Thursday, 26 March 2015 17:06
LONDON: Copper hit its highest in nearly three months on Thursday after mines closed in the world’s top producer Chile due to flooding, the dollar weakened and oil rallied on military strikes in Yemen.
Other base metals joined the rally on the London Metal Exchange, spurring some investors to scramble to buy contracts to close out bearish bets.
Lead touched the highest in almost two months and zinc hit a one-month peak.
Three-month LME copper climbed 1.5 percent to $ 6,217 a tonne by 1100 GMT after small losses in the previous session. Prices earlier hit their highest since Jan. 2 at $ 6,294.50.
Torrential downpours in the north of Chile have forced companies to suspend operations at some major mines, putting an estimated 1.6 million tonnes of capacity on hold.
“We certainly had thought that forecasts of mine supply were exaggerated, given the industry’s long experience with problems such as this,” Caroline Bain, senior commodities economist at consultancy Capital Economics in London.
“From our point of view, it certainly underpins our story of being positive on copper prices this year.”
Capital Economics forecasts the copper price to extend gains to $ 6,500 a tonne by mid-year and $ 7,200 by the end of 2015.
Analysts have been whittling down their forecasts for a surplus this year due to declining ore grades, processing problems and bad weather, but clouds over China’s growth prospects are still curbing upside price momentum.
“Supply challenges should dominate although the Chinese numbers remain a little bit of a drag on demand,” said analyst Dominic Schnider of UBS Wealth Management in Hong Kong.
Reflecting scant buying demand for copper in top user China, Shanghai premiums on a cost insurance and freight (CIF) basis fell $ 5 to $ 70-$ 85.
Also supporting prices was a jump by Brent crude oil of more than 4 percent, increasing mine costs and spurring buying across the commodities sector by index investors.
“It does serve as a reminder that geopolitical risk is still around and has the ability to change the market dynamics,” Bain said.
Further underpinning prices, the dollar sank to a five-week low against the yen.
A weaker dollar supports commodity prices by boosting the purchasing power of buyers paying with other currencies.
Lead gained 0.8 percent to $ 1,860 a tonne after touching $ 1,882, the strongest since Jan. 28, and zinc climbed 1.5 percent to $ 2,113, the highest since Feb. 18.
Copyright Reuters, 2015
