Copper production may outstrip demand in the 2013 calendar year by a margin equal to the shortfall in global production during 2012. This could lead to a fall in prices in the near-term. A slow-down in the world economy could also lower demand for the metal, negatively impacting prices.
According to the International Copper Study Group, world demand for refined copper is expected to have exceeded production by about 4.2 lakh metric tonnes in 2012. This was double the shortfall of 2.1 lakh tonnes in 2011.
But while mine production is set to ramp up by 6.4 per cent to 175.3 lakh tonnes and refined production by 6 per cent to 211.4 lakh tonnes in 2012, refined usage is projected to rise only by 1.5 per cent to 206.8 lakh tonnes. This will result in a production surplus of 4.6 lakh tonnes.
The growth in mine output in 2013 is expected to mainly stem from the resumption of production at existing mines rather than new projects. Most expansion and start-up projects are anticipated to come on-stream only in 2014 or later.
One major factor contributing to the rise in 2013 production is enhanced capacity utilisation, which is likely to improve to an average of 81 per cent during the year from 79 per cent in 2011.
The bulk of the rise in output will come from secondary refined production, which is estimated to rise by 11 per cent in 2013. Primary copper production, on the other hand, is expected to experience a lower growth rate of 6.5 per cent.
Copper is currently trading at around Rs 445 a kg on the Multi-Commodity Exchange. Technical analysis of copper spot prices indicates that the medium-term trend for the base metal is sideways, with key support at Rs 400/kg and key resistance at Rs 460/kg.
In case the resistance is breached, the next resistance will be at the psychological level of Rs 500/ kg.
But if prices fall below the Rs 400/kg level, they could spiral downward to around Rs 350/kg in the medium-term.
On the London Metal Exchange (LME), copper is currently being traded at $8,080 a tonne. Technical analysis indicates that the trend is sideways for the metal on the LME as well. The key support is at $7,300/tonne, while the key resistance is at $8,600/ tonne.
Volatility in LME
India is among top 20 major producers copper globally. But falling prices of copper in international markets would also benefit India, as it is one of the world’s biggest importers of the metal, alongside China, Japan, South Korea and Germany. As a consequence, volatility in prices of the metal on the LME has a significant bearing on Indian copper trading.
What is more, independent studies have found that for industrial metals, the Indian market has no impact on the LME or other futures markets. Copper production in India totalled 7.1 lakh tonnes in 2008, while demand amounted to about 5.5 lakh tonnes, according to a report by the Indian Commodity Exchange.
Typically, over 30 per cent of India’s copper demand comes from the telecom sector and 26 per cent from the electrical sector in India. In addition, the building and construction, engineering, transport and consumer durables sectors are major consumers of copper in India. These sectors stand to benefit the most from lower prices of copper.