Industrial metals jumped on Wednesday, with aluminium hitting its highest level in 21 months as the dollar fell to a record low against a basket of currencies and lifted commodity prices across the board. Tin set a fresh record high, zinc and nickel surged more than 5 percent while lead rallied to its highest level in three-months.
Persistent power problems forcing miners to reduce production were another factor supporting prices, analysts and traders said. Copper for delivery in three months rose to $8,455/8475 per tonne by 1513 GMT, up 2.2 percent or $180 from Tuesday's close while aluminium touched $3,129 per tonne, its highest since May 2006.
"What you're seeing is general bullishness towards the entire commodity complex," economist John Kemp at Sempra Metals said. "Yesterday we've seen strong indications that the Fed intends to keep cutting interest rates even if inflation rises. That is obviously putting the dollar under a lot of pressure and it is also extremely bullish for commodity prices," he said.
The dollar slid to an all-time low versus the euro by 1508 GMT after US Federal Reserve Chairman Ben Bernanke said the US central bank will act in a timely manner to support growth, a statement which hinted of an interest rate cut. In his testimony to the House of Representatives, Bernanke identified high commodity prices as inflationary.
"The further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month," he said. The dollar's slump has boosted oil prices and pushed precious metals prices to new highs. Gold touched a fresh record while silver rose to its highest in 27 years and palladium saw its best level in more than six years.
"Weaker dollar prompts a surge of fund money into commodities as investors seek a safe haven," said John Meyer, the head of resources at Fairfax. He said strong demand was expected in the next few months in Asia, especially China, the world's top consumer of metals but prices could deter Chinese buyers.
"We are concerned that current high copper prices will cause Chinese consumers to hold off purchases as they tend to pull out of the market when copper prices exceed $8,000 per tonne," he said in a research note.
"However, this will be dependent on inventory levels at consumers and warehouses and further fund investment making it difficult to predict what will happen in the near term." Stocks of copper in LME-registered warehouses have fallen around 30 percent since early January and they currently stand at 146,600 tonnes - enough for less than three day's of global consumption.
Rising energy costs and problems with power is also another issue which underpins prices, especially in aluminium. "Aluminium's rally highlights the more bullish tone of investment going forward," Meyer said. "It is reacting to rising energy costs and ongoing energy issues around the world." High energy prices and long-term power supply problems in Southern Africa have pushed aluminium above $3,000 for the first time since May 2006, when prices spiked to a record $3,310.
The silvery-white light metal, commonly used in aerospace and engineering, was at $3,105/3,120 versus $2,975 on Tuesday. A chronic shortage of generating capacity in South Africa could result in three smelters with a combined capacity of 1.5 million tonnes selling back some or all of their contracted power supplies.
In China, recent ice and snow storms crippled the country's power infrastructure and Beijing may look at ways of reducing the likelihood of similar problems in the future. Tin continued to hit fresh record highs. The metal touched $18,140 per tonne and was last at $18,000/18,050 per tonne versus Tuesday's $17,950. Supply constraints in China and Indonesia underpin prices. Zinc was at $2,670/2,675 a tonne against $2,490 while lead was at $3,350/3,360 against $3,240 and nickel was at $29,100/29,300 up from Tuesday's $27,950.