China was the major trigger which took Copper towards 16 month highs of $ 7615 per tonne on LME. Weakness in dollar and strong imports data from China acted as major trigger for prices.
But as was expected it was China which dethroned Copper from the high levels and Copper corrected. The road for correction isn’t over yet and participants should be ready to see fresh corrective moves and liquidation.
Dollar has been on a bull run and tested six months highs of 1.393. However surprising shock for the markets were Chinese monetary tightening measures and fears that other banks might step in to negate the growth of cash flows. Reserve bank of India hiked CRR by 75 bps to 5.75% in its latest credit policy on 28th Jan 2009. The Repo and Reverse repo rates were kept unchanged. CRR hike is expected to suck excess liquidity of 36000 crores from the system. Now as this will be a damaging for the equity markets it is also expected to bring change of dynamics of commodities especially Copper.
Inventory levels were on a high but that hardly made any difference to the prices early this year. But now as Copper started correcting and the markets on a negative mode stockpiles can act as one more bullets in arsenal of bears. Inventory levels of Copper are now at March 2009 highs.
World Copper markets in surplus:
International Copper Study Group (ICSG) in its recent released for the month of October 2009 showed a refined Copper surplus of 132000 metric tonnes. After making seasonal adjustments refined Copper surplus was 79000 metric tonnes.
World mine production grew by 1.9% in the first 10 months of 2009. Indonesia, Peru, Chile and Brazil were the main driver towards the growth where the production increased by 331000 tonnes. World refined production declined 0.1% during Jan-Oct 2009 unchanged from the same period during Jan-Oct 2008. Chinese apparent usage of refined Copper increased by 43 percent Overall apparent usage of world refined Copper was down 18 percent.
Chinese imports data beat economists expectations
Chinese imports data beat all economists expectations during the month ending December and for the whole year ending 2009. Even after speculations that the demand will slumber due to high inventories in Shanghai ports and warehouses the imports data continued to show substantial upsurge. Earlier during 2009 it was hefty stimulus packages of more than $ 580 billion by China which supported economy not to get off track. The buying of refined Copper for imports was on account of positive London-Shanghai arbitrage which lured arbitragers to gain due to higher prices in Shanghai. However as the markets have come down the arbitrage opportunities have shrinked. Excess cash flows are also taken care off by central banks and that will be bringing more pressure to metals on every rise.
Copper supplies to increase further as BHP Billiton announces expansion
At the start of January, BHP Billiton announced it has approved its share of the capital expenditure required to expand mining and processing capacity at the Antamina copper and zinc mine in northern Peru.
The expansion project will increase the site's ore processing capacity by 38% to 130,000 tonnes per day. Higher mineral ore reserves previously reported in combination with the expanded processing capacity will result in a mine life extension of 6 years from 2023 until 2029. First production from the expansion is anticipated in late 2011.
BHP Billiton is one of the world's top producers of copper, silver, lead and uranium, and a leading producer of zinc.
In domestic markets the supplies are set to increase due to expansion of Khetri Copper Complex of Hindustan Copper (HCL) will be enhanced from present level of 1.0 million tonne per annum to 2.6 million tonne per annum by 2015. This involves expansion of Khetri & Kolihan mine and development of Banwas deposit and Chandmari mine. Shri Handique has physically inspected the Banwas deposit area and directed the CMD, HCL to put the mechanism in place to start mining of ore at Banwas.
HCL is aggressively pursuing increase in mine production by expansion of current mines, re-opening of closed mines at Ghatsila and development of new deposit through green filed exploration in the Country. It has also kept the option open for acquiring copper deposit in other geographies. The company has prepared plans to increase mine production from current level of 3.15 million tonne per annum to 11.0 million tonnes per annum by 2017 with an investment of Rs 3500 crores.
The Company has sent a proposal for follow on public offer (FPO) to the Ministry for disinvestment of 20% of Company’s equity 10% for GoI and 10% for meeting its expansion needs.
This production increases will result in the price rise to take back seat as supplies will increase further. This will be adding on to the already high inventory levels due to lack of demand. For the coming months the speculation will govern the prices rather than pure demand-supply fundamentals. Demand-supply equation will emerge in the later half of the year.
Domestic and international markets correct significantly
Both LME and MCX consolidated during the initial period of January but a substantial fall was registered at the end of January. The prices of three month forward Copper lost 6.4% to $ 7465 per tonne on 8th Jan 2010. The prices hit a 16 month high of $ 7615 per tonne on 6th Jan 2010 from where the prices corrected towards $ 7267 per tonne down 5%. LME inventories registered a rise of 36200 tonnes from start of January to 538600 tonnes. Dollar movements bruised Copper sentiments as it tested 6 month highs of 1.393 against the EURO. In domestic markets MCX futures of Copper were at Rs 318.30 per kg down 7.5% as against Rs 344 per kg at the start of January 2009.
Outlook:
Copper were on a rise and testing new multi month highs in December and early January but market dynamics have changed drastically. Chinese monetary tightening measures and denial of fresh loans to loan seekers will be a cause of worry for metals. People’s bank of China has also asked bans to raise their reserve requirements. Indian premier bank already increased its CRR by 75 basis points. Cautious traders have made Copper unsustainable at higher levels. The prices have corrected and rising inventory levels will now emerge as a major cause of worry. Earlier during December the inventory levels were on a rise but participants completely seem to be completely ignoring the same. In domestic futures market Copper is expected to come down further towards 290-300 per kg.
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