Commodities Corner: Copper All the Rage Again

Investors last week renewed their love affair with copper after several months of indifference.

Copper saw a big surge over a week which ended on Friday with a very positive day for all commodities except iron ore, which remains in the doldrums.

Oil hit new three-year highs but natural gas prices eased.

The price of 62% Fe fines from the Pilbara eased to $US125.22 on Friday, down 61 cents on the day but up $US1.84 a tonne in a volatile week.

Zinc LME futures touched an over 14-year high above $US3,600/tonne after Belgium-based Nyrstar announced it will cut production by up to 50% at its three European zinc smelters. Nystar operates the big lead, zinc and other smelter at Port Pirie in South Australia.

Despite being one of the most energy-intensive commodities, aluminium continues its rally beyond $US3,100 a tonne, the highest since mid-2008; copper climbed to a nearly 4-month high above $4.6 a pound (and above $US4.70 a tonne on Comex in New York); lead rose to a one-month high above $US2,300 a tonne and tin continues to break records above $US37,000 a tonne.

Coal prices surged on Friday with Newcastle type thermal coal rising above $US245 a tonne and China thermal coal hitting another record high as the energy crisis deepened.

The most-active January Zhengzhou thermal coal futures hit a record high of $US259.42 a tonne early on Friday. The contract has risen more than 200% so far in 2021.

A week after heavy rains have forced the closures of 60 coal mines in Shanxi province, the largest coal mining hub in China, cold weather swept into much of the country and power plants scrambled to stock up on coal.

That renewed passion saw copper surge on Friday for yet another session as Comex metal closed up more than 10% for the week in New York and just over 5 US cents a pound away from the all-time high of just over $US4.77 a pound.

In London, the metal jumped 7% to more than $US10,300 a tonne on the LME.

And the reason? Nothing particular except Chinese imports rose for the first time in five months in September.

Traders liked the surprise 0.7% rise in US retail sales (meaningless though for copper consumers), as well as the lowest set of jobless benefits data since March 2020. The looming start of the Fed’s bond buying tapering didn’t frighten investors and slide in bond yields – especially the key US 10-year security, also added to confidence.

All well and good, but the forward price curve for the LME moved into backwardation late in the week (and was firmly there in London by over $US250 a tonne at Friday’s close).

Backwardation is when the forward month prices trade higher than the spot month – hence the premium in London across the curve. The backwardation extends out to 2024 which is a gloomy reading of metal availability.

Regardless, the 45.10 US cents surge (10.53%) was the biggest one week gain since late October 2011 and the close of $US4.7340 is less than 5 US cents (0.93% from the all-time high of just over $US4.7785 a pound (reached on May 11 this year).

So far in October Comex copper is up 15.75% and year-to-date it is up $US1.22 or 34.72%

On the LME copper reached an intraday high of $US10,328.50 a tonne, up 3.5% from Thursday’s closing level,

London copper prices on Friday had their biggest weekly gain in nearly five years on supply concerns which saw the metal surpassing a key support level.

Three-month copper was up more than 7% for the week which was its strongest weekly rise since November 2016.

“Bullish sentiment increased during LME Week amid power shortages and supply concerns,” wrote commodities broker Anna Stablum of Marex Spectron in a note, referring to the electricity crunch across Asia and Europe.

“This month’s new recycling restrictions in Malaysia (imports of ferrous and non-ferrous crap is now effectively banned for purity reasons) have also caused the scrap market to tighten considerably, forcing traders to turn to refined metal,” she added, reported Reuters.

The metal topped $US10,000 a tonne in late trading on Thursday, the first time it has done so since June 14.

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West Texas Intermediate (WTI) crude oil rose to a fresh seven-year high on Friday for a 1.2% gain for the day.

The settlement price in New York of $US82.28 a barrel on Friday for a 3.6% gain for the week, as shortages of natural gas in Europe and Asia continued to boost demand for oil and supply tightness persist.

Oil continued rising in after-hours trading to end at $US82.66 a barrel.

Brent crude futures settled 1% higher at $US84.9 a barrel on Friday, a level not seen since October 2018 and up 2.8% for the week.

The International Energy Agency said the energy crisis is expected to push demand for oil up by 500,000 barrels a day (bpd), leading to a supply deficit of 700,000 bpd until January, when the OPEC+ group (which includes Russia) is supposed to raise supplies.

On Thursday, the Energy Information Administration reported on Thursday that inventory data revealed a much larger-than-expected 6.1 million rise in US crude stockpiles while supplies at Cushing, Oklahoma (the settlement point for the Nymex WTI contract), fell 2.0 million barrels, the biggest drop since June.

“Even if output is further ramped up as planned in the coming months, the oil market will still be undersupplied to the tune of roughly 1 million barrels per day in the fourth quarter.

“Furthermore, the IEA expects OPEC production to fall short of its agreed target by as much as 700,000 barrels per day in the fourth quarter. All of this points to another marked inventory reduction,” Commerzbank analyst Carsten Fritsch said in a commentary note.

US oil rig numbers rose again for the sixth straight week. The total number of rigs rose 12 to 543 and the total number of oil directed rigs was up 10 to 445.

US natural gas prices fell 4.66% on Friday which accounted for the week’s fall of 3.3%.