Copper to gain $200 on strong demand

Metal has seen its lows despite upside potential.

Copper is expected to gain at least $200 this fortnight as the metal, despite having upside potential, has crossed all downside psychological barriers.

For the red metal, fundamentals remain strong with demand likely to stay firm amid rising consumption by the housing and consumer electronics sectors. Copper is used abundantly in these industries.

After a long break, Chinese traders are seen going for re-building their inventories that they lost while protecting foreign reserves by using more domestically available metals.

Copper stockpiles in the Shanghai Futures Exchange warehouses have almost halved to 30,559 tonne last week since the start of 2006, as users have been drawing on inventories.

Copper prices have tumbled 6 per cent to $5450 the past week from $5805.5. "A weekly decline of 6 per cent is phenomenal and it gives a hint that the prices will stage a rebound," an analyst said.

The slump in prices was attributed largely to supply surplus estimates by the International Copper Study Group, which in its latest report said copper supplies exceeded demand by 51,000 tonne in October compared with a deficit of 16,000 tonne in September last year, as US usage plunged 14 per cent.

The study further said global production exceeded demand by 3,53,000 tonne in January-November 2006 as consumption in China fell 2.8 per cent.

However, the rebound was indicated towards the end of last week when inventories in the LME-registered warehouses dropped by 5,275 tonne to 1,92,975 tonne, the biggest fall since October 17.

Experts said global stockpiles had still gained 54 per cent in the past three months and were close to the highest levels since July 2004. The prices have declined 38 per cent from a record peak of $8,800 on May 11, partly because of the slump in US housing.

In the Mumbai non-ferrous metals market, copper cathode ended the week with a fall of 2.22 per cent at Rs 308 from Rs 320 a kg in the beginning of the week. Copper heavy scrap, light scrap, utensil scrap and sheet cutting followed suit closing at Rs 303, Rs 300, Rs 290 and Rs 300 a kg compared with Rs 315, Rs 310, Rs 300 and Rs 308 a kg respectively.

Copper wire bar, however, moved in profit zone, rising a meagre 0.59 per cent to close the week at Rs 340 from Rs 345 a kg on last Monday.