Supply fears may keep copper up

MARKET OUTLOOK

Copper prices are likely to continue its upward movement this week owing to labour unrest in Chile, the world's largest copper producer. Chile has raised concern over production cut at a time of tight supplies.

In the last two weeks, the red metal has gained 6.2 per cent, while inventories have declined 11.38 per cent. On Friday, copper settled at $7,902 as stocks on the LME-registered warehouses slumped to 1,05,475 tonnes, less than equivalent to one day of global consumption.

At present, domestic traders are abstaining from fresh fund infusion into the metal market fearing volatility. "We will wait and watch till the market stabilises," said Surendra Mardia, a Mumbai-based trader.

Copper supply remained tight throughout this year as mining companies have slowed down the activities on fresh capacity additions because of price volatility. Analysts said that these projects that were to commence commercial production towards the end of 2007 or early 2008 could be delayed by at least one year, resulting in constraints for one more year.

Today, supply is under fresh threat because of strike threats at the mines in Chile, Peru and Mexico. Latin American workers are demanding higher wages as increasing prices have boosted profits for mining companies, including Codelco, the world's biggest copper producer.

Inventories of the metal in London have dropped 42 per cent this year as suppliers failed to meet the rising demand from China, the world's biggest consumer of the metal. Copper futures for September delivery rose 0.1 cent to $3.5945 a pound on the Comex division of the New York Mercantile Exchange, the highest closing price since May 11. Futures fell 0.9 per cent on concerns that gains had been exaggerated.

According to the recently issued GFMS report, zinc prices will continue to dip, with an average price in the fourth quarter of 2007 of $3,200 per tonne, compared with Friday's price of $3,425 per tonne, as it moves towards a more realistic base, and production ramp-ups near.

For the metal used mainly in alloys and steel galvanizing, there is a growing belief that the downtrend in inventories, from over 1,00,000 tonnes to around 70,000 tonnes, will be reversed in the second half of 2007, as higher mine output begins to have an impact on the market. Zinc was traded at levels over $4,000 per tonne in January. The metal shows a weekly gain of 1.5 per cent or $41.

The prospects for lead are glittering as the metal has crossed all psychological barriers in the past due to rising demand from the batteries sector, where the bluish white metal is largely used. The metal gained about 7.55 per cent or $199 during the last week to settle at $2,846 amid declining inventories of 2.05 per cent or 925 tonnes to end the week at 44,150 tonnes.

Lead hit a record high of $2,912 on Thursday, a gain of around 70 per cent since January, as worries about supplies from China and Australia rumbled on.

Nickel, however, recovered marginally from its earlier woes where users, mainly the stainless steel industry, witnessed fresh bookings in anticipation of price appreciation.

Experts believe that the silvery white metal has already bottomed out and has no possibility to decline further. Last week, the metal ended range-bound after touching a high of $36,475 on Wednesday. The nickel inventory recorded a sharp jump during the week to settle at 9366 tonnes.

Aluminium was the worst performer on the LME that recorded a weekly gain of 2.07 per cent amid high volatility and ups and downs in inventories. The metal closed the week at $2,743.5 while the inventories ended at 824,700 tonnes, a marginal decline of 200 tonnes from last Friday.