Copper Extends Rally on Speculation Chinese Imports May Climb
Source: Bloomberg, Anna Stablum and Yi Tian (6/21/10)
"Copper may rise on speculation that demand may grow after China signaled an end to the yuan's fixed rate against the dollar."
Nickel, aluminum, zinc, lead and tin gained on the London Metal Exchange after the People's Bank of China indicated it's abandoning the peg of 6.83 yuan to the dollar. A weaker U.S. currency makes dollar-priced metals cheaper for buyers using other currencies. China is the world's largest consumer of copper.
"A stronger yuan delivers an increase in purchasing power for Chinese consumers, leading to stronger imports, which might include base metals, primarily copper and nickel," said Michael Jansen, an analyst at JPMorgan Securities Ltd. in London.
Copper for delivery in three months climbed $200, or 3.1%, to $6,635 a metric ton ($3.01 a pound) on the LME, after gaining as much as 4.6%. A close at that price would be result in the largest advance since May 21.
Copper futures for September delivery added 10.55 cents, or 3.6%, to $3.007 a pound at 10:47 a.m. on the Comex in New York. A close at that price would mark the biggest gain for the most-active contract since June 14. Earlier, the metal surged as much as 5.1%.
Chinese copper imports "remained historically strong" amid "a strong set of Chinese trade data for May," Barclays Capital said in a report.
Daniel Major, an analyst at RBS Global Banking & Markets in London, downplayed a stronger yuan's potential effect on imports. The bank is forecasting a 3% rise in the yuan against the dollar by year-end, he said.
"I don't think a 3% appreciation of any currency in the longer term is going to be the main driver of prices," Major said.