It's been a good week for raw materials. The prospect of stronger US growth, along with a weaker dollar, propelled oil to a two-year high above $90 a barrel. Gold reached a new all-time high above $1,430/oz. But copper's recent performance has been the most impressive. It has gained 35% since June. The benchmark three-month future eclipsed $9,000 a tonne this week a new record.
What the commentators said
Given the fundamentals, it's no wonder copper has been on a tear. On the demand side, China, which hoovers up 40% of the world's supply, has been the key factor. Its manufacturing output accelerated for a fourth month in November. The launch of new ETFs backed by physical copper has also stoked demand. JPMorgan, Blackrock and Deutsche Bank are among the companies introducing them.
But mining companies have failed to keep pace with demand, noted Glenys Sim on Bloomberg.com. New reserves are becoming harder to find and the quality of the ore is declining. That means less metal can be extracted. CRU, the consultancy, says output from the top producer, Chile, has stagnated since 2007 now that large reserves discovered in the 1970s have been depleted.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Moreover, many mining projects in the pipeline two years ago had to be abandoned as the credit squeeze cut off financing. The result: mined supply has lagged behind demand this year and stockpiles are dwindling. Inventories monitored by the London Metals Exchange have slumped by 30% and are at near-record lows. "The laws of supply and demand are set to push prices higher", said Economist.com. But beware a bumpy ride, said Deutsche Bank. Further moves by China to rein in inflation and hence growth will dent sentiment towards base metals.
-
How to boost your pension by £33,000 by paying it an annual Christmas bonusContributing an extra £400 into your pension pot this festive period will give the gift of compound interest and should make your retirement feel more jolly and bright
-
Japan’s medium-sized stocks provide shelter from trade warsNicholas Price, portfolio manager of Fidelity Japan Trust, tells us where to invest in Japan
