May 11, 2006COPPER rose to $US8000 a tonne for the first time in...

May 11, 2006

COPPER rose to $US8000 a tonne for the first time in history as shrinking production and stockpiles prompt investors to increase purchases of metals that are offering better returns than shares or bonds.

Labour disputes and threats to output from Mexico to Indonesia have dented global stockpiles, driving copper 82 per cent higher this year. BHP Billiton, the world's biggest miner, said on May 4 that supplies would be limited through 2008. Inventory tracked by the London Metal Exchange is enough to last the world less than three days.

"If you'd asked me two years ago, would copper reach $US8000, I'd have said that was very unlikely," William Adams, an analyst at Basemetals.com in Saffron Walden, England, said yesterday.

Copper for three-month delivery advanced as much as $195, or 2.5 per cent, to $US8010 a tonne, and was trading over $US7900 on Wednesday morning in London.

Workers at Grupo Mexico SA, the world's seventh-largest copper producer, have been on strike since March 24 at the La Caridad mine over pay and safety. A decline in ore grades at Freeport-MacMoRan's Grasberg in Papua reduced output in the first quarter.

"Every day we see further evidence of supply disruptions," said Alfred Wong, of UOB Asset Management in Singapore. "I'm not surprised at all to see this kind of rally."

Pension and hedge funds are pouring money into commodities as raw materials from sugar to oil produce returns that are outpacing other assets. Fund investments in commodities may exceed $US120 billion ($155 billion) by 2008, up from $US80 billion last year, according to estimates from Barclays plc.

"Speculators are confident that London prices will keep rising," Li Rong, a metal analyst at Great Wall Futures Corp, said in Shanghai yesterday.

The S&P 500 index of US shares has risen 6.2 per cent this year. US Treasury bonds have lost investors 1.7 per cent this year, according to Merrill Lynch indices.

Copper prices are likely to extend gains because record prices are not spurring production increases, Barclays Capital said in a report on May 4.

Funds tracking commodity indices may hold copper futures contracts equal to as much as 465,000 tonnes, almost three times more than the metal stored in warehouses monitored by exchanges in London, New York and Shanghai, Bloomsbury Minerals Economics said on May 5.

At the same time, demand, led by the booming economy of China, is soaring. China's economy expanded 9.9 per cent last year, followed by a 10.2 per cent growth in the first three months.

Source: Bloomberg