Copper prices to trade firm on higher deficit

Sakina Mandsaurwala

Last week,the energy complex witnessed a divergent move with crude oil prices rising 3.5 percent, while natural gas prices fell by 2.5 percent. Crude oil prices reversed prior week's losses after lower-than-expected release of OPEC production data.

Precious metals stayed strong as the release of dismal US retail sales reinforced expectation of continuation of dovish Fed policy in future. Base metal prices reacted negatively as China's markets opened after the week-long holidays. However, prices bounced back due to optimism over better than expected trade numbers from China.

Investors are eagerly awaiting the outcome from the US-China trade meet particularly after the positive comments from the US President.

The global copper market is expected to witness an undersupply scenario ahead as the pace of new mine supply is expected to slow due to decline in output from the Indonesia copper mine, while the demand growth will remain strong in the coming years.

The global copper consumption will be driven by stable infrastructure growth in China and a rising demand from the electric vehicle sector. Also, China's copper scrap import restrictions will likely provide support to the copper demand in 2019 and lead to higher imports in China.

China's copper imports in January have risen by 8.2 percent at 4,79,000 tonnes. Also, another supportive factor is the global copper stockpiles currently not so far from decade lows.

Looking at the fundamentals, we believe copper prices are likely to trade positive in the coming quarter. Higher copper imports in China and lower mine supply from Indonesia are expected to provide support in 2019. We expect the global copper market to show a higher deficit in 2019 surpassing ICSG forecast of deficit of just 65,000 tonnes.

From the macro perspective, a positive outcome from the US-China tariff talk in future and possibility of stimulus from China, we can expect LME Copper prices to test $6,350-$6,400 per tonne in the coming months. Currently the LME Copper prices are trading at $6,170 per tonne.

The author is Commodity Analyst at Narnolia Financial Advisors Ltd.

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