Copper may see upside: Angel Commodities

The industrial metal, copper which had registered minor losses in the previous month (July) observed monthly gains of around 0.7 percent in month of August 2012. China, the major consumer of the red metal is regarded as the key driver for determining the price. Declining Manufacturing Purchasing Manger’s Index (PMI) of China, showed signs that economy is decelerating. Unfavorable economic data from the other major nations such as the US and Europe raised hopes that the central banks might take policy measures to augment growth in the nations.

Positive statements by the policy makers in the minutes of the meeting of US Federal Reserve in the last week of the August month that more stimulus measures would be required soon unless there are signs of “substantial and sustainable strengthening” of the economy. Further, to contain the sovereign debt crisis the affirmative statement by the European Central Bank president that all necessary steps would be initiated to save the single currency also led to rise in the rise in the risk appetite amongst market participants. The weakness in the US dollar has also supported an upside in the prices of the metal. Although, year to date performance shows that the red metal has remained in the negative terrain and has posted 7 percent loss.

LME copper prices closed at $7,592 per tonne in August 2012 and are currently hovering around $7,713 per tonne. According to latest report by the International Copper Study Group (ICSG), the refined copper in the global market during January to May 2012 was in a deficit of 4.05 lakh tonne. World refined usage of copper stood at around 8.685 million tonnes while production of the same stood at 8.280 million tonnes. There are also reports of decline in the output of copper production in the largest mining company Codelco in the first half of 2012 by 6.4 percent to 7.67 lakh tonnes. The mining company is facing deteriorating ore grades and high energy costs which are causing the output to decline.

Average monthly LME Copper inventories too remained lower and stood at around 2.37 lakh tonnes in August 2012. The Copper imports into the dragon country China, in the month of August rose to 1.7 percent at 3.67 lakh tonnes. It is estimated that the country utilizes around 50 percent of refined copper in building and construction activities. China
consumes around 40 percent of the total global copper supply each year. The latest Economic Intelligence Unit report states that Chinese apparent demand for refined copper grew by 21 percent year on year in the first half of 2012. In the US, imports of semi fabricated copper and brass products rose 6.6 percent from January through May 2012 year on year. In the domestic market copper prices gained by 0.4 percent tracing firmness in the spot markets and were hovering around Rs.447.60 per kg.

In the coming month we expect copper prices to trade with upward bias on the back positive sentiments triggered by the announcement that the US Federal Reserve to expand its holdings of long term securities with open ended purchases of $40 billion mortgage backed securities per month and keep the interest rates steady at a near zero until 2015.The plan would continue until unemployment rates slips back to satisfactory levels. Further, German court ruling approving the bailout fund with conditions will also create positive market sentiments. The above developments are expected to raise the risk appetite of market participants and reduce the demand for low yielding currency Dollar Index (DX) adding to the gains of copper prices. Approval by the Chinese government for construction and infrastructure activities such as road and subway projects is expected to increase the demand for copper prices thereby supporting an upside in the copper prices. In the domestic markets however, appreciation in the Indian rupee is expected to cap sharp gains. Further, depleting stocks at the LME warehouses and revival of the US housing sector should act as a supportive factor for the copper prices.

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