Mining Profits...Investing In Industrial Metals

Copper gained most in more than a week in London on speculation the metal may attract investors amid increased demand from China, the world's largest consumer.

China's demand may double to a rate of 8 percent next year, Credit Suisse Group said in Nov. 2 report. The growth will create a supply shortfall of 252,000 tons in 2007, the bank said.

``Some people still buying into super-cycle see this decline as a good buying opportunity,'' Neil Buxton, managing director of GFMS Metals Consulting Ltd., said today by telephone. He referred to forecasts by banks including Citigroup Inc., the world's largest, that commodities including copper will stay near multiyear highs on demand from China.

Copper for delivery in three months on the LME rose $100, or 1.5 percent, to $6,900 a metric ton as of 1:07 p.m. local time. That's the largest intraday gain since Nov. 9. The contract fell 1.7 percent to $6,800 a ton last week, the lowest closing price since June 27. The metal has fallen 20 percent from its all-time high of $8,800 a ton on May 11.

The contract for delivery in March gained 1.65 cents, or 0.5 percent, at $3.0525 a pound on the Comex division of the New York Mercantile Exchange. A futures contract is an obligation to buy or sell a commodity at a fixed price for a specific delivery date.

LME copper's so-called relative-strength index registered a reading of 34.75 on Nov. 17, indicating the contract was due for a rebound. The index, or RSI, identifies possible turning points for a commodity by calculating the degree by which gains outpace losses in a given time period. Readings at or below 30 suggest to chart watchers that a commodity or stock is poised to rise.

The Reuters/Jefferies CRB index, which tracks prices of 19 commodities including industrial metals and energy products, rose from a four-week low today to 305.79.

More Consolidation?

Copper production will rise in the next few years, increasing supplies of the metal used in wires and pipes. Freeport McMoRan Copper & Gold Inc. agreed today to buy Phelps Dodge Corp. for $25.9 billion in cash and stock to create the world's largest publicly traded copper producer. The combined company will expand copper production by 25 percent over the next three years.

``With metal prices fueling strong cash flows and the expectation by companies that prices will stay stronger for longer, more miners would want to acquire to add value,'' said Tim Barker at BT Financial Group, which manages $54 billion of assets including mining stocks, in Sydney.

Buxton said copper probably will decline in the next 12 months as demand from the U.S., the world's second-largest user, has weakened due to a slowdown in the residential housing sector. An average U.S. home contains 400 pounds of copper. The analyst maintains his price forecast for 2007, saying the metal for immediate delivery will average $6,000 a ton. The contract has averaged $6,727 a ton this year.

The number of housing starts in October was the weakest since July 2000 and was down 27 percent from a year earlier, the Commerce Department reported Nov. 17. Building permits dropped to a 1.535 million annual pace, a record ninth straight decline and the lowest since December 1997.

Among other LME-traded metals, aluminum fell 45, or 0.2 percent, to $2,620 a ton and nickel gained $400, or 1.3 percent, to $30,300 a ton. Lead added $6 at $1,490, tin advanced $100 at $9,800 and zinc rose $55 at $4,080 a ton.