Antofagasta rides the copper frenzy though price falls are on the horizon

A 78% increase in first half profits at a leading copper producer yesterday underlined how the commodity price boom extends beyond oil, which has recently hogged the public limelight. The value of crude oil has risen partly on the back of supply disruption from Hurricane Katrina and the problems in Iraq but also because of insatiable energy demand from China. The world's most populous nation has also been at the heart of the copper frenzy. Producers are working flat out to feed that country's export-led electronics sector which needs copper for wiring.

The London-listed Chilean mining company, Antofagasta, reported its interim profits had hit $739.5m (£405m), weeks after the price of copper broke new records. The metal reached a high of $3,725 a tonne, an increase of 30% over the last year, though some commodity experts are warning that new supplies will bring prices down soon.

Antofagasta remained upbeat about prospects for the rest of the year predicting strong demand for copper and its valuable by-product molybdenum which is

used as a strengthening agent in steel. The normally cautious chairman Jean-Paul Luksic, said: "Although some fundamentals for the future of continuing strong copper and molybdenum markets are being questioned by analysts, we expect to continue to benefit from strong demand for the rest of the year."

Copper miners have begun to invest in new facilities to meet continuing demand but the timing of new supplies coming onto the market remains unclear. As with oil, the ability to meet demand through boosting supply is limited by a shortage of economically viable copper reserves and the long lead time to bring a mine on stream. Copper inventories at the London Metal Exchange have risen in recent weeks but are still not far off the 31-year low they reached in July. Analysts are concerned that they will rise more quickly in coming months with a sharp drop in prices as a result. Jason Fairclough, analyst at Merrill Lynch, urged investors to sell Antofagasta stock: "We don't think there is anything wrong with the company. Antofagasta has high quality assets and management. Our sell recommendation is based on our house view for lower copper prices. If the copper price decreases, we expect Anto's share price to go down."

The company - owned 65% by the Chilean Luksic family - owns the third largest copper mine in the world, Los Pelambres, which has seen falling output as a result of lower ore concentrations and the decision to produce more molybdenum. Other analysts were concerned that increasing attention on molybdenum output was pushing up costs. They rose by 29% to 71.7 cents a pound, stripping out the benefit of revenue increases from molybdenum.

Shares in the mining group fell 12p to £14.47 having reached an all-time high of £15.17 less than a month ago.