[miningmx.com] — US COPPER futures rallied 1% on the first day of trade of the New Year to a record 449.25 cent/lb ($9,904 a tonne), extending 2010’s 33% gains on expectations of sustainable growth in top metal consumer China.
China’s factory inflation cooled in December as manufacturers expanded more slowly after a strong run in growth, lessening the need for the country’s central bank to tighten monetary policy too far.
The official Chinese purchasing managers’ index (PMI) edged down to 53.9 in December from November’s 55.2, falling short of a median forecast of 55.5 in a Reuters poll of 12 economists.
China’s PMI data suggests the cooling measures – rate rises and reserve requirement increases – are working, which, market watchers said may mean less harsh moves this year will be needed to tame prices rises.
The moderation in China to more sustainable levels and expansion gathering pace in South Korea, is adding to investor confidence towards the market.
“We are still positive that growth in Asia will continue with the caveat that inflationary pressures don’t force governments to undertake tightening measures beyond what the market is expecting,” Chen Xin Yi, assistant vice president at Barclays Capital in Singapore said.
“Some central banks seem to be deliberating further rate hikes as raising rates further could attract more hot money inflows. In addition to a mix of policy tools including liquidity control and administrative measures, we think that policymakers would be inclined to tolerate more currency appreciation in the short term to contain imported inflation expectations.”
That bodes well for commodity markets – the top flight asset class in 2010 with gains of 17% as measured by the 19-commodity Reuters/Jefferies CRB index – with analysts expecting supply tightness in a range of markets from copper to wheat to underpin further gains.
Copper ended 2010 around record highs just short of $10,000 a tonne on the London Metal Exchange, with analysts looking for prices to rise by another 10% in 2011 as consumers contend with a shortfall of metal estimated by Barclays Capital of more than 800,000 tonnes or almost 4% of forecast output this year.
“There is limited supply of copper, and there is fund money coming to the market pushing it higher. At the same time, the natural short sellers – the miners – are not playing ball,” a trader with an international bank in Singapore said.
