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Copper prices rose to the highest close since the start of the year as upheaval at mines in Chile and India sparked concerns about supply shortages.
Front-month copper contracts for June delivery rose 2% to $3.2545 a pound at the Comex division of the New York Mercantile Exchange on Wednesday, marking the highest close since Jan. 2. Prices have risen over 6% in the past week, bursting out of the top end of a recent trading range.
Traders pointed to labor negotiations between BHP Billiton and miners at its Escondida operation in Chile, the largest copper mine in the world, as a potential concern. Discussions broke down last year, sparking a strike that lasted 44 days and boosting copper prices in the process.
“The trend-following traders are coming in,” said Tai Wong, head of metals trading at BMO Capital Markets. “My concern here is that: There’s labor tensions at Escondida, but there’s always labor tensions at Escondida.”
A smelter operated by Vedanta Resources in the Indian state of Tamil Nadu was also forced to close late last month after demonstrators were killed in pollution-driven protests.
Despite the recent rally, some market participants said there was limited reason to think the copper market was at risk of tight supplies. Copper contracts for delivery in the months and years to come have largely risen in line with those approaching their expiry dates. Were a shortage a major concern, Mr. Wong said, those later-month contracts would likely move much lower.
Given that the talks at Escondida only began last week, investors’ concerns about potential disruption are slightly premature, said Geordie Wilkes, an analyst at Sucden Financial Research.
More likely behind some of the rally’s extremes, analysts said, were a lower U.S. dollar and momentum-driven buying interest.
A weaker greenback, which flattened this week after rallying in May, has helped make dollar-denominated commodities like copper more attractive to foreign investors. The WSJ Dollar Index, which measures the currency against a basket of others, fell 0.2% to 86.93 on Wednesday.
More generally, traders have interpreted chart patterns to suggest that prices had higher to go. The June copper contract recently broke through a number of moving averages, signaling to investors the market hadn’t found a top yet, and is approaching a multiyear high made in late December.
Investors were looking ahead to Chinese import, export, and trade balance data, due out Friday.
Gold prices were mixed through Wednesday’s session, initially helped by the weaker dollar before turning lower. June contracts closed little changed at $1,297.10 per troy ounce.
Traders say gold will likely remain in a fixed price range until next week, when the Federal Reserve is due to meet. Analysts widely expect the central bank to raise interest rates, which makes the precious metal a less attractive investment compared with yield-bearing assets like bonds.
Corrections & Amplifications
Copper contracts for delivery in the months and years to come have largely risen in line with those approaching their expiry dates. Were a shortage a major concern, Mr. Wong said, those later-month contracts would likely move much lower. An earlier version of this article incorrectly stated the direction. (June 6, 2018)
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