Copper
Published: January 5 2010 09:25 | Last updated: January 5 2010 15:49
Gold may attract far more punters and column inches but it was the red metal, not the yellow one, that truly shone in 2009. Copper prices surged 140 per cent last year and are now up over 160 per cent since their December 2008 low, compared with a roughly 25 per cent gain for both gold and the CRB Index of commodities. There is no break in the trend so far this year either as miners at a big Chilean producer went on strike this week, sending London spot prices to $7,450 a tonne, their highest since Lehman’s collapse.
There are many reasons to doubt the rally’s staying power though. Much of the supposed incremental demand for copper is still more theoretical than real, allowing inventories to recover smartly since last summer, when record Chinese stockpiling slowed. US data suggest that modest recoveries in homebuilding and auto production are underway, both bullish indicators, but these, along with an improbable continuation of China’s building boom, are already baked into prices.
More than a modicum of speculative froth is apparent. Near-month futures are in contango, a situation when more distant contracts are dearer, indicating a well-supplied physical spot market. It is also a sign that copper may be attracting relatively more financial owners, like index funds, rather than end-users. Copper passed an important test when it survived the dollar’s rebound in December, unlike gold. But this came amid copper-specific news that supported the market, such as the threatened Chilean strike.
Referred to as “Dr Copper,” the only metal with a PhD in economics, the metal’s rally is serving to reinforce optimistic forecasts for a broader recovery 2010. It has been wrong before though, and this may be one of those times. Like economists, bellwethers have an unfortunate tendency of extrapolating the recent past.
Financial Times
http://www.ft.com/cms/s/3/444264d6-f9dc-11de-adb4-00144feab49a.html?nclick_check=1