Copper for three-month delivery on the London Metal Exchange (LME) fell to a week’s low of $6,729 a tonne, down over three per cent from $6,939 a tonne on Friday. This was due to a fall in China’s purchasing power index to 53.9 in May from 55.7 in April as its tightening monetory policy started biting, while problems in the euro zone were seen as worsening.
Since China is a big consumer and importer, the improvement in prices last week turned futile.
“The movement for copper will remain bumpy in the coming days as the euro zone crisis worsens. That may lead to further sharp correction, as that will indicate further reduction in demand,” said Atul Shah, head of commodities at Emkay Commotrade Ltd.
Copper prices have gone up in past two weeks by 7.25 per cent to $6,939 per tonne, giving relief to the bulls among financial market investors. Some users have hedged their requirements of the red metal on the news of falling inventories on the LME.
However, many are still hoping that expected volatility could give them a chance to hedge their requirements at lower levels. Copper is a major industrial metal and its fate remains dependent on global recovery and consumption from user-industries such as electricity and construction.
LME’s three-month forward copper touched a low of $6,470 on May 17, a level not seen since February. Domestic copper prices also maintained a negative tone.
According to Capitaline’s analysis, ‘The prices of copper are not taking cues from the inventory levels that were down in LME and Shanghai’. LME inventories are now at six-month lows, but there are apprehensions that such a fall may not be sustainable and the lack of demand in Europe and the US will play a big role in tuning the inventories in coming months.
Supply is also increasing with moderating demand, which could keep prices under check.
The World Bureau of Metal Statistics has said the ‘Copper market recorded a surplus of 1,35,000 tons in January-March 2010.
This compared to a surplus of 3,38,000 tons in the full year 2009. World mine production was 3.78 million tons in Jan-March 2010, 1.6 per cent higher from 2009. Refined production was 4.71 million tons in Jan-March 2010, up by 4.8 per cent from the corresponding period last year.”
Chinese copper imports, which were on a roll in 2009, started showing a declining trend in recent months.
“The demand is high but so are the supplies, due to various restarts of smelters which were shut during recession,” said an industry source.
GROWTH WORRIES
Reuters adds: that base metals fell sharply in London on Tuesday after a bank holiday weekend, while Shanghai metals extended losses, weighed down by warnings from the European Central Bank (ECB) and China about economic recovery.
The ECB said on Monday that euro zone banks face a “second wave” of potential loan losses of up to ¤195 billion over the next 18 months due to the financial crisis, and disclosed it had increased purchases of euro zone government bonds. This came after China’s warning that the global economy remained vulnerable to sovereign debt risks.
