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Tuesday February 7, 2:22 PMUPDATE: Funds Drive Copper, Aluminum To New HighsBy James AttwoodOf DOW JONES NEWSWIRES SYDNEY (Dow Jones)--Funds sent flagship base metals copper and aluminum to new highs in Asia Tuesday, despite an absence of clear fundamental drivers, participants said. The London Metal Exchange's benchmark copper contract hit an all-time high of $5,110 a metric ton, the latest in a string of records as speculators and new buy-and-hold investors continue to target metals markets. By 0520 GMT, LME copper had eased back to $5,085/ton, but is likely to re-challenge the record, heading into London trading hours, traders said. The Shanghai exchange's benchmark copper contract hit its daily upper limit for the second session in a row to post a new high of CNY48,770/ton, continuing to play catch up with strong LME gains during last week's Lunar New Year break. Shen Haihua, an analyst with Southwest Futures, attributed copper's gains Tuesday to a mixture of short covering and fresh buying, partly offset by light profit taking amid thin volumes. "Most players are still sidelined by the very high prices," he said. "As long as LME prices continue to go up, I think the domestic market will stay thin (but) with an upside bias." Consumer Restocking Keeps China Demand High Shen and others said an anticipated uptick in China's copper demand due to consumer restocking is likely to keep physical markets tight and the futures market well supported. Aluminum rose 4% in Shanghai, the maximum gain allowed in a single day, to a new high of CNY22,800/ton; The metal hit a 17.5-year high on the LME at $2,677.50, eclipsing the previous mark reached overnight. At 0520 GMT aluminum had eased to $2,673.50. Already strong investor interest in aluminum is drawing additional support from reports that some 1,200 Jamaican alumina refinery workers remain on strike. A slightly weaker U.S. dollar against major currencies, after Monday's gains, also supported commodity prices, as did ongoing flight-to-quality investing spurred by building tensions in Middle Eastern geopolitics. Unconfirmed reports both copper and aluminum producers will be forced to buy back large hedge positions after being caught out by the strength of recent price gains are also buoying sentiment. In aluminum's case, supply-side constraints posed by rising prices of energy and feedstock alumina have helped push prices up almost 60% in the last six months, although some analysts say price rises are running ahead of fundamentals. "Aluminum looks to be on target to reach $2,700 in the short term with the metal remaining a firm favorite; however with the large level of stocks, there is potential for a correction in the medium term," said Standard Bank. Supply Gradually Catching Up With Demand Copper's 70% gains since mid May have also been criticized as being out of kilter with fundamentals as supply gradually catches up with the China-led surge in demand. "There's not really a great metal shortage at the moment, stocks were up again overnight yet prices keep going higher," said Rick Holmes, Managing Director of Mitsui Bussan Commodities (Australia). "That suggests funds are doing the buying (and) there's nothing to indicate a change in direction - although that doesn't mean it won't happen," he said. Other base metals were steady Tuesday, with zinc holding $2,407 at 0520 GMT, just below a new all-time high set overnight, while nickel and lead were largely unchanged at $15,150 and $1,372.50 respectively. |
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