Copper prices started the June month with a lot of conviction. On LME it was the shrinkage of inventories and rise of equity markets that invoked confidence in the traders. During the first 6 months of 2009 the Copper prices have registered a increase of 61%. In the domestic markets, MCX Copper futures touched a high of Rs 257 per kg up 63% from the start of the year. In June month the prices have increased by 4 % to Rs 245 per kg. Increased usage from the industry and expectations of economic recovery helped Copper to gain momentum up till now. However, near future is pointing selling in Copper prices as the current inventories are piling up to 5 week of consumption which is comfortable level. Chinese consumption levels are expected to decline in the coming months, a affect of which is seen in the recent halts in shipment levels.
World Market In Surplus During First Quarter Ending March 2009:
The latest monthly report from International Copper Study Group (ICSG) was released in June. The report showed that the apparent refined copper balance for the first quarter 2009 (Jan-March), including revisions, had a production surplus of around 50000 tonnes, compared to a production deficit of 67000 tonnes during Jan-March 2008. China registered a high apparent usage of Copper. Chinese usage of Copper increased by 36% during Q1 2009. Even after the rise in China, World refined Copper usage declined by 4%. The major consuming nations which showed a decline in apparent usage of Copper were European Union, Japan and US. These three regions showed a negative usage of 25%, 46% and 27% respectively.
Interesting to note was that World mine production capacity utilization declined below five years average of 87% to around 77%. Australia, China and Chile registered a decline in mine production. World mine production grew by 57000 tonnes or 1.6% in Jan-March 2009 as compared to the corresponding period previous year.
World Refined Copper Production Declines During Q1 2009:
World refined Copper production declined by 1.6% during the first quarter of 2009. Primary production decreased by 0.3% while secondary production came down by 9%. Major decrease in the production was witnessed in US by 10% while in EU and Asia production came down by 9% and 2% respectively.
Chinese Demand Expected To Slow In Coming Days:
Shipments in China were running at record volumes because of favorable arbitrage opportunities till May. However declining premium in China has lead to a situation of halt in shipments in China.
In the first five month China imported 1.4 million tons of refined Copper, marking a increase of 130 percent from corresponding period of 2008. The rise in imports was a resultant of massive stimulus package from Chinese government and buying from Chinese state reserves bureau. The rise of imports has created a surplus situation in China.
In May, Chinese imports hit a record for the fourth straight month. China imported 337230 tonne of refined copper in May, up by a whooping 258 percent than in corresponding period in 2008.However, apparent usage in May has came down by 3.5% and imported volumes earlier this year are not finding the end users. High volumes of imports in China will not find support of the demand as well as arbitrage in the coming month. And this is when one can expect prices of Copper to remain under pressure.
World Copper Market To Remain In Surplus In 2009-2010:
ICSG is very cautionary of the supply and demand scenario for 2009 and 2010 and has revised its projections downwards for the coming years. The report from ICSG says that although the market developments are not fully know yet it projects World Refined Copper surplus of 345000 tonnes in 2009 and 400000 tonnes in 2010. For the year 2008 the World Copper market showed a surplus of 250000 tonnes. World copper mine production in 2009 is expected to rise by 3.8% or 590000 tonnes this is revised significantly from 11% growth projected in October 2008. Mine capacity utilization is expected to remain at 81%, its lowest levels since 1989.
Australian Bureau of Agricultural and Resource Economics (ABARE) predicts World Copper prices to average at $ 4416 per tonne in 2009 down 37% from 2008. In 2010, the world copper price is forecast to increase by 24% to average $5488 a tonne. World consumption of Copper is also expected to move down to 17.2 million tonnes down 4%.
Indian copper production increases in May:
Indian copper cathode production increased in the month of May following the production from Hindalco. All the other companies registered a fall but a rise in the production of Hindalco increased the overall production by 54%. On M-o-M basis Hindustan Copper (HCL) copper cathode production for May 2009 was 1298 tonnes as against 1310 tonnes in April 2009 down 1%. When compared on a Y-o-Y basis, the production of HCL was down 54% from 2816 tonnes in May 2008. Hindalco registered a rise in the actual production for the period of May 2009 to 26544 tonnes from 18211 tonnes in May 2008. On a yearly basis the production increased by 45%. Production for the month of April 2009 was 31179 tonnes. Sterlite Industries (SIL) produced 26627 tonnes of Copper up 9% as against 24512 tonnes in May 2008. In April 2009 Sterlite production stood at 23061 tonnes of Copper cathode registering a decline of 15%. Total production of copper cathode in April stood at 54469 tonnes.
Outlook:
The prices have run to levels from where correction is inevitable, resurgence of Inventories will be supportive for the corrective triggers in prices. There is news of low off take from the Chinese end users and that will ensure that the shipments to the world’s biggest consumers are delayed. That will put pressure on the Copper prices going forward. Technically speaking Copper on domestic futures markets can correct upto Rs 220-210 per kg levels in near term. Slowness of demand in US and Europe was already factored and the same is expected to stretch further. In Dollar some fresh bouts of rally is expected against the EURO, which will bring decline in metals prices.
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