Latha Venkatraman
Dhimant Bhatt

Mumbai, Nov. 21

COPPER prices are poised at a volatile situation on the back of a piquant situation involving a Chinese trader who sold short.

Reports say that the Chinese trader sold short to the extent of 150,000-200,000 tonnes for December delivery.

"Copper prices could move either up by $500 a tonne or down by the same amount as there is uncertainty about the Chinese situation," said Mr Rohit V. Shah, President, Bombay Metal Exchange. A similar trend would be reflected on the domestic market as prices here move largely in line with those on the London Metal Exchange.

Copper wire bar in the domestic market during the weekend touched an all-time high of Rs 245 a kg mainly on sustained demand from winding wire, power cable and the transformer industry amid lagging supplies.

Copper wire bar could move up to Rs 250, said Mr Jashu Bhai Mehta of T.G. Metal Industries, a metal importing firm.

Domestic demand growth is cooling off, while supplies are likely to grow on expectations of the new smelters being commissioned in the year. Demand is expected to grow by around 4-5 per cent annually over the next few years.

During the current calendar year 2005, LME copper grade-A has moved up by 38 per cent while domestic copper wire bar prices were up by only 16 per cent in 11 months.

On Friday, global copper prices moved up to record highs of around $4300 a tonne and futures rose to $4,374 a tonne. Warehouse stocks with LME were down considerably to nearly 64,000 tonnes from 84,000 tonnes in the last two months.

"There are so many stories floating around about this speculative trade. There is no clarity if there is going to be delivery," Mr Shah said.

"Copper could fly through the roof," says Mr Si Kannan, Commodity Analyst, Sharekhan Commodities Pvt Ltd.

According to him, warehouse stocks of copper on LME, COMEX and SHFE (Shanghai Futures Exchange) stand at 1.4 lakh tonnes - equivalent to three days of global consumption. "If China has to oblige the delivery intention, then it has to purchase some 8,000 contracts of 25 tonnes each assuming it does not have stocks,'' he said. In such a scenario, copper prices would spiral.

Officials at copper manufacturing companies say at the current juncture, copper prices may not reflect the true fundamentals of the demand-supply situation.

India meets 23 per cent of its copper concentrate requirements through imports. Landed cost of copper is on an upward momentum.

According to an official at Hindalco Industries Ltd, Indian demand for copper has been stagnant at 3,50,000 tonnes. But prices have been moving up, mainly on investment fund buying and not on fundamentals, he said.

Therefore, profit margins for Indian copper manufacturers have been under pressure.

During the second quarter of the current fiscal, Hindalco's copper business recorded a seven per cent increase in revenues at Rs 1246.4 crore but at the EBIT level it was a loss of Rs 69.2 crore. Copper has been a drag on Hindalco's performance, the company's Managing Director, Mr D. Bhattacharya, had said at the time of results announcement. TC/RC (Treatment/ Refining charges) gains have been undone by a reduction in customs duty on imports among various other reasons.

According to Hindalco, the world demand-supply situations is expected to balance out in the next 12 months as refined copper producers stabilise output and new capacities come onstream.

On the back of global developments, spot prices in India could see a gain of Rs 5-7 a kg in the near future, Mr Kannan said.

(This article was published in the Business Line print edition dated November 22, 2005)
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