Copper May Reach $10,000 on China Demand, HFZ Capital Says

Jan. 23 (Bloomberg) -- Copper may rise to a record $10,000 a metric ton this year, driven by industrial demand in China and rising commodity investments to hedge inflation, said Shen Haihua, an investment manager at HFZ Capital Management Ltd.

Refined copper consumption in China, the world's largest user, may rise 8 percent to 6.99 million metric tons in 2010 from last year, as the economy accelerates, Shen said at a forum in Shanghai today. Hong Kong-based HFZ Capital was set up in 2008 by RK Capital Management LLP.

Copper in 2009 had its biggest annual increase in more than two decades as China boosted imports to a record on stimulus spending, state stockpiling and a lack of scrap. Economic growth accelerated to the quickest pace since 2007 in the fourth quarter, capping Premier Wen Jiabao's success in shielding the nation from the first global recession since World War II.

China's net imports of refined copper may be 2.19 million tons this year, down 30 percent from a year ago, Shen said. The amount is still "enough to be a key reason to drive copper to $10,000" amid an inflationary global environment, he said. Shen said the contract may trade in a range between $6,000 and $10,000 a ton.

Three-month copper futures on the London Metal Exchange gained 1.6 percent to $7,390 a ton yesterday. The contract advanced to as high as $7,796 a ton this month, the highest since August 2008. It reached a record $8,940 in July 2008.

Shanghai copper fell 2.6 percent to 59,360 yuan ($8,695) a ton yesterday, declining for the second week amid concerns China will take more steps to curb bank lending and pare stimulus spending.

Cooling Credit

China's central bank said last week the proportion of deposits banks must set aside as reserves must be increased by 50 basis points. The unexpected move to restrain lending foreshadows higher interest rates, according to JPMorgan Chase & Co. and RBC Capital Markets.

"Historically reserve-ratio and interest rate hikes can't prevent inflation," Shen said. "Inflation concerns increase appetite for risky assets such as commodities," which is bullish for copper.

Chinese after-tax copper prices have been trading at a premium over London since December as "large inflows of speculative money" pushed up local prices, Shen said.

The country's first-quarter imports may rise 23 percent to 750,000 tons from the previous quarter because of arbitrage trading, Shen said.

"It's meaningless to speculate at what price China will stop buying," he said. "China will always buy as long as domestic prices are stronger than overseas."