Copper led the charge during official trading on the London Metal Exchange on Wednesday as fund-buying forced market participants to cover their short positions, sending prices of the red metal, zinc and lead to fresh record highs. Copper for delivery in three months cruised to $4,726/27 per tonne, from $4,647 at the end of final kerb trading on Tuesday.

 

"The funds are already long so they know the shorts are out there," one LME trader said of the short covering prompted by persistent fund buying and stubborn long positions. "People have been expecting copper to pull back for ages. They come in in the morning prepared to punt."
Investment money has been boosting the copper and the rest of the base metals prices steadily for the last couple of years, with the latest rise coming from a return by commodity index funds, according to market sources.

Renewed index/basket buying by investors pushed base metals to fresh peaks in the case of copper, zinc and lead, while aluminium was at new highs not seen since 1988,” said Robin Bhar, analyst at UBS in London, in his daily report.

Fund investments in base metals worldwide now total $30 billion, according to a recent report from analysts at Citibank, which estimated the amount deployed in this cycle could be double any previous maximum. Longstanding investors in commodity markets (hedge funds, CTAs, etc) are being joined by long-only funds (mutual funds, pension funds etc) who are making an asset allocation shift, the report said.

Since commodity markets are tiny compared with conventional asset classes, even a small portion of the traditional funds prove to be relatively massive and outweigh any sort of selling availability, according to several analysts.

Forward selling by producers, which often tempers any rise, has been largely absent in the current market, traders said. There's been producer [forward] selling in the past, when the market used to move in two ways. Markets don't usually move in a straight line like this, but everybody who's done it in the last two years has lost money,” said a third analyst, referring to Phelps Dodge's recent profit warning due to hedging.

"Nobody can get in the way of fund buying, said a trader on the ring shortly after the official pricing session on Wednesday. There's nothing left to sell, no natural selling available to the market. Producers have completed their hedging quotas, he added.

Producers wouldn't sell now," he said, regarding the lack of producer forward selling that often pressures prices. "They love this price.

Zinc and lead both reached new all-time highs, also. Zinc finished official trading at $2,275/75.5 per tonne, basis three months, up from $2,230, while lead for delivery in three months jumped to $1,373.5/74 per tonne from $1,338 at the end of the afternoon kerb session on Tuesday.
Even though zinc is supported by strong fundamentals, given the shortage of concentratet, even the galvanizing metal is now considered bloated by investment fund buying, analysts agreed. They expect those funds to eventually lose interest and the prices to retract.

Aluminium finished at $2,462.5/64.5 up from $2,449. Three-month nickel finished the official trading session at $15,170/175 per tonne, up from $14,800 at the end of Tuesday's final kerb. Tin for delivery in three months finished official trading at $7,545/50 per tonne, compared with $7,375 at the end of Tuesday's final kerb.