Oct. 8 (Bloomberg) -- Copper prices rose to a 15-year high in London as a strike shut a smelter owned by Chile's Codelco, the world's biggest producer, threatening to worsen this year's shortfall in global supplies.
The Chuquicamata smelter was closed and a strike by about 760 supervisors will last until they win a new contract, union official Mario Sepulveda said. Copper has climbed 14 percent since Sept. 3 as inventories slumped and funds bought contracts in search of higher returns than offered by stocks or bonds.
``Smelter capacity is the constraint on supply, not mine production,'' said Adam Rowley, an analyst at Macquarie Bank in London. Codelco Norte, the division of state-owned Codelco that manages Chuquicamata, produces 900,000 metric tons of copper a year, or 6 percent of the world total.
Copper for delivery in three months reached $3,085 a ton on the London Metal Exchange, the highest since March 13, 1989. It traded up $32, or 1.1 percent, to $3,078 at 10:26 a.m., bringing the past year's gain to 65 percent. Hedge funds, investment vehicles for the wealthy, account for about half of LME trading, Barclays Capital estimates.
In China, the world's largest copper importer, traders returned after a one-week national holiday. Copper rose 2.5 percent to 29,920 yuan ($3,614) a ton on the Shanghai Futures Exchange.
Blasting Halt
At Codelco Norte, blasting of rock will halt soon, Sepulveda said, potentially slowing mining. The supervisors voted on Sept. 29 to strike for improved housing, health and education benefits. The union extended the strike deadline on Oct. 4.
``It's a bit of a surprise, given what the company has been saying, and especially the claim that blasting of rock will halt soon,'' Stephen Briggs, an analyst at SG Securities in London, said in an e-mailed response. Codelco said in a Sept. 30 statement that the strike wouldn't dent output.
Codelco, Phoenix-based Phelps Dodge Corp. and other copper producers are expanding mines and starting new projects to try to meet rising demand, led by China. Copper mines operated at 93 percent of capacity in June, up from 89 percent in January, John Meyers, an analyst at Numis Corp., said this week in a note.
China uses about 30 percent of the copper it imports to make power cables for its expanding grid. In the U.S., the second- biggest copper market, 40 percent of supplies to go to builders, with the average home requiring 400 pounds of wire and pipe.
Draining Inventories
Disruptions at mines run by Melbourne-based BHP Billiton, Freeport-McMoRan Copper & Gold Inc. of the U.S. and Grupo Mexico SA have forced builders and manufacturers to drain inventories. Copper stocks tracked by exchanges in London, New York and Shanghai have slid 80 percent this year to 159,968 tons, less than four days' global use.
Inventories at LME warehouses have slipped 8.1 percent in the past four days to 92,000 tons. Output from mines and scrapyards this year may be 950,000 tons less than demand of 16.8 million, London-based Bloomsbury Minerals Economics Ltd. said this week, predicting the gap may last until 2006.
The shortfalls have helped push commodity prices to the highest in two decades. The Reuters Commodity Research Bureau index of 17 futures contracts has climbed 12 percent this year. Crude oil, up 60 percent in the period, yesterday reached a record $53 a barrel in New York.
Piling In
Copper prices may rise another 5 percent to 10 percent because of investment pouring into commodities from funds that use computer models to decide when to buy and sell, said Maqsood Ahmed, an analyst at Calyon Financial in London.
``There is some pretty indiscriminate decision-making going on in commodities, piling them all together,'' Briggs said. ``The fundamentals are terrific.''
Copper has rallied even as its 14-day relative strength index, derived by averaging out daily gains and losses, nears 75, above the 70 level that suggests investors may sell. Copper is trading above both the 100-day and 200-day moving averages used by some traders who use charts to predict price moves.
4 days supply!!!!
If you think about it, mined from the ground to available at end user takes at least 6 weeks. Not much room for error in this market.
Wont see supply balance (meeting the current 500kt a year shortfall and getting stocks back to 4-500kt) until 2006 at least.
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