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Metals extend winning streak as copper notches 17-month high

Metals extend winning streak as copper notches 17-month high

The rally in metals showed no sign of slowing down as copper climbed to the highest since June 2015 and zinc was set to close at a nine-year high.

China’s top economic commission plans to spend $36 billion on new rail links around Beijing, boosting demand for industrial raw materials. Short-covering in the options market also contributed to the advance, said Guy Wolf, global head of market analytics at Marex Spectron.

  • Copper for three-month delivery added 1.2 percent to $5,947 a ton as of 10:43 a.m. in London.
  • Zinc rose 2.4 percent to $2,886 a ton and earlier jumped as much as 5.4 percent.
  • Lead gained 1.7 percent to $2,432.50 a ton. Prices are up for six days.
  • Both lead and zinc closed limit up on the Shanghai Futures Exchange.
  • Nickel advanced 1.9 percent to $11,775 a ton.

“Copper is moving too fast,” said Christoph Eibl, chief executive officer and co-founder of Tiberius Asset Management, which oversees about $700 million. “It’s not being driven by fundamentals. It’s moving on speculative interest and short-covering in the options market.”

Industrial metals rallied almost 30 percent in 2016 as demand stabilized in China, U.S. President-elect Donald Trump pledged to invest in infrastructure and revitalize the U.S. economy, and mine closures curbed supply. Chinese investors have added to the speculative binge.

Analysts also cited short covering as a reason why the rally in metals has moved so quickly. When prices were flat, many traders made money by selling options and betting the contracts would expire worthless, according to Wolf of Marex Spectron. As prices rally, they’re faced with the prospect of having to pay out on the contracts and need to cover the position by purchasing futures, he said.

“It’s like being in a bushfire and trying to buy fire insurance,” Wolf said. “You have to take any price you can get.”

 Copper broke through $6,000 during the Asian trading day on Monday, bringing call contracts at that price into the money. It then rallied to $6,045.50, the highest since June 2015, before retreating.

“We’re bullish on zinc and lead given the tightness in ore supply and potential production cuts at smelters in coming months, but the speed of the rally exceeds our expectations,” Dina Yu, an analyst at CRU Group, said by phone from Beijing. “There have been no big changes in fundamentals that can explain such a surge. The market is driven by bullish sentiment in all metals.”

Source: Bloomberg

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