Copper, Lead Prices to Extend Rally on China Demand, Takai Says

TOKYO, Sept. 2 -- Lead and copper, the best performers this year on the London Metal Exchange, will extend gains on Chinese demand, said Bob Takai, general manager of financial services at Sumitomo Corp.

    Copper may reach $7,000 a metric ton by the end of this year after China's buying reduced global stockpiles, Takai, who has 29 years experience in metals markets, said in an interview in Tokyo today. Lead may gain to about $2,300 to $2,400 a ton, driven by smelter closures and battery demand, he said. Both metals have more than doubled this year.

    The Chinese government shut some lead smelters because of lead-poisoning cases, driving a 12 percent increase in the LME contract last month. Copper advanced as imports by the world's third-largest economy surged on stimulus spending and stockpiling. Shipments dropped 23 percent in July from a record the previous month.

    "Even if the speed or pace of these imports is slowing down a little bit, still, they are buying a lot of copper from the global market," Takai said. "There is this continuous demand from China and there's healthy speculative demand."

    Copper inventories in warehouses monitored by the LME were 298,925 tons on Aug. 28, down from this year's high of 548,400 tons on Feb. 25.

    Three-month delivery copper on the LME, which was closed yesterday for a holiday, dropped 2 percent to $6,345 a ton at 4:09 p.m. in Tokyo, tracking losses yesterday in New York and Shanghai. Lead fell 1 percent to $2,130 a ton. An index of the six industrial metals traded on the exchange has gained 72 percent this year.

    $7,000 Copper

    "People talk about $7,000 by the end of the year, and I think there is a possibility that copper is going to reach" that level, Takai said.

    China's imports of the metal may slow as the country tightened its monetary policy, he said.

    Michael Pento, the chief economist at Huntington Beach, California-based Delta Global Advisors, which manages $1.5 billion, said last month he expected a pullback in copper.

    "Base metals have just gotten overextended as people bet on the China story. Investors should exit this market now as the price comes down to match reality," he said.

    China's government has forced at least 400,000 tons of annual lead smelting capacity to shut indefinitely because of failure to meet environmental standards, according to Calyon's estimates, analyst Robin Bhar said Aug. 25.

    Lead Smelters

    China's lead smelter closures drove prices to more than $2,000 a ton last week and increased the country's overseas purchases, Takai said. Demand for the metal generally was rising on purchases of battery-powered electric bicycles and vehicles.

    "I think this demand for batteries is going to keep going up, not just for bicycles, but also for cars," he said. "It is a growing market, so fundamentally it is very strong."

    Sumitomo, Japan's third-largest trading company by market value, this year took full ownership of the San Cristobal zinc and lead mine in Bolivia, after acquiring a 35 percent stake in the project in 2006.

    Takai said an increased U.S. regulatory focus on energy and agricultural markets, after prices reached records last year, may also have increased speculative interest in base metals. Crude oil on the New York Mercantile Exchange futures reached a record of $147.27 a barrel in July last year.

    The Organization of Petroleum Exporting Countries is unlikely to change its output targets at a Sept. 9 meeting, Takai said, with the group likely to be comfortable with current prices around $70 to $75 a barrel.

    (Source: Bloomberg)