Analysts say the rise is temporary due to lack of fundamental support.
Copper advanced to a three-month high in early trade on Thursday on the benchmark London Metal Exchange (LME), after Greece voted for austerity measures, thereby easing concerns of default.
After opening the day’s high at $9,369.5 a tonne, the red metal slipped marginally to trade at $9,355 a tonne, rising nearly two per cent. The metal for three-month delivery on the LME, gained for a third day, rising as much as 0.5 per cent from previous day’s late evening level of $9,293 a tonne. Following suit, other base metals also gained up to one per cent.
“This is a short-term respite. With austerity measures accepted by Greece, the threat of the country’s default has eased. Second, the dollar has started weakening against all major global currencies, which has lifted all dollar-denominated commodities,” said Naveen Mathur, associate director-(commodities and currencies), Angel Broking.
There is no major favourable development which can continue the rising trend in base metals. Overall global economic conditions remain fragile. As long as the dollar continues to remain weak, base metals’ prices would rise. But commodity prices will start falling with the decline in other currencies, Mathur added.
Copper also got support from a research paper, ‘Strategies for Copper Reserve Replacement 2011’ by Metals Economics Group, which says only six per cent of the 62 significant copper discoveries were upgraded to reserve status between 1999-2010. This means, copper concentrate may not be adequately available for smelters for near-term production.
The paper also defines a significant copper discovery as a deposit containing at least 500,000 tonnes, and the total tonnage found during the period was 229.1 million tonnes of copper in reserves, resources and past production. Also, the study said the top 23 global producers increased their aggregate annual production by 26 per cent over the past 10 years to 11 million tonnes in 2010, which is 68 per cent of the world mine production. As of year-end 2010, they held sufficient reserves for 34 years of output.
Meanwhile, analysts raised optimism for a revival in demand from China, the world’s largest user of base metals. Amid expectations that the euro and oil will continue a rising momentum for some more time, other base metals like aluminum and nickel also surged on Thursday. The euro rose to a three-week high against the US currency on prospects that the European Central Bank would raise interest rates next week to cool inflation.
“Gold remained flat after rising for two consecutive sessions, as markets wait for the final step of the austerity bill. The initial step was passed on Wednesday and the final vote is expected to be passed later on Thursday to secure international aid. The austerity measures passed by the Greek parliament weighed on the dollar, pushing the euro to a three-week high against the dollar,” said Anand James, chief analyst, Geojit Comtrade.
Crude slipped as Arlene, the first hurricane of this year’s north Atlantic hurricane season, was forecast to leave Mexican oil fields unscathed. LME copper continued moving up on Thursday as well, as positive vibes from the Greece outcome bolstered confidence for demand. Meanwhile, president Obama has called for further steps to boost the US economy by enhancing employment opportunities, as well as to raise tax rates, which will also weigh on the markets.
