NYTimes refuses to let a mining company reply to an attack

Section:

Platts News via MetalsPlace.com
Thursday, January 12, 2006

http://metalsplace.com/metalsnews/?a=3575

Copper is no longer behaving as an industrial raw material but as a
financial instrument, Bloomsbury Minerals Economics said in a report
on the impact of commodity index funds on metal prices Thursday.

"We think that it is pointless continuing to analyse copper prices
as if they were simply prices of an industrial raw material. For
now, copper is behaving essentially as a financial instrument," said
BME analyst Peter Hollands, adding that Commodity Index Fund buying
was raising copper prices above the level that would otherwise be
seen.

"Demand for metals futures is compounding the effect of market
deficits and low physical stocks. Copper price behaviour has made a
transition from being primarily that of an industrial raw material
to that of a financial instrument," said Hollands.

He said, however, that the index fund demand for metals drives up
prices, which attracts money to the index funds, which drives up
prices: "It is a bubble."

"Life has become very dangerous indeed to the physical copper
industry," he warned.

Hollands also noted the breakouts of actual price from modeled
physical-market fair value that have emerged in aluminium and zinc
during 2005 and in lead and nickel this month.

"Commodity Index Fund investments have had an equally dramatic
effect on gold by converting it from a currency and real-interest-
rate driven financial instrument to a Commodity Index Fund-driven
financial instrument, causing gold prices to correlate positively
with base metals prices," he noted.

Hollands said Commodity Index Fund investments were expected to rise
from around $80 billion now to $105-115 billion by the end of 2006
and $140-150 billion by the end of 2007, provided that a major bear
market in commodities has not begun by then.

"Some of the newer funds are more metals-intensive. If Index Fund
investments do grow like that, then index fund buying could add the
equivalent of 350,000-525,000 metric tons of demand for aluminium
futures, 180,000-270,000 metric tons of demand for copper futures,
100,000-150,000 metric tons demand for zinc futures, 70,000-105,000
metric tons of demand for lead futures and 100,000-150,000 metric
tons of demand for nickel futures, in both 2006 and 2007," he said.

Hollands noted that the impact on price may well be most extreme in
metals where there are also deficits in the physical market and very
low stocks.

"The end of a fundamentally-driven bull market in commodities will
most likely bring the inflow of investment money to a halt but may
not prompt a great deal of disinvestment. The pensions industry
seems to have accepted a long-term role for commodities holdings for
the purposes of diversification, inflation hedge, offsetting weak
developed world currencies, and gaining exposure to emerging market
growth," said Hollands.

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