Commodity prices surged to a 24-year high, led by gains in copper and crude oil, on concern that global economic growth is eroding inventories of raw materials faster than supplies can be replenished.
Copper reached a 16-year high, and oil rose near a record in New York, extending the rally in the Reuters-CRB Index of 17 commodities to the highest since January 1981. The index gained 7.1 percent in February, the most in any month since August 1983.
“Everybody wants to be long of commodities,” said Stephen Briggs, an analyst at Societe Generale in London. Hedge fund managers “think that the potential returns in commodities are still very high,” Briggs said.
The Reuters-CRB Index rose 3.28 to 312.65, the eighth straight gain. Commodity prices are up 15 percent in the past year, in part because of rising demand and a decline in the dollar, which makes commodities priced in the U.S. currency cheaper for buyers using the euro or yen.
Copper futures for May delivery rose 0.3 cent, or 0.2 percent, to $1.4995 a pound on the Comex division of the New York Mercantile Exchange, the highest close since March 1989. Prices are up 16 percent in the past year and reached a record today in London.
Crude oil for April delivery rose 70 cents, or 1.3 percent, to $54.59 a barrel on the Nymex. Prices reached a four-month high of $55.20 a barrel on March 3 and a record $55.67 on Oct. 25. Futures are up 49 percent from a year ago.
The commodity rally spurred gains in the currencies of countries that produce raw materials such as oil, metals and grain. The Australian and South African currencies surged against the U.S. dollar, and New Zealand’s dollar climbed to a record.
Canada’s dollar rose the most in eight weeks and its Australian counterpart approached 80 cents for the first time in more than a year. Commodities comprise 35 percent of Canada’s exports and about 60 percent of Australia’s overseas sales.
“It’s one of those days when commodity prices are flying and currencies like the Canadian dollar and the Australian dollar are benefiting,” said Adam Cole, a currency strategist in London at RBC Capital Markets Ltd., a unit of Canada’s largest lender.
Hedge funds and other large speculators have increased their net holdings of 20 physical commodities in the U.S. to their highest in nine months, government figures show.
So-called net-long positions rose to 430,153 futures contracts as of March 1, the highest since June 4, the U.S. Commodity Futures Trading Commission said. A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.
Energy and metals prices “are moving higher today on the continued concerns regarding the pace of global consumption and the ability of supply to keep up,” said Michael Guido, director of hedge-fund marketing and commodity strategy in New York at Paris-based Societe Generale SA.
Oil rose on speculation that the Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, will do little to rein in prices when members meet in Iran on March 16. The International Energy Agency, OPEC and the U.S. Energy Department cited economic growth in the U.S. and China when they boosted their oil-demand forecasts last month.
“The only thing that will get us to move decisively lower is a global recession that would reduce demand,” said Kyle Cooper, an analyst with Citigroup Inc. in Houston. “OPEC is pretty powerless to lower prices. If OPEC boosts output the bulls will say that there will be less spare capacity.”
Oil prices will rise through 2008 and stay high thereafter as demand increases and concern mounts that global production is nearing its peak, according to analysts at Lehman Brothers Holdings Inc.
Lehman said New York crude oil will average $43.25 a barrel this year before climbing to $46 in 2008. Lehman is the fourth investment bank this week to boost its forecast. Banc of America Securities and UBS Securities increased their projections for 2005 to more than $40 a barrel, while JPMorgan Chase & Co. raised its average oil price in 2005 to $45.25.
Copper prices rose on concern supplies aren’t rising fast enough to keep pace with demand, after global inventories monitored by the London Metal Exchange plunged 80 percent in the past year.
Copper smelters aren’t boosting output of refined copper because some are shut for maintenance, Merrill Lynch & Co. said today in a report. World supply is equal to three weeks of demand, down from more than six weeks in early 2003, said Jon Bergtheil, an analyst at J.P. Morgan Securities Ltd. in London.
“Anything below four weeks is still a danger zone,” Bergtheil said. “There is no doubt that copper is extremely tight in the first half of the year.”
Melbourne-based BHP Billiton, which owns the world’s biggest copper mine, Escondida in Chile, today offered to buy WMC Resources Ltd. for A$9.2 billion ($7.3 billion) in part to help supply more copper and nickel to China. China surpassed the U.S. in 2002 as the world’s largest copper consumer.
“We feel quite optimistic about China,” BHP Chief Executive Officer Charles W. “Chip” Goodyear said in a conference call. BHP would displace Phelps Dodge as the world’s second-biggest copper producer. Santiago-based Codelco, owned by Chile’s government, is the world’s largest producer.
Copper prices have almost doubled in the past two years as demand surged in China, the U.S. and Japan, the top three users of the metal.
Price gains now are “consistent with seasonal tendencies for copper, which often posts significant highs in late March or early April,” said Tim Evans, an analyst at IFR Markets in New York. “With low inventory levels this time around, that seasonal peak should run somewhat later than normal rather than earlier.”
U.S. refined metal stockpiles at refineries, wire-rod and brass mills and exchanges fell in November to 137,000 tons, down from 656,000 tons at the end of 2003, the Interior Department’s Geological Survey said in a report today.