Copper hits new peak over $7 000 25/04/2006 13:52 PM London...

Copper hits new peak over $7 000

25/04/2006 13:52 PM

London
Copper extended its record-breaking rally on Tuesday, supported by threats to supply and strong demand, and the trend may extend into the long term, analysts said.
"I think we are still in the early stages of the bull trend in copper. We have years of strong prices ahead of us," Barclays Capital analyst Ingrid Sternby said.

"In this uncharted territory, I would look for round numbers. With inventories where they are, prices can spiral higher very quickly. The fundamentals are very compelling."

Three-month copper futures on the London Metal Exchange (LME) hit a record $7 045 a tonne on Tuesday, climbing more than 3% from Monday.

Stocks of the key industrial metal in LME-bonded warehouses were 117 450 tonnes on Tuesday, equivalent to about 2-1/2 days of global consumption. Inventories have fallen from almost 1 million tonnes in April 2002.

"Copper is going to continue up. Supporting that is the latest Ifo business survey and comments from Caterpillar who see many years of strong growth ahead," Sternby said.

Germany's Ifo April business sentiment index unexpectedly rose to a fresh 15-year high of 105.9 from 105.4 in March.

Caterpillar Inc's chief financial officer said on Monday he believed the machinery maker had several more years of strong growth ahead.

"This cycle has legs," he said. "We don't think people understand how strong things are...Virtually everywhere on the planet, things look good."

Demand strong

Net imports of the copper by China, which consumes a fifth of the world's production, rose to 39 760 tonnes in March from a net 32 825 tonnes in February despite increased exports attributed to the State Reserve Bureau.

As a result copper prices would remain high.

The Chilean Copper Commission on Monday raised its forecast for the average 2006 copper price to a range of $2.60-$2.64/lb from its previous forecast of $1.72-$1.76/lb.

Sentiment was also supported by industrial unrest in Mexico, Chile and Canada.

"Copper will continue to go higher. We could see $200-300 on the downside, but the trend is up and I can't see where any real weakness will come from," an LME trader said.

Other metals were following copper higher.

Nickel and zinc also scored fresh peaks on the LME and traders saw gold challenging last week's 25-year peak.

Mining equities on 1he FTSE 100 share index were steady, trading either side of Monday's closing level.

Volatility

Copper prices have risen nearly 50% from the start of the year and are up over fivefold from cyclical lows in 2001, putting pressure on consumers' cashflow.

Growing volatility on the LME also means the cost of doing business on the exchange may rise.

Dealers said the market might face large rises in margins calls when LCH.Clearnet, which clears LME contracts, announces its regular changes to initial margin next week.

Initial margins - funds or credit lines that an investor is required to set up - represent the largest likely daily move in a contract's price.

On Friday copper rallied 7.7% or nearly $500 a tonne. The existing margin is $268.

"You can get the funds out of the market by raising margins. The problem with that is it drives everybody else out, too, and those that suffer most are the ones with the shallowest pockets - the consumers, usually," one said.