Copper turns up the heat in base metals

Posted Monday 15th January 2018 04:06:46 AM by Johnson

Copper is currently living up to its name - leader metal amongst base metals. LME Copper prices are up by around 23 percent and 15 percent higher on the MCX, second only to Aluminium on YTD basis( mcx trading tips ).

Copper started the year with an impressive performance in Jan17, but unfortunately plunged soon in the following months through May17. Widely considered an economic barometer, Copper posted a dismal performance in the first quarter, hurt by disappointing data releases from China and rising inventories at both LME and Shanghai warehouses. Besides, supply disruption at worlds biggest copper mines - Escondida mine in Chile and Grasberg mine in Indonesia( crude oil free tips ), provided temporary respite as negotiations and resumption of output started in Mar17 itself.

However, the pessimism was short lived as it got a shot in the arm thanks to unprecedented rally in Steel prices, citing capacity cuts in China. The mainland nation pledged output cuts in early 2016 to cut 150 million tonnes of excess capacity by 2020 in a crackdown on polluting industries. In line with the same, China has eliminated around 42.39 million tonnes of crude steel capacity, equivalent to 84 percent of its target for the whole year, in the first half of 2017. This boosted Steel prices to the 4013 Yuan/t, the highest since April 2013, on 7th Aug17.

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Following this, the China Iron and Steel Association blamed the unprecedented surge in rebar steel futures to speculative trading, prompting the Shanghai Futures Exchange to take action against the same. In response, Chinas major commodity derivatives markets limited intraday positions for non-member firms and clients on rebar futures contracts for delivery in October 2017 and January 2018 to 8,000 lots from 15th Aug17.

Copper supply dynamics however, continue to provide a cushion after a notice by China Non Ferrous Metals Industry Association to its recycling branch that imports of scrap metal including Copper in wire, motors and bulk scrap metal form will be prohibited from the end of 2018. This boosted refined metal demand prospects in the worlds biggest consumer whose imports have plunged by 22 percent in Jan-July17 compared to 16 percent increase in scrap imports.
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The upside for Copper did not stop there as it found support in supply disruption concerns. Labour problem at Grasberg, worlds second biggest Copper mine in Indonesia, escalated to violence as former mine workers clashed with security forces, providing Copper another boost. This pushed average LME Copper prices to $6514/t in Aug17, highest since November 2014. Similarly on the MCX, prices jumped to an average of Rs.418.29/kg in Aug17, highest since September 2014.

Stock situation is also very much in favour of the metal. LME stocks stand lower by 27 percent on a year to date basis at 223,500 tonnes, with cancelled warrants as high as 50 percent of total stocks. On the other hand, Shanghai stocks at 183,582 tonnes, although higher by 7 percent (YTD) are still down by 40 percent since Mar17 levels.

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Currently, Copper prices are trading near fresh three year high levels thanks to bright infrastructure demand prospects while major supply concerns have eased for now after Freeport agreed to give up its majority stake in the Grasberg mine to the Indonesian government. Also, Chinese factory activity continues to be in the expansion phase, dismissing tighter credit and slowing property market induced growth concerns. So, we expect Copper prices to trade higher towards Rs.450-454/kg mark in the near term although a likely correction would slow momentum. (CMP: Rs.441/kg)