Optimism Makes Copper Shine – US-FOREX.US
If economic optimism had a hue, it would be copper. The industrious metal that’s used in everything from water pipes to electrical wires is one of the first commodities to recover following a downturn, making it a favorite among investors eagerly awaiting a turnaround. That was the case on Thursday when U.S. data showed that the economy contraction in the first quarter was revised to less than previously thought. Copper for September delivery climbed to its highest level in recent weeks before settling up by 3.5 cents, or 1.5%, at 2.316 a pound.Lately it seems that all copper has been building is wariness as analysts warn that China’s robust inventory stockpiling isn’t supported by the demand for the metal. Furthermore, strong copper prices, which have more than doubled since the beginning of the year, are likely to dampen interest in the metal. “The recovery in prices means that producer margins have been improving, and fast,” said Barclays analyst Gayle Berry. “As a result, production cuts have screeched to a halt and production is instead being brought back on line.” Berry doesn’t see that hurting copper prices too much since oversupply was never an issue but for aluminum, zinc and nickel, increased supply could make for rough conditions through to the end of the year.”If the current strength in base metals prices is continued we will see more production come back on line and this could dampen the second-half 2009 price outlook,” Berry said, adding, “In our view, a summer softening in metals prices would actually be beneficial for future fundamental outlook for many metals.”On Thursday, Citi analyst Brian Yu initiated Freeport McMoran Copper & Gold
at “hold.” Freeport shares closed Thursday’s trading session up by 1.90, or 3.9%, at 50.70 after the company announced quarterly cash dividends on preferred shares.
On Wednesday, FBR Capital Markets analyst Luther Lu upgraded the company to “outperform” from “market perform,” highlighting the strong correlation between Freeport shares and the price of copper.”While we are cognizant about the near-term weakness, we continue to believe that longer term, copper and its largest consumer China do have structural supply issues,” Lu said. Metal and mining companies closed Thursday’s session broadly higher. Southern Copper
was up by 87 cents, or 4.3%, at 21.01 while Newmont Mining
, Rio Tinto
and Ivanhoe Mines
gained 2.5%, 1.8% and 9.9%, respectively.