Economic Optimism Spurs Copper


"Copper futures hit record territory in London Tuesday."

Copper futures hit record territory in London Tuesday, buoyed by positive manufacturing data from around the world. Tuesday's new high was the fifth time in the past seven trading sessions that copper hit a record.

Manufacturing in the U.S. and Europe accelerated in December, boosting optimism that the global economic recovery will accelerate. LME benchmark copper for delivery in three months rallied to $9,725/ton.

The U.S. manufacturing sector grew in December at its fastest pace in seven months, marking the 17th straight month of expansion, according to The Institute for Supply Management. The ISM's index of factory activity rose to 57% in December, up from 56.6% in November, and the index's highest level since last May. Readings over 50% indicate that more firms are growing than contracting.

Manufacturing in Britain and the troubled eurozone soared in December, according to Markit. Markit's British Purchasing Managers' Index (PMI) hit a 16-year high. Manufacturing new orders and production grew at the highest rate since May. Export orders rose at their fastest pace since April's record number. PMI recorded a level of 57.1 for December, up from an earlier estimate of 56.8 and above November's 55.3. As with the ISM's measurement, any number above 50 indicates growth.

Copper prices have been rallying for the past months on expectations that demand will outplace supply in 2011. While demand will continue to be supported by China, a decline in ore grades in the world's operational mines and a scarcity on new mines in the pipeline will further exacerbate the supply/demand shortfall. BMO Capital Markets anticipates a deficit of ~380,000 tons (380 Kt.) over the next 12 months, while Standard Bank predicts a gap of 385 Kt. as miners struggle to keep pace with growing demand.

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