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Speculators blamed for volatile copper prices

This article is more than 16 years old

Copper prices are being destabilised by investment funds that seek profits through the commodities markets, Antofagasta claimed today.

The mining group, which unveiled forecast-beating results for the first half of this year, predicted that the price of copper would remain high but volatile in the months ahead.

"The outlook for prices remains positive and this should continue well into 2008. Nevertheless, the increased role of investment funds in commodity markets has made base metal prices more sensitive to changes in market sentiment, and accordingly short-term copper prices are expected to remain volatile," the company told investors.

Copper inventories are at historically low levels, due to supply shortages and increased demand from China. Prices rose by nearly 25% in the first six months of 2007, but also fluctuated considerably. A tonne of copper traded at around $6,200 at the start of the year, but slipped to $5,300 in February. It peaked at almost $8,200 in May and was changing hands for $7,630 by the end of June.

Chilean-based Antofagasta, which is listed in London, grew its pre-tax profits by 8.4% in the six months to June 30, to $1.436bn. This comfortably beat analyst forecasts.

Antofagasta also profited from a rise in the price of molybdenum, the element used to harden steel.

The strong demand for metals has encouraged miners to increase their exploration programmes in search of new reserves. Antofagasta said it is working on several projects that could boost its production in the medium to longer term, but admitted that copper production for 2007 will be lower than previously forecast. It now expects to produce 449,000 tonnes, down from an earlier forecast of 457,000 tonnes.

It is also pushing on with the construction of a dam at its largest mine, at Los Pelambres in Chile, in the face of protests from farmers who claim it is polluting the local water supply. Last week a court ordered Antofagasta to halt some of the construction, but analysts believe the project will be successfully finished.

"The company has overturned such orders in the past, and still anticipates completion of the dam by the year-end," said Charles Kernot, research analyst at Seymour Pierce.

Mr Kernot believes Antofagasta has a bright future.

"It has a strong pipeline of projects which provide considerable upside optionality - and which could help to diversify away from copper," he said.

By this afternoon shares in Antofagasta had gained 16.5p to 699.5p, a rise of 2.4%.

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