Copper soars on China, sagging dollar

03-09-05

By Thor Valdmanis and Adam Shell, USA TODAY

NEW YORK - Copper prices are hovering around 16-year highs today as the worldwide commodities boom continues to benefit from a combination of insatiable Chinese demand and a sagging dollar.

The rapid industrialization of China, which surpassed the USA three years ago as the world's biggest copper consumer, continues to push commodity prices skyward as big construction and power-generation projects devour oil, coal, steel and other metals.

But traders say the dollar's steady slide against the euro and other major currencies, on worries over ballooning U.S. trade and budget deficits, is also triggering renewed commodity buying from big-money managers and hedge funds. A weaker dollar tends to increase the appeal of dollar-denominated assets such as oil, copper, coffee and other commodities.

Some Wall Street analysts worry that a continuing surge in commodity prices could raise inflation pressures and slow economic expansion, including home building.

Silver jumped 2% Tuesday, coffee hit five-year highs, and oil futures approached the highest levels ever traded on the New York Mercantile Exchange.

The Reuters CRB index of 17 commodity futures rose as high at 313.11, its highest level in 24 years, before closing at 312.65.

Copper was the big story, rallying to a 16-year peak of $1.5210 a pound in early trading here before settling at $1.4995.

Copper prices have almost doubled in the past two years as demand surges in China, the USA and Japan, the top three users of the most ancient of metals. Copper is used in everything from electronic gadgets to cars and toasters. More than 9,000 pounds of copper go into every Boeing 747, including 120 miles of wiring, according to the Arizona Mining Association.

The race to cash in on copper's boom was underscored Tuesday as Australian metal giant BHP Billiton, owner of the world's biggest copper mine, offered to buy rival WMC Resources for $7.3 billion.

BHP would displace Phelps Dodge as the world's second-biggest copper producer, behind Chile's government-owned Codelco.

China accounts for about 20% of global copper consumption, double the rate a decade ago, and the country's appetite shows no signs of abating.

At the same time, global copper inventory levels are at record lows, analysts say, and few new large copper mines are planned in the next few years. A new smelting-refining complex can cost more than $1 billion and take several years to complete.

But some big mining companies are betting on copper's growing popularity. BHP is spending $10 billion on more than two dozen proposed mining projects and feasibility studies, while Arizona's Phelps Dodge plans to invest up to $850 million on mining and other projects this year, almost triple last year.