Copper may rebound this week on speculation that positive economic numbers in the US may prove favourable for the red metal to revive a demand from wire and pipe manufacturers and the housing sector. The strengthening dollar is also set to provide a healthy support to the base metal.
However, speculators remain sceptical in the wake of a rising demand for copper substitutes. Experts have already warned that copper has lost a chunk of the global consumption to its substitutes, including aluminium and plastics.
Currently trading at two-and-a-half times above the cost of production at $3,000 a tonne, the copper inventory has advanced by 10 per cent in warehouses monitored by the London Metal Exchange (LME), the highest increase in three years.
Surprisingly, stockpiles rose sharply by 18,775 tonnes on Friday alone to hit the psychological level of 200,875 tonnes. The metal for delivery in three months fell by 3.2 per cent on Friday to $6,995 a tonne on LME. The price has gained 8.3 per cent this year.
Towards the middle of Friday’s trading session, prices declined to $6,980, the lowest since January this year. In late-kerb trading, copper further sank to $6,900 a tonne compared with the previous day’s kerb close of $7,226 a tonne. Following suit, aluminium marginally fell to $2,647 a tonne against the previous day’s kerb close of $2,677 a tonne. Lead declined to $1,855 from $1,891.
In New York, on the other hand, the metal dropped the lowest in more than seven months on high stocks and a slowdown in global economic growth, fuelling fears of a dip in demand for the red metal. Copper futures for December delivery slumped 3.2 per cent to $3.16 a pound on the Comex division of the New York Mercantile Exchange. Earlier, the price touched $3.1245, the lowest since January 28.
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Speculators have started eyeing copper as an option for parking funds as the metal offers good returns on profits earned from the strengthening dollar. The yen surged to a 13-month high against the sliding euro as investors fled risky positions such as leveraged carry trades, spooked by a sharp fall in stock markets. Additionally, crude oil dipped towards $105, extending a near 8 per cent fall this week, as traders liquidated their positions in commodities to join the dollar rally.
Amid fears, tin, nickel and zinc moved up on a fresh demand from industrial users.
Meanwhile, base metals in the domestic spot market followed the weak global trend. Copper sheets fell by Rs 6 to Rs 351 a kg, while copper utensils scrap dropped by Rs 6 to Rs 334 a kg and copper wire bar dipped by Rs 4 to Rs 393 a kg. Aluminium ingots also eased by Re 1 to Rs 138 a kg, while tin rose by Rs 10 to Rs 1,100 a kg, even as nickel went up by Rs 5 to Rs 1,035 a kg and zinc rose by Rs 2 to Rs 102 a kg.
According to a weekly report of Angel Broking, the main reason for the decline is the strengthening of the dollar, which is turning base metals unattractive for holders of other currencies. Base metals have been reacting to the currency market movement amid a seasonal slowdown in demand. Though demand had slowed down and was expected to come down further, the most important factor the supply, will help hold prices higher, the report noted.