Copper has bounced smartly from the lows of Rs 299 per kg in first half of June to current price of Rs 335 per kg marking 12 per cent gain. In fact, not just copper but the whole base metal pack has recovered smartly in last one month. With zinc, nickel setting fresh highs for the year, investors are latching copper. The euphoria in copper is based on value buying as copper is relative low priced compared to last year where it was trading around Rs 420 per kg. The rise in copper prices is on expectation that China will deliver more stimulus this year to boost growth in the face of economic slowdown. Lately, increasing copper stock in warehouse licensed by London Metal Exchange is threatening to put cap on the prices of copper as the increasing inventory is again hinting that supply may outweigh demand.
China’s copper imports jumped 22 per cent in the January to June period from a year ago according to China’s General Administration of Customs. This boosted the prospects of copper. Also adding further speculative buying in commodities like copper is election win by Japanese Prime Minister Shinzo Abe’s ruling coalition. This has boosted the expectation of adding further stimulus to propel their economy. In the second half of June, choppy seas off the coast of Chile caused widespread delays to copper shipments. This helped in boosting copper prices. Chile is world’s top producer of copper. According to Reuters, Chile accounted for 30 per cent of global mine supply last year, at 3.8 million tonnes, and around 20 per cent of global refined copper supply. However, now the shipments are regularised.
The major concern for copper is the future demand from China. China’s trade data are weak, continuing the trend seen over past two years. On Multi Commodity Exchange (MCX), Copper needs to break the resistance of Rs 340–343 per kg. In March and April, copper failed to move above this resistance and then witnessed correction. Now again on July 13, copper made high of Rs 339.90 per kg and failed to close above it. In fact, it corrected to Rs 329.60 per kg before bouncing back to levels of Rs 338 per kg. The failure to breach the resistance indicates selling pressure near the resistance zone.
The run up of copper also seems to have exhausted and now it seems that it will try to retest its support of Rs 325 per kg. If copper breaks Rs 325 per kg then it may correct till Rs 318–313 per kg. Investors are recommended to book profits at this level as copper is failing to breach its resistance of Rs 340 per kg and any fresh long position should be taken above that level.
(The author is director at Tradebulls)