New York, London — Copper prices ended higher on Friday as potential supply threats in Chile added to bullish prospects of a stronger demand outlook next year and further investment money flows into the broader commodity complex.
Copper for December delivery on the New York Mercantile Exchange's Comex division ended up 2.70 cents (U.S.) at $3.1080 a pound, well within striking distance of this week's 14-month peak of $3.1720.
On the London Metal Exchange, benchmark copper was untraded at the close but last bid at $6,845 from $6,790 a tonne on Thursday. The metal used in power and construction climbed to $6,992 a tonne earlier this week, its highest level since late September.
Copper maintained its momentum near this week's highs after reports surfaced that Chile's Federation of Miners threatened to halt output at mines owned by BHP Billiton, in an effort to show solidarity with a strike at the company's Spence copper mine, now in its 39th day.
Striking workers at the Spence mine agreed to resume wage negotiations with BHP Billiton on Friday.
“We don't know how these negotiations will go, but I think the risk is there for significantly tighter markets from the supply side,” said Bart Melek, Global Commodity Strategist with BMO Nesbitt Burns in Toronto.
Catherine Virga, senior base metals analyst with CPM Group, believes the momentum from the Spence strike alone would not be enough to forcefully drive copper prices above the $7,000 per tonne level.
“However, support from Chile's Federation of Miners or a strike at Antamina could easily send copper prices up toward $7,250,” she said. “Depending on the longevity of this disruption, prices could make a run even higher.”
Furthermore, government fiscal packages – especially in China, the world's largest consumer of industrial metals – are expected to start feeding through into real demand next year.
“The demand outlook for next year is very positive,” said Gayle Berry, an analyst at Barclays Capital. “We're just getting the early feeling of what it's like for this fiscal spending to really feed through.”
Barclays Capital said a record $60-billion will have poured into commodities by the end of this year.
Industrial metals, alongside other commodities, have been underpinned by a falling dollar, which makes metals priced in dollars cheaper for holders of other currencies, and by fund flows as investors look to rebalance their portfolios.
But rising stocks of copper in LME warehouses – above 420,000 tonnes, up more than 60 per cent since the middle of July and the highest since April – have dampened sentiment.
Stocks of aluminum at 4.59 million tonnes are still within distance of the record 4.629 million tonnes seen on Sept. 16, and are expected to keep a cap on prices of the metal used in transport and packaging.
But news that China will raise power prices for nonresidential users by around 5.4 per cent could help bolster aluminum prices.
“We believe that the power tariff increase would materially increase the cost of production of aluminum smelters (by some $50 a tonne) in China where power costs account for more than 35 per cent of total costs,” Liberum Capital said in a note.
Aluminum ended up $29 at $2,060 a tonne.
Threats of supply shortfall in China, partly due to a potential shortage of zinc concentrate from Australia, supported prices of the metal used to galvanize steel.
Zinc closed at $2,255 a tonne from $2,215, while battery material lead ended at $2,346 from $2,332.
Tin was untraded at the close but last bid at $14,950 from $14,860 and nickel closed at $16,600 from $16,975.
Nickel prices are down about 25 per cent since hitting a year high in August, due to rising stocks which are seen heading for historical highs above 150,000 tonnes.
