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G. Chandrashekhar

Mumbai , Nov. 15

COPPER hit a new high of $4,126 a tonne (up $21/tonne) in early trading on Tuesday in London. On Monday, the base metals rose by nearly $100 a tonne, amid report of a decline in copper production in Chile, the world's largest supplier.

Chilean copper production is estimated lower by about 130,000 tonnes to 5.37 million tonnes (mt). On the other hand, Chinese demand for this base metal has been rising rapidly and it is well known that China is physically short of many commodities including copper. World-exchange warehoused copper stocks are estimated at 140,000 tonnes.

But latest reports from the broader international market suggest another reason for the price spike. It is that a Chinese trader has been caught short with large copper positions (estimated at close to 200,000 tonnes).

Interestingly, it is not only traders who have called the market wrong this time, but even producers and consumers have undermined the market's strength, experts said.

In response to large metal requirement, China is expanding its production capacities. Data released from the China National Bureau of Statistics suggest that the country's refined copper output rose 21 per cent year-on-year in the January-October period to 2.03 mt.

However, the country is projected to consume as much as 3.7 mt this year, which means that there is a large gap to be filled, Barclays Capital said in its report, adding that China will remain a large importer of copper-in-concentrates, having produced not even 600,000 tonnes at domestic mines so far this year.

Even more significant, perhaps, is production statistics for other base metals such as aluminium and zinc, Barclays pointed out. Due to poor profit margins at Chinese aluminium smelter, primarily due to high alumina costs, (currently $600 a tonne CIF) but also tight energy availability, the output growth rate is finally starting to slow.

Like with aluminium, China is traditionally a large zinc producer; however, that is now changing. Chinese refined zinc output was down in October and registered only a modest gain of 2.2 per cent year-on-year in the first 10 months of 2005, at 2.2 mt.

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