October 01, 2005

Analysts say hedge funds hold copper prices at nadir

The copper price for a three-month delivery peaked at $3,812 a tonne on the London Metal Exchange (LME) and closed at $3,780, 1 per cent above its previous $3,775 close. Copper prices have risen 20 per cent this year and 64 per cent since the beginning of 2004. The demand for copper fell by 2 per cent in the first half of 2005. Copper stocks on the LME had slumped to a 31-year low in July this year. However, it jumped 229 per cent to an 11-month high of 83,295 tonnes as the smelters return to full capacity after closures for maintenance. One wonders why do the copper prices keep rising, and keep setting newer and newer high each day, and haven’t the prices overshot the fundamentals. The answer to same lies with hedge funds which are major buyers in the metal and are going to try to hold up the price. They are creating the momentum and trying to run along with it while they are pushing the market to test the previous high. It although seems gloomy days ahead for the hedge funds since there is a clear dislocation of demand and supply with the current price levels. Reports:

Mr Moore thinks the crunch may come during “LME Week”, from October 31, when traders gather in London to negotiate future supply contracts. Copper prices fell sharply during this event last year. “Once that is out of the way, the gloves are off,” he said. Natexis sees scope for profit taking as the quarter ends, paving the way for prices to slide to about $3,200 a tonne by the year’s end.

Read More: Copper peak ‘due to hedge funds’

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