Copper prices jump to 30-month high on weaker dollar
Moneylife Digital Team 14 October 2010

Lower production and robust demand is expected to take red metal prices up further over the next couple of years

Copper prices on Wednesday crossed a two-and-a half-year high on the global market on a weakening dollar and increased demand from China.

According to an analyst at a commodity exchange, copper is climbing up because Chinese production and consumption is booming. "Warehouse stocks at the London Metal Exchange (LME) are going down, hence the chances of copper prices going up (further) is high," he said.

Copper prices were quoted at $3.78 per pound at the LME, a big increase of 34.8% from a year ago. Industry sources believe that "copper is on an upward trend and may reach levels of $10,000 a tonne in the next couple of years before dropping back."  The red metal is trading at around $8,265 per tonne.

Sharekhan Ltd, the stock trading company of the SSKI Group, said in a research note, "Copper has given a fresh breakout. It has surpassed the high of $3.68, kicking off a new leg on the upside. Long-term picture shows that copper is rising in a channelised manner. The previous rally that originated near the lower end of $1.25 completed forming an expanding ending diagonal. The entire rally has been retraced up to the 38.2% mark, from where the third leg on the upside has started."

China is the third largest producer of copper and the largest consumer of the red metal which is mainly used in construction and automobiles. Weakness in global copper mining and a rising demand for the commodity in China has caused the demand-supply gap to widen, creating a constructive platform for copper prices.

The depreciation of the US dollar has also made it easier to purchase base metals like copper, contributing to the hike in prices. The dollar is trading at Rs44.66, significantly weaker from the Rs47.53 at this time last year. Further quantitative easing by the US Fed is expected to increase the inflow of the dollar on a global level.

Last year, copper prices were depressed due to slow growth on account of the global recession. Things have changed since. With curtailed supply and robust demand, it seems the upward movement will continue, which makes it a good time to invest in the metal.

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