Base Metals Jump on USD Weakness. JP Morgan Seeks to Launch Copper ETF

ONG Focus | Insights | Written by Oil N' Gold | Mon Oct 25 10 07:21 ET

Strength in commodities continued in European session as weakness in USD raised the appeal of these assets. Currently trading at 82.6, the front-month contract of WTI crude oil surged to 82.99, the highest level in 4 days, as risk appetite increased amid expectations that the Fed will announce new easing measures to revive the recovery. Moreover, industrial action across France causing shutdowns in 9 of 11 refineries added to worries about fuel supplies. The precious metal complex rallied with gold advancing to as high as 1249.5 and palladium jumping to a 9-year high of 620.

While USD is the ultimate driving force for oil price, there are other factors supporting the rally. As industrial actions opposing the French government's plan to raise the retirement age to 62 from 60 continue, 1/4 of France's 12 300 fuel stations faced supply disruptions. the refiners' group Union Francaise des Industries Petrolieres said that the country imported 100K tons a day from an average of 20K -25K tons in normal days. The union worried the situation will worsen as the strike will continue at least until October 28. While we believe the impact on US fuel supplies would be limited given abundant stockpiles, prolonged labor actions should unnerve the market.

Another support for oil prices is hurricane Richard. Yet, the impact should dissipate soon as the US National Hurricane Center said the hurricane weakened and was downgraded to a tropical storm and will unlikely cause any damage in Gulf's oil facilities.

Base metals remained strong with copper jumping to a 27-month high in London. Strong import data from China and JP Morgan's plan to launch physically-backed copper ETF contributed to the rally. China imported 383 523 metric tons of copper concentrate in September, up +44.05% and +21.62% on monthly and annual basis respectively. This upstaged declines in imports on unwrought copper and copper products.

Apart from ETF Securities which is planning to start ETF backed by 6 industrial metals, JP Morgan revealed that it will launch a copper ETF, backed by 'grade-A metal, not futures'. As stated in the document filed to the SEC, the shares are 'intended to provide institutional and retail investors with a simple and cost-efficient means, with minimal credit risks, of gaining investment benefits similar to those of holding physical copper'. JP Morgan hopes to start trading on NYSE 'as soon as practical'.

While it's expected that the launch of an ETF backed by aluminum would increase the demand for aluminum and hence the price, the situation may be different for copper. Copper inventory has stayed at low level and price has been rallying. Some analysts concern that further price hike after launch of a copper ETF may hammer demand.

 

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Base Metals Jump on USD Weakness. JP Morgan Seeks to Launch Copper ETF

ONG Focus | Insights | Written by Oil N' Gold | Mon Oct 25 10 07:21 ET

Strength in commodities continued in European session as weakness in USD raised the appeal of these assets. Currently trading at 82.6, the front-month contract of WTI crude oil surged to 82.99, the highest level in 4 days, as risk appetite increased amid expectations that the Fed will announce new easing measures to revive the recovery. Moreover, industrial action across France causing shutdowns in 9 of 11 refineries added to worries about fuel supplies. The precious metal complex rallied with gold advancing to as high as 1249.5 and palladium jumping to a 9-year high of 620.

While USD is the ultimate driving force for oil price, there are other factors supporting the rally. As industrial actions opposing the French government's plan to raise the retirement age to 62 from 60 continue, 1/4 of France's 12 300 fuel stations faced supply disruptions. the refiners' group Union Francaise des Industries Petrolieres said that the country imported 100K tons a day from an average of 20K -25K tons in normal days. The union worried the situation will worsen as the strike will continue at least until October 28. While we believe the impact on US fuel supplies would be limited given abundant stockpiles, prolonged labor actions should unnerve the market.

Another support for oil prices is hurricane Richard. Yet, the impact should dissipate soon as the US National Hurricane Center said the hurricane weakened and was downgraded to a tropical storm and will unlikely cause any damage in Gulf's oil facilities.

Base metals remained strong with copper jumping to a 27-month high in London. Strong import data from China and JP Morgan's plan to launch physically-backed copper ETF contributed to the rally. China imported 383 523 metric tons of copper concentrate in September, up +44.05% and +21.62% on monthly and annual basis respectively. This upstaged declines in imports on unwrought copper and copper products.

Apart from ETF Securities which is planning to start ETF backed by 6 industrial metals, JP Morgan revealed that it will launch a copper ETF, backed by 'grade-A metal, not futures'. As stated in the document filed to the SEC, the shares are 'intended to provide institutional and retail investors with a simple and cost-efficient means, with minimal credit risks, of gaining investment benefits similar to those of holding physical copper'. JP Morgan hopes to start trading on NYSE 'as soon as practical'.

While it's expected that the launch of an ETF backed by aluminum would increase the demand for aluminum and hence the price, the situation may be different for copper. Copper inventory has stayed at low level and price has been rallying. Some analysts concern that further price hike after launch of a copper ETF may hammer demand.

 

Latest Analysis from this Author

Economic Calendar 11/1/10 (Sunday, 31 October 2010 14:44 ET)Weekly Fundamentals - QE2 Decisions the Key Event ... (Saturday, 30 October 2010 12:11 ET)Gold Weekly Technical Outlook (Friday, 29 October 2010 18:03 ET)Silver Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Crude Oil Weekly Technical Outlook (Friday, 29 October 2010 18:02 ET)Natural Gas Weekly Technical Outlook (Friday, 29 October 2010 18:01 ET)Sentiment Sours ahead of US GDP (Friday, 29 October 2010 07:07 ET)Gold Soars as ECB Policymakers Warn about Currency... (Friday, 29 October 2010 00:39 ET)Economic Calendar 10/29/10 (Thursday, 28 October 2010 11:43 ET)Gold Daily Technical Outlook (Thursday, 28 October 2010 07:14 ET)

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Copper, <b>Gold</b> Jump As Dollar Drops; Silver Hits 30-Yr Peak, But Corn Falls

Copper hit 27-month highs and gold returned to record peaks on Wednesday, propelling a widely watched commodity index to a two-year high as the dollar weakened again on expectations that the U.S. Federal Reserve will soon start a new round of monetary easing.

Oil prices rose too, aided by the falling dollar and higher crude imports by China.

But corn fell as traders took profits after a powerful rally lifted the market by about 20% over the last four sessions.

The 19-commodity Reuters-Jefferies CRB index rose more than half a percent to above 300 points for the first time since Oct. 14, 2008. At that time, markets were coming off their peaks before the worst recession in decades.

The CRB has risen 5% over the last month as the dollar tumbled about 6% on concern the U.S. Federal Reserve would embark on a new round of government debt purchases to boost the economy. Many believe the program, called quantitative easing or "QE2" in financial markets, could fuel inflation.

Some analysts view the CRB's upward trajectory as a sign commodities are headed for a new "supercycle" or multiyear rally similar to the boom that ended in 2008. But others predict a sharp sell-off if inflation does not kick in as expected.

"The CRB is looking all vertical now and so are many commodities and this is great for market bulls, but the truth is we are close to exhaustion on many of these rallies," said Shawn Hackett, president at Hackett Financial Advisors, a money manager in soft commodities in Boynton Beach, Fla.

"Once the excitement over the QE ends, it's going to be hard to sustain all these, without the right supply-demand fundamentals in place."

Fed watchers said near-term easing measures looked more likely this week after they read minutes of the Sept. 21 policy meeting, which the Fed released on Tuesday.

U.S. copper futures' most-active contract, December, rose 3.10 cents to settle at $3.8205 per pound, the highest close for a benchmark third-month position since July 7, 2008.

"I would say this has almost everything to do with the U.S. dollar," said Jeff Pritchard, a copper broker and analyst at Altavest Worldwide Trading in Mission Viejo, Calif..

London's three-month copper contract rallied to $8,430 a metric ton, its loftiest price since July 2008, before ending up $12 at $8,362.

U.S. gold futures' current benchmark contract, December, settled up $23.80, or 2%, at $1,370.50 an ounce after surging to a record high near $1,375.

Silver, often known as the poor man's gold, hit a 30-year peak to approach $24 an ounce.

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