Copper Climbs on Signs of Increased Demand in China; Lead Soars

By Claudia Carpenter

Oct. 28 (Bloomberg) -- Copper rose for a second day in London on speculation that demand for the metal will strengthen in China, the world's largest user. Lead gained the most since at least 1987.

China's copper imports rose 29 percent in September, the country's customs office said yesterday. Merrill Lynch & Co. forecasts China's copper demand will increase 9 percent next year from 8 percent growth this year and 13 percent last year.

``We're not calling for a collapse in China's copper demand,'' said Francisco Blanch, head of global commodities research at Merrill Lynch in London. ``Emerging market growth is a secular theme that will dominate the next 10 years.''


All industrial metals except zinc increased on the London Metal Exchange. Copper for delivery in three months climbed $158, or 3.9 percent, to $4,178 a metric ton as of 12:05 p.m. in London. Prices jumped 6.6 percent yesterday.

The metal used in construction and power plants has dropped 38 percent this year as a housing slump and reducing lending in the U.S. spilled over into Europe and Asia.

Lead increased $160, or 12 percent, to $1,455 a ton. China imported more lead than it exported in September for a third consecutive month, the longest period of net imports since 1997, according to Barclays Capital. Consumption is up 41 percent this year and ``we are entering the seasonally strong winter period for replacement battery demand,'' Barclays said in a note yesterday.

A regular auto battery contains about 7.5 kilograms (16.5 pounds) of lead, according to the International Lead and Zinc Study Group in Lisbon.

Copper Supply

Copper prices have also been pressured by higher supplies. Stockpiles of copper in warehouses monitored by the LME increased 2,175 tons, or 1 percent, to 215,550 tons, bringing this month's increase to 8.5 percent, according to LME data released today.

Supply growth may start to slow as prices fall below the marginal cost of production of between $4,000 and $4,500 a ton, Merrill's Blanch said.

Kazakhmys Plc, Kazakhstan's largest copper producer, halted output at some of its low-grade mines and was reviewing operations. The company still expects to meet its production target, company spokesman John Smelt said today.

ZAO Russian Copper Co., Russia's third-largest producer of copper, will freeze all investment projects for 2009 as global financial turmoil erodes demand for the metal. The Yekaterinburg- based company said in February it planned to invest $1.6 billion in the next four years to expand in the Ural Mountains region.

Gartman Letter

``Low prices are doing what low prices are supposed to: rationing supply,'' U.S. economist Dennis Gartman wrote in his daily Gartman Letter today. This is ``especially true in Russia, which is so dependent upon mining and energy.''

Industrial Metallurgical Holding, which produces about 5 percent of Russia's nickel, halted all production at its Ufaleynickel complex and is negotiating to cut about 400 jobs after nickel prices dropped to five-year lows. The company spends about $26,000 to produce a ton of nickel.

``Supply response is coming very quickly across all commodities, partly voluntary and partly due to lack of credit,'' said Tim Mercer, chief investment officer of Hong Kong-based hedge fund Musashi Capital Ltd. ``Commodities will take off again in the not too distant future.''

The UBS Bloomberg CMCI Index of 26 raw materials jumped 2.5 percent yesterday.

Nickel added $699 to $11,799 a ton, aluminum increased $28 to $2,066 a ton and tin increased $1,350 to $14,900 a ton. Zinc dropped $10 to $1,175.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net or ccarpenter2@bloomberg.net