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Copper explodes above $6 000, set for best week ever

Nov 11 2016 14:51
Kevin Crowley and Eddie van der Walt

(iStock)

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GLENCORE PLC [JSE:GLN]

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Cumulative volume 178902
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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

ANGLO AMERICAN PLC [JSE:AGL]

Last traded 383
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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg - Copper briefly surpassed $6 000 a ton and headed for the biggest weekly rally ever as the metal became the focus for traders speculating on Donald Trump’s pledge to pour money into US infrastructure.

Copper rose as much as 7.6% to $6 025.50, the biggest intraday increase since 2009. Prices were at $5 936 as of 13:00. For the week, the metal is up 19%, the most in records stretching back to 1986.

As the most-traded base metal and a barometer of economic growth, copper has become a proxy for investors’ views that Trump’s presidency will boost government spending on infrastructure. The intensity of the rally has also been fueled by speculative trading in China, which will cool later this year, Citigroup said in a note.

“Infrastructure spending tends to favor steel and aluminum, but when there’s momentum towards metals, copper tends to lead,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas in London, said by phone.

Prices have surged 28% in just three weeks. Copper’s 14-day relative strength index was at 92, the highest recorded. A reading above 70 suggests an asset is overbought.

Mining stocks were muted. Chilean copper producer Antofagasta advanced 0.6% after soaring 11% yesterday. Glencore [JSE:GLN], Anglo American [JSE:AGL] and Rio Tinto also declined slightly.

Other industrial metals also climbed, with nickel up 2% and zinc 0.9% higher. Nickel gained 13% this week, the most since 2009.

An increase in trading fees and margins on Chinese commodities exchanges is prompting speculators to trade copper on the London Metal Exchange, Citigroup analysts including David Wilson wrote in an emailed note.

The Shanghai Futures Exchange on Thursday raised margin requirements for aluminum and other metals, after trading terms for iron ore, coal and other commodities were tightened by Chinese bourses.

While the surge “appears premature” and prices may fall toward the end of the year, stronger-than-expected Chinese factory data, falling global inventories, and additional spending by China on its power network all point to higher prices in the medium term, according to Citigroup.

“Fundamentals haven’t changed,” Mikinobu Ogata, senior managing executive officer of Sumitomo Metal Mining, said in Tokyo on Friday. “I don’t think there’s any change in supply and demand.”

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