Copper prices recently tested a high of $ 6968 per tonne on the LME. The prices have so far increased 5% in November. Less emphasis was paid to the declines in off take from majors consumers like China while more focus was on the appreciation of EURO against the Dollar. Inventory levels were on a high but that hardly made any difference to the bullish sentiments of the speculators.
The commodity prices have sky rocketed in the last six months. The lower levels in Commodities after the slump in global economy lured China to increase their reserves in the Base metals. The prices overrun their fundamentals but further decoupling was seen when the Dollar fall was taken as a major trigger. The reserves from China are already quite high and if ministry sources from China are to be believed the stockpiles are able to suffice even the 2010 demand.
China holding ample of stocks:
China's imports of refined copper in October dropped 40.1 percent to 169374 tonnes from 282828 tonnes in September. The declining trend in imports has started on monthly basis, though yearly imports data suggest a rise in the imports of Copper by 31.37 percent. Imports for the period of January-October in China were 2.75 million tonnes. Narrowing of price differential between LME and Shanghai has caused lower arbitrage opportunities. China refined Copper demand declined by 20 percent in October to 544000 tonnes. Infact all the major Base metals registered a fall in the demand. The coming months are expected to see the fall in the imports of Copper from China to continue.
Chinese State Reserves Bureau has stopped buying of further metal and Copper scarp imports have increased which is an indicator that the refined Copper will face pressure because of high refined Copper production. The Australian Bureau of Agricultural and Resource Economics (ABARE) predicts Copper prices in second half of 2009 to average at $ 6065 per tonne.
World Copper Markets In Surplus:
International Copper Study Group (ICSG) in its recent released forecast expects in 2009 refined Copper balance will show a surplus of 370000 tonnes metric tonnes. Decline in production due to strikes in the major mines will not be impacting the surplus as demand is expected to be feeble.
The latest monthly report from International Copper Study Group (ICSG) was released in November. The report showed that the apparent refined copper balance for the month of August 2009 had a surplus of around 150000 metric tonnes. After the seasonal adjustments the surplus stood at 90000 tonnes. The apparent refined Copper balance for the first 8 months of 2009 indicates a production deficit of 32000 tonnes. Production deficit for the period of 2008 was 117000 tonnes.
World mine production grew by 3% in the first 8 months of 2009. Indonesia was the main driver towards the growth where the production increased by 304000 tonnes.
Lower output in Chile and US registered declines. World refined production declined by 0.8% during Jan-August 2009. Chinese apparent usage of refined Copper was up 45% or 1.5 million tonnes but remaining world registered a decline of 19% or 1.7 million tonnes. Copper usage in European Union, Japan and US declined by 23%, 34% and 23% respectively. Now with Chinese usage slowing down the impact would be big.
ICSG predicts World Copper mine production in 2009 to rise by 2.9% to 15.8 metric tonnes. Mine production in 2010 will increase by 6.7% to 16.9 metric tonnes due to higher increase in production capacity. World refined Copper production for 2009 and 2010 are expected to remain stable declining by 0.8% in 2009 to 18.1 metric tonnes and a increase of 0.7% to 18.2 metric tonnes.
Correlation between LME inventories and prices missing
In November a distinct difference between LME inventories data and prices was registered. The prices of three month forward Copper gained 5.1% to $ 6831 per tonne on 30th Nov 2009. The prices hit a high of $ 6868 per tonne on 23rd Nov 2009, its 14 months highs. During the same period LME inventories registered a rise of 66350 tonnes or 18% to 438525 tonnes on 30th Nov 2009. The disparity has been created by the rise of EURO against the Dollar. Dollar was at 1.4771 at 2nd Nov 2009 while it settled the month at 1.5004 down 233 pips or 2%. In domestic markets MCX futures of Copper settled at Rs 325.4 per kg or 5.4% on 30th Nov 2009 as against Rs 308.75 per kg at the start of the month.
Jitters from Dubai
This time the economic tsunami came from the Middle East. On 26th Nov 2009 major world markets faced pressure as the debt payments to European banks by Dubai got suspended. The news was a speed breaker for the constant rise of EURO. The trouble was short lived as the sentiments were again favoring the growth of world economy.
Helping the markets recover from the knee jerk reaction was the announcements from Dubai government. The Dubai government announced a restructuring of Dubai World after the company shocked creditors by requesting a standstill on all financings to it and its subsidiary Nakheel.
Dubai World, one of the emirate's main state holding companies, asked for a delay on maturities until at least May 30, 2010. The company has total debts of $59 billion, including $3.52 billion of Islamic bonds due December 14 from its property unit Nakheel.
Outlook:
Copper shot up sharply in the last few weeks irrespective of the persistent rise in the LME inventories as a slide in the US dollar Now with inventories registering a rise in every passing day and vulnerability of the increase in Chinese imports in the coming days suggest that the rise will be limited and cracks at upper end are now visible.
The news of loan suspensions from Dubai was short lived yet it has caution the investors from taking hefty pie of risk bearing assets. The impact on EURO will be calculated as the days pass on. That will put pressure on the Copper prices going forward. Technically speaking Copper on domestic futures markets can correct upto Rs 310 per kg levels in near term with upper cap at Rs 340 per kg. In Dollar some fresh bouts of rally is expected against the EURO, which will bring decline in metals prices.
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