Copper Prices Reach 26-Month High Amid Global Economic Growth Concerns

Strategic Insights -

Copper prices soared to a fresh 26-month high, defying a stronger dollar, as traders responded to comments from Federal Reserve Chairman Ben Bernanke that further monetary easing may be needed to sustain economic growth. Copper futures rallied after Bernanke's speech, with the most actively traded contract, for December delivery, settling up 2.35 cents, or 0.6%, at $3.8390 per pound on the Comex division of the New York Mercantile Exchange.

Key Takeaways:

  • Copper prices set a fresh 26-month high at $3.8390 per pound, bucking a stronger dollar, as traders looked to comments from Federal Reserve Chairman Ben Bernanke that further monetary easing may be needed to maintain economic growth.
  • Bernanke's comments led to a rally in copper futures, with the contract jumping nearly 4 cents shortly after the speech, indicating that copper consumption would benefit from faster economic growth.
  • Copper is widely used in manufacturing of consumer goods, electrical wiring, and plumbing in the construction sector, making it a critical component in the global economy.
  • Bernanke stated that overall economic growth has been proceeding at a pace that is less vigorous than desired, potentially leading to a second monetary stimulus.
  • Renewed dollar strength, however, subdued the red metal's rally, as prices of dollar-denominated contracts like copper futures tend to fall as the dollar strengthens.
  • Some investors are booking gains ahead of the weekend, while strong physical market fundamentals offer sustained support to copper price's bull run, with most metals analysts raising long-term price forecasts amid expectations of physical deficits.
  • Goldman Sachs analysts forecast copper prices will hit nearly $5 per pound, or $11,000 per metric ton, in the next 12 months, driven by strong emerging market demand and recovering developed economy demand.
  • Copper inventories at London Metal Exchange approved warehouses fell by 475 metric tons on Friday to total 371,025 metric tons, and Comex inventory data showed copper stocks fell by 958 short tons to 79,436 short tons.

Statistics:

  • Copper prices settled up 2.35 cents, or 0.6%, at $3.8390 per pound on the Comex division of the New York Mercantile Exchange.
  • The most actively traded contract, for December delivery, set a fresh intra-day 26-month high of 3.8675 per pound on Thursday.
  • Copper futures rallied 4 cents shortly after Bernanke's speech, indicating a potential boost to copper consumption from faster economic growth.
  • The euro was trading at $1.3972 Thursday afternoon, from highs of 1.4161 earlier, which had an elevated influence on metals prices in recent weeks.
  • Copper inventories at London Metal Exchange approved warehouses fell by 475 metric tons on Friday to total 371,025 metric tons.
  • Comex inventory data showed copper stocks fell by 958 short tons to 79,436 short tons.

Sources:

  • Dow Jones Commodities News via Comtex, October 15, 2010
  • Dow Jones Newswires, Tatyana Shumsky, 212-416-3095, tatyana.shumsky@dowjones.com (Michael S. Derby contributed to this story)
  • Goldman Sachs, analysts' note to clients
  • Comex, inventory data
  • London Metal Exchange, warehouse inventory data