are clearly on stand-by to be reversed at a moment's notice.

Merrill Lynch analysts have sought to tackle this debate by at least offering up some scenarios and ascribing their own levels of perceived probability to each. As to whether this will comfort befuddled investors is another matter. It comes down to whether or not you like the odds.

Firstly, let's look at the bull side of things the positive indicators of upside in metal prices.

Has the supply/demand situation really changed at all? From about two years ago, resources analysts were entertaining the idea of a super cycle but continuing to warn of a reversion in prices at least towards a longer term average. Debate then ensued as to whether we had made a secular jump such that a new average price would be established, higher than the previous long term average, or whether markets would revert to the mean just as they always have.

Driving the demand side, of course, was China certainly a new player on the block. But ever since every resource analyst had been in short pants, or pigtails, metals markets had moved in cycles. What goes up must come down. The cyclical basis is that mining and smelting are time-consuming and costly ventures that cannot be approached flippantly. If you're going to invest a lot of time and money into production, you'd want to be confident prices are attainable to economically justify your venture.

Before China took off, prices were low too low. For years they were too low, so for years metal production and associated infrastructure investment was neglected. When China did take off, there was a rapid realisation that the supply side was inadequate, and that things had better happen fast.

The usual, historical response to rising metal prices is subsequent investment in the supply-side, which leads to supply eventually catching up to demand after a lag. During the lag, prices keep rising until balance is reached, and then they fall back again as supply outweighs demand. After a lap of the board we have come back to "Go".

Slowly but surely, analysts came to realise two important aspects of the China story.
(1) Demand was astronomical far greater than initially forecast. (2) Supply was going to take a helluva lot longer to catch up than would normally be the case. Not only were there not enough mines and smelters, there weren't enough ports, ships, trains, trucks, railway lines and even qualified people to restore a demand/supply balance in a hurry. The super cycle theory was cemented, and the time frame was stretched out to distant years. Analysts were forced to acknowledge a new world.

In 2005-06 a new problem emerged on the supply side hold ups. If you drive things to hard too fast they tend to break down and need to be fixed. If you become all optimistic about the production capabilities of your new mine chances are you're in for disappointment. And if you make too much money from mining, it won't be long until your lowly workers start exercising collective power in order to participate in the spoils as well.

Shut-downs and strikes have beset the metals markets, and while shutdowns are hard to predict, strikes are sure to continue as large mines across the world hit predetermined wage negotiation points over the next year or more. The supply side will continue to be restrained.

Metal inventories are still at 10-year lows. Restocking has been occurring lately, which takes metal out of the consumable market and into a hoarding phase. This phase is, however, expected to end soon after what Merrill Lynch describes as "an aggressive six months".

Now consider the demand side. It is a logical assumption that prices cannot go up ad infinitum, and that eventually demand will drop when the marginal benefit of acquiring a commodity is less than the price required to be paid. Analysts have been predicting a slowing of Chinese demand for a while now, but signs of a slowdown have been few. It's not that hard to consider why this is the case. As China's economic development continues, that which the Western world takes for granted becomes affordable to more and more of China's masses. Phones, computers, fridges, cars, houses.

Take cars as an example. There are presently 14 million cars in China. That figure is expected to double in four years. Add trucks, buses et al, and there should be 55 million cars on the road by 2010. How much metal goes into a car? (Let's not worry about oil or pollution at this point). How much copper goes into wiring a fridge, a building, or a telecommunications system? It is hard to contemplate there being anything other than ongoing demand coming out of China, and its cohorts, India, Russia, Brazil.

Such are the demand and supply "fundamentals". Now, turning to the bear argument, consider the negative indicators.

The world is concerned about inflation. Metals prices have gone up, so the price of anything made from metal has gone up. The oil price has gone up, and this is the most fundamental factor behind inflation fear. Higher oil/energy prices simply mean higher prices for everything, from petrol to plastics to food transported across countries or oceans.

Inflation has been slow to appear. Everyone has been expecting a sudden jump in inflation, but to date there has been an offsetting factor. As China has become the production centre of the world, low wages and high productivity have meant the price of many household goods, from clothes to computers to cars, have fallen.

While inflation appeared to be under control, central banks were not in a hurry to raise interest rates and jeopardise economic growth. From the US to Europe to Japan. This meant capital was cheap, and this allowed investment in assets producing a healthy return such as metals. The US was the first major economic power out of the blocks to raise rates, and just when everyone thought the tightening phase was over, Ben Bernanke came along to scare everyone into believing it wasn't.

Supporting Bernanke's strategy were US inflation data, particularly the CPI that set the whole market correction ball rolling.

Now central banks across the world are raising rates. Europe is into the swing of it, Japan has rediscovered the need for it, and even China has succumbed to the inevitable. What do higher global rates mean?

Firstly, a credit scare if easy money is no longer easy then speculative investments like metals are no longer as attractive. Time to get out. Secondly, a slowdown in global economic growth, including growth in the world's largest economy (US) and fastest growing (China). If investment capital costs more, investments will not be entered into at the same pace. Business confidence falls (as it has already) and demand falls as a result. If demand falls, prices fall.

China has been publicly discussing the need to slow its economy. The hard part is slowing it without killing it off. But China's commodity consumption is out of control, and the growth of its industry is so frenetic that it can only end in tears. There just cannot be so many steelmakers, for example, before there's just too much steel.

China is trying to avoid a "hard landing", but either way, some slowing is required. This works against further astronomic surges in commodity prices.

Weighing up the bull and bear arguments, Merrill Lynch has come up with three scenarios.

(1) The "Peak Bull Case". We overcome the present correction/slowdown in about six month's time. Global growth then rebounds in 2007 and we're back on track, with demand continuing to run above supply and supply being constrained by ongoing interruptions. Metal prices surge to new highs.

(2) The "Bull Trend Case". We overcome the present correction/slowdown in about six month's time and growth returns in 2007, albeit at a more subdued pace, some 1.00-1.25% below levels experienced in 2006. G7 economies are softer and although inventories are tight, destocking keeps a rein on things.

(3) The "Bear Case". We've had our fun and now it's all over. We won't see such highs in metal prices again. Demand will begin to disappoint and supply will begin to catch up. Prices will start heading back to those aforementioned long term averages.

Which do you see transpiring? Merrills ascribes a 10% probability to the Peak Bull Case, a 60% probability to the Bull Trend Case, and a 30% probability to the Bear Case. If this seems like an each-way bet to some extent then think about it this way: it's highly unlikely we'll see the same level of upside pandemonium again, but a healthy bull trend is twice as likely as a depressing bear trend.

Merrills believes in 2-3 more months of pain. By pain we're talking volatility, and the only way for volatility to be shaken out of the market is for prices to fall further to levels where benched investors begin to feel comfortable about returning back to the game. Within 6-12 months the bull trend will have re-emerged, provided China can slow its economy gently. If not, the bear case will increase in likelihood.

From the resources stock perspective, Merrills is tipping another 10-20% downside, driven by further falls in metal prices towards "reasonable" levels. Diversified resources stocks will suffer less, pure-plays will suffer more.

For Australian pin-up stocks this means further falls of around 10% for the giants BHP Billiton (BHP) and Rio Tinto (RIO) moving out to 12% for the likes of Alumina Ltd (AWC), and 20-30% for the Zinifexes (ZFX) of this world.

Merrills advice is if you're long pure-play stocks (and they're not major takeover targets), be prepared to wear 20% downside or get out now. If you're long diversifieds, best to hang on, and perhaps build at lower levels. If you're underweight resources altogether, wait. You will have a better buying opportunity soon.

If you want something to buy now, Merrills suggests the bulk commodities, steel and uranium. As BHP and Rio are the big bulks, and they're set for a fall, iron ore fans may need to look elsewhere. Coal-wise, Merrills likes Excel (EXL) and suggests the outlook for thermal coal remains robust for three years. ERA (ERA) looks cheap in the uranium stakes