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Copper prices recovered from a four-year low, will the momentum continue?


Date: 02-06-2020
Subject: Copper prices recovered from a four-year low, will the momentum continue?
Copper, the industrial red metal, recuperated much of its earlier losses on optimism of a swift turnaround in the global economy. LME copper has climbed more than 22 percent since prices hit a four-year low of $4371 a tonne during mid-March. Meanwhile, prices remain well below the level of $6,000 prior to the coronavirus crisis.

Optimism over developing coronavirus vaccines and better industrial sentiments from China fuelled hopes of a quick turnaround of the global economy. A turn around in equities and reopening of several economies after coronavirus lockdown are also hinting at more demand for industrial commodities.

Copper is often used as a gauge of global economic health. The negative impact of coronavirus on the global economy is even larger than analysts feared. Industrial and manufacturing activities in many large economies like China, US, Europe and Japan have declined to decade low levels recently. A sharp plunge in demand and fears of recession hit the prices of all industrial commodities including copper.

However, the recent indicators are showing a fair picture of China’s industrial outlook. Industrial activities in the world’s largest trading nation are picking up while consumption and imports continued to shrink. Since China remains depend heavily on exports for growth, weak global demand and simmering trade tensions with US capped major gains.

Weak demand outlook is likely to push the global copper market to a surplus for this year and next. As per the forecast of International Wrought Copper Council, global copper market will face a surplus of 285,000 tonnes this year and 675,000 tonnes in 2021. The agency also noted that the economic disruption and its impact on the copper industry had resulted in greater uncertainty in the factors affecting supply and demand for copper.

Copper demand from the top consumer China has fallen by 2.8 percent to 11.87 million tonnes this year but is expected to rise by 2.6 percent in 2021. China accounts for almost half of world’s total copper consumption widely used in the power and construction sectors.

Demand from other key consumers like Europe, North America including US, Canada and Mexico is also expected to deteriorate this year. On the supply side, mine production would decrease by 4 percent to 19.65 million tonnes this year. Meanwhile, the forecast for 2021 is an increase of 6.7 percent.

Copper inventories monitored by ShFE and LME warehouses have shown an increase recently. ShFE inventories are rising for the first time in two months due to lower imports. In April, copper stocks in ShFE warehouses saw their biggest monthly decline since September 2017. Inventories at LME monitored warehouses are currently at six month high due to moderate global demand.

Going forward, a swift turnaround in demand is least expected. Global industrial activities remain on the lower side due to the negative impact of the pandemic. Looming tensions between US and China is likely to worsen their trade relations further that may on weigh demand from the world’s largest Copper consumer China. Meanwhile, massive economic boosting measures from various Central Banks could offer lower level support to metal later.

On the price front, LME rates continue to trade below $6,000 a tonne mark with key support placed at $4,350 a tonne. In domestic futures market, present recovery moves likely to gather momentum but strong upside obstacles are placed at Rs 440 per kg and Rs 458 levels. Downside reversal point is seen at Rs 378.

Source:- moneycontrol.com

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