Commodities

Will red-hot copper sustain at $7,000/t level?

Rajalakshmi Nirmal Chennai | Updated on October 23, 2020 Published on October 22, 2020

Analysts advise caution as speculative froth is building up

On Wednesday, copper futures in LME hit the level of $7,000/tonne after almost two years (after November 2018). On Thursday, technical profit-booking saw the metal drop to $6,991.5/tonne but market sentiments remained positive.

Drop in the US dollar index is helping the metal, said analysts that BusinessLine spoke to. The US dollar index is trading at 92.75, down from a high of 93.7 three weeks back.

Besides the weaker greenback, strong Chinese buying has also been supportive to the metal. While in August, China’s copper imports reduced month-on-month, in September it increased again: import of refined, alloy and semi-finished copper products and copper anodes, was up 8.1 per cent in the month over August (up 62 per cent, y-o-y). Arrivals of unwrought copper and copper products stood at 722,450 tonnes in September shows data of the General Administration of Customs, China.

This is the second-highest monthly import in copper for the year (in July, the country imported 762,210.9 tonnes). Arrivals of copper concentrate was up, too, in September – by more than a third from August. The news is also that China is planning to build a strategic reserve of copper and other metals; this is likely to be discussed in a meeting on October 26.

Analysts, however, are advising caution on copper with speculative froth building up.

As per Commitment of Traders Report from LME, speculators have the largest stake in copper since 2018.

Sandeep Daga of Regsus Consulting, a company that advises on commodity hedging to producers, consumer of metals, says, “Speculators have amassed very large bullish stakes in copper in hope of continuing Chinese demand and disruption in mining supplies. Physical market realities are changing though. Chinese refined output is now rising quicker than its incremental demand. Chinese copper product output is showing signs of exhaustion; this could remain low till the Lunar holidays. Bulls’ patience will be tested in the coming months...”

On rally in copper prices, Ravindra Rao, Head – Commodity Research, Kotak Securities, said, “Copper looks bullish at the moment. Jump in Chinese demand, besides worries over supply disruption at Chilean copper mine are supporting prices. However, build-up in stocks at LME warehouses along with signs of easing tightness in physical market may cap the upside in the near term.”

Copper stocks at LME that have been dropping since May has started to move up again, from 73,625 tonnes in the week ending September 25 to 184,850 tonnes in week-ending October 16.

Domestic trade cautious

In the domestic market, the demand-side picture has improved in the last three-four months, said Sandeep Jain, Managing Director of Laurel Wires, a domestic company that is into manufacture of copper wires. However, speaking to the trade, we find that the copper industry is not out of the woods completely and players are keeping fingers crossed to see how demand will pan out post-Diwali.

Copper in MCX trades at a premium of $40-50/tonne to the LME price, down from a premium of $150/tonne, a few weeks back.

Anil Surana, MD of Paras Wires, a large cable manufacturer from Bengaluru, said, “Copper prices are hitting the roof…and we hope that it’s the roof and doesn’t go further up. But demand has been strong in last one/two months. Enquiries have picked up sharply from makers of mobile cables, chargers and USB ports who were importing their material from China but now want to source it domestically…”

On levels to expect on MCX-Copper, Ravindra Rao, said, “It has made a breakout above ₹434 (October contract) and might test ₹445-448 in the coming sessions”.

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Published on October 22, 2020
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