A weak sentiment is likely to prevail for base metals next week on rising dollar and substitute materials taking centrestage. A likely resumption of operations by Chinese copper smelters, closed during the Beijing Olympics, may also affect fresh investments in industrial commodities.
“Copper is likely to decline by 3-4 per during the next fortnight and all other metals may follow,” says Jayant Manglik of Religare Enterprises.
However, traders’ sentiment remains upbeat in the short to medium term on higher demand from consumer industries. As copper prices have moved nearly two-and-a-half times higher than the production cost of $3,000 per tonne, its long term prospects remain bleak. Therefore, the red metal may move around $3,000-$5,000 in the long run, said Manglik.
The greenback has appreciated around 10 per cent against the major global currencies, thereby attracting investors from all other asset classes. “The dollar has also become a better investment avenue,” said an analyst.
Experts believe that copper has lost market to alternative materials, including aluminium and plastics. Plumbing, architecture and other energy-efficient means of applications have moved away from copper. These sectors are the major consumers of this metal, accounting for nearly 30 per cent of the global output. Hence, the impact is likely to be harsher on copper prices, they said.
Surprisingly, inventories in the London Metal Exchange-registered warehouses have swelled despite production cuts in China, Mexico and Chile, the three significant copper producers. Last week, 3.88 per cent of fresh stocks were added to the existing high quantity of 173,375 tonnes.
Meanwhile, Chile, the world’s largest supplier of copper, reported a 5.5 per cent fall in output to 430,361 tonnes in July from a revised 455,338 tonnes in the corresponding month last year. Mexico also reported a massive 34 per cent fall in copper production in June to 19,875 tonnes.
In an another development, Lisbon-based International Copper Study Group (ICSG) has forecast a deficit of 0.2 per cent or 155,000 tonnes for the red metal in the first five months of this year. Total consumption was 7.71 million tonnes till May, compared with 7.69 million tonnes in the corresponding period a year ago.
Copper ended with a marginal gain of 0.88 per cent during the last week at $7,648, while aluminium and nickel closed rangebound at $2,705 and $20,350, respectively.
Metals that had bottomed out during recent weeks, however, found some support from its consumer industries. Lead, largely used in batteries, and zinc, used for steel galvanising, jumped 13.8 per cent and 4 per cent to close at $2,111 and $1,800. In contrast, tin, the independent metal, closed the week with a decline of 3.38 per cent to $20,000.
According to an analyst with Angel Broking, lead prices could move higher on higher demand from China continuing in the fourth quarter as the county uses more lead-acid batteries. Depressed exports of the metal will provide support to the metal at higher levels.
Copper prices are trading higher on expectations of increased buying from China post the Olympics as industrial activity is expected to re-start. This factor is providing major support to copper in times of rising inventories and overall slowdown in demand. Also, copper prices appear to be strongly supported around the $7000-7100 levels.
