Supply worries buoy base metals

Copper, aluminium, zinc lead charge

Prices of base metals, led by copper, zinc and aluminium, rose sharply today in the domestic as well as the international market, as funds continued to pour money into commodities at a time when prices of energy and precious metals are rising amid escalating geopolitical tensions in the Middle East.

Virgin copper and scrap gained approximately Rs 5 a kg today in the domestic market with copper wire bar touching an all-time high at Rs 417 a kg. Copper armature, stencil scrap and sheet cutting jumped to Rs 377 a kg, Rs 355 a kg and Rs 377 a kg respectively.

Aluminium ingots and zinc slabs, however, managed to jack up by Rs 3 to close the day at Rs 145 and Rs 192 respectively.

In London, the spot price of copper surged to a historic high to cross the psychological barrier of $8,850 on fund and speculative buying. In fact, traders are spending on copper, assuming much higher returns than stocks, bonds and currencies.

Supply woes also kept the copper market on the tenterhooks.

Speculative money kept pouring into the metals complex on supply constraints and robust global demand, pushing up prices in London, Shanghai and New York. The latest bout of fund buying, prompted by reports this week that China was to set up a strategic reserve for mineral resources, also spurred short-covering and pushed prices of other metals up, with zinc reaching a new high and aluminium setting a new 18-year peak.

Some analysts said copper's recent gains were partly due to a misinterpretation of news on China's plan for its strategic mineral reserves.

Copper, used in wiring, tubing and coins, has gained as much as 87 per cent this year and has risen nearly six-fold since 2001 on strong demand, especially form China and India, and tight global supply amid concerns over supply disruptions.

On the supply side, Mexican silver producer Penoles, which planned to open a major copper mine last year, is still running equipment tests at the mine and is unlikely to open it before the end of this month.

Lower grade ore in Indonesia and ongoing labour disputes at mines in Mexico and elsewhere lent support while shortage of skilled labour and mining equipment was hampering producers' efforts to add new capacities.

Prices of aluminium and zinc are also perking up on supply concern and investment rally. The spot price of aluminium is rising on persistent concern that some market participants are opting out of copper.

No new capacity in any of the metals is going to be added "� at least for the near future. The new capacities, which are planned now, would take at least two years to start commercial production. The metal markets would continue to face supply crunch till then, traders said.