Copper prices have risen seeking support from dwindling stockpiles at exchange warehouses along with signs of robust demand from China.
Following the steep plunge in prices in March, most commodities in base metals pack have witnessed sharp recovery in the second quarter. The outperformer amongst them has been Copper. LME three month Copper price that had hit January 2016 lows of $4,371 per tonne in March has rebounded more than 35 percent and at $6,015 levels today hovers near highest level since January. Also, with more than 20 percent gains the metal is on its way to clock the best quarter since 2010.
The sharp recovery in Copper prices has been driven by confluence of both macro as well as fundamental factors.
On macro front, global risk appetite has improved amid optimism over reopening of economies along with signs of nascent recovery in global growth which in turn has lent support to copper prices.
Lifting of lockdown restrictions across nations despite rise in coronavirus cases have fanned hopes of revival in global economic activity which in turn fuel demand hopes for the metal. Meanwhile on global growth front, improvement in macro-economic data from economies like US, China and Euro Zone including rebound in factory activity has fanned hopes that the worse may be over. In China, data today showed that Official manufacturing PMI for June rose to three months high of 50.9; its fourth straight month of expansion.
Furthermore, prices have also sought support from record stimulus from global central banks as well as governments to revive growth. Record low interest rates and bond purchases by major central banks like US Fed, European Central Bank, Bank of Japan and Bank of England have lifted global sentiments.
On fundamental front, copper prices have risen seeking support from dwindling stockpiles at exchange warehouses along with signs of robust demand from China. More recently growing worries over supply disruption from top producer Chile have lent further support to the prices.
Copper on-warrant stocks, or material available for delivery at LME warehouses have been trending lower for past few sessions and at 1,11,650 tonnes as of June 30th is at the lowest level since January while stocks at SHFE have slid to 99,971 tonnes, the lowest level in more than 17 months. Meanwhile in China, Yangshang's import premiums jumped to $102.50 last week from prior week’s $80, indicating recovery in demand from the region.
Further on supply front, mounting virus infections in Chile and amongst staff in copper mines is fanning worries over supply disruptions. According to Chile's mine minister, the nation's copper output could decline 2,00,000 tonnes due to the new coronavirus, or 3.5 percent of 2019 production.
Overall, the above mentioned factors both macro as well as fundamental may continue to keep copper prices supported. However, it would be difficult for the metal to maintain the upward momentum witnessed in the current quarter in coming months as worries grow over second wave of infections especially in US; which in turn may threaten the reopening bid and thereby hurt the recovery in economic activity.
The author is VP - Head Commodity Research at Kotak Securities.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.