The Hindu Business Line : Copper, not peaking yet

With the copper market rising relentlessly having breached the psychological level of $7,000 a tonne recently, concerns about an imminent correction are beginning to be voiced.

Concerns like whether there will be demand compression or demand destruction at high prices, and hedge-fund players would continue to see value in copper have by now become matters of debate. What everybody wants to know is whether copper prices are topping out.

According to analysts, the extant conditions do not warrant any bearish conclusions. There are reasons why prices may not decline anytime soon; and the most critical one is falling inventory.

Currently, LME is reported to be holding only 116,000 tonnes (after another relatively sizeable draw down recently), while on the other exchanges too — Comex and SHFE — stocks are falling from already low levels. At the Comex, stocks are estimated at 15,000 tonnes and at Shanghai 31,000 tonnes.

"This is hardly a buffer for a market where consumption is expanding by almost 5 per cent a year to 17.3 million tonnes in 2006 as per the latest estimates from the International Copper Study Group," said an analyst with Barclays Capital.

Of course, there are additional factors such as risks to production — weighing heavily towards the downside due to full capacity utilisation rates, ongoing and upcoming labour negotiations and so on. Copper output is not showing signs of accelerating despite high prices. The market is unlikely to face a serious downturn because of both demand and supply factors, it is believed.

Reuters reports from London: Aluminium was up $7 to $2,755/2,760.

The metal saw a sharp rise in stocks in LME-registered warehouses, up 13,300 tonnes to 751,600, its highest since early April.

Zinc was quoted at $3,300/3,320, up $75 from the close. Nickel was at $19,250/19,350 against $19,100. Lead was up $8 at $1,205/1,215, while tin was flat at $9,250/9,350.