Compare to other base metals, copper is one of the worst performing metal this calendar year. The year to date growth through August is at 2 per cent. Copper is losing its lustre at a time when other commodities are gaining ground on relative terms. Copper prices plunged nearly 20 per cent in the previous calendar year. The growth of copper price derailed by lack of global demand with increasing inventories. Copper is one of the most economically sensitive metals.
According to Bloomberg, inventories in warehouses tracked by the LME (London Metal Exchange) have jumped 67 per cent since mid-August as metal stacked up in Asian depots. Stockpiles fell for the first time in 13 days on September 8. However, that was short-lived as on September 9, the stockpiles shot up by 12,000 tonnes adding more pressure to copper prices. Since Mid- August, the stockpiles of copper in LME is increasing and now there are concerns that inventory growth will accelerate even more as demand from China goes through a seasonal slowdown. China is responsible for more than 45 per cent demand in copper. According to China custom data, the country’s imports of unwrought copper and copper products were 3,50,000 tonnes during August. That amount to 10,000 tonne fall from July. Investors will welcome any announcement of output reduction as copper market is expected to stay in surplus this year despite an announcement of cutbacks by top copper mining companies.
Goldman Sachs came out with a particularly bearish forecast last month and the investment bank now predicts double-digit declines for the metal to a low of $1.80 per pound 12 months from now, citing the “wall of new supply from Chile, Peru and Zambia”. Goldman Sachs are also estimating that copper prices could slide back to $4,000 per tonne over the next year, as inventories rise, demand slides (especially in China), and production costs decline. Copper price may remain underpriced as there doesn’t seem much enthusiasm.
In MCX, copper has multiple resistance around 315-316. In spite of LME inventories coming in positive, copper is taking support around Rs 309 per kg. So it’s safe to say short-term support is around Rs 309 per kg and Rs 305 per kg. For copper to move into positive territory, it needs to close above Rs 318 which is its 200-day moving average. If copper breaks levels of Rs 305, it may tumble till Rs 290. That level can be said as safe for long term investing. Any investors looking to buy long in copper needs to wait for more confirmation. If it manages to close and sustain above Rs 318, long position can be entered with stop loss of Rs 310 per kg. Looking at technical chart, upside looks limited for time being.
(The author is director at Tradebulls)