Copper prices were rallying more than 3% Tuesday as inventories on the London Metal Exchange continued to dwindle.
May-dated contracts were tacking on 11 cents at $3.28 a pound on the Comex division of the New York Mercantile Exchange.
PowerShares DB Base Metals
exchange-traded fund, which tracks aluminum and zinc prices as well as copper, was rallying also, up 1.7% in recent trading.
"This market is very finely balanced with very low stock levels all the way along the chain from concentrates through to wire rods," says Peter Hollands, managing director at London-based specialty consulting firm Bloomsbury Minerals Economics. He notes that the market has switched from a surplus from August through November last year to the current tightness.
In addition to a slight drop in LME stock levels, a dramatic jump in the number of "canceled warrants" indicates that significant decreases in exchange inventories can be expected in the days to come. Canceling an LME warrant allows the metal to be removed from warehouse and sent to a new owner and as such no longer represents available supply.
As a result, the market deficit situation could get even tighter, Hollands says.
"If you don't get a full-blown recession in the U.S., we could revisit the highs of last year,
when prices briefly hit $4 a pound in May," he adds.
As recently as early February, copper was trading for about $2.40 a pound, but has subsequently rallied on the back of increased Chinese buying.
Positive technical indicators were also contributing to the move higher, namely Monday's close in London above the 200-day moving average.
Among the miners, shares of copper producers
Freeport-McMoRan Copper & Gold
were all rallying between 1% and 3% in recent action.
Separately, lead prices were spiking to about 88 cents a pound on supply concerns and falling inventories, up from 45 cents last summer. Lead is primarily used in the manufacture of car batteries, but is also consumed when making bullets.
Turning to precious metals, gold prices were drifting lower on reduced concerns about the ongoing diplomatic tangle over Iran's refusal to release 15 British military personnel who were taken prisoner March 23.
A sign the situation may be moving closer to a resolution came when an Iranian official who had been captured and held in Iraq was released and returned to Tehran.
Contracts for June-dated bullion contracts were losing $2 at $669.50 an ounce on the Nymex. The ETFs that hold the metal,
streetTracks Gold Shares
iShares Comex Gold Trust
, were both up marginally.