Copper headed for a further slump

Red metal price likely to dip 20% more on global credit crisis.

Copper may decline by another 20 per cent by the end of this year on signs of slowing demand from consumer industries. China, the world’s largest consumer of industrial metals, has shown the least interest in re-stocking metals because of easing demand of end-products, including electrical appliances.

This is significant as copper producers were expecting China’s demand to resume soon after the Olympic Games that closed at the end of August. However, Chinese copper users have opted to slow down their purchases in anticipation of weakness in demand for consumer durables and housing as the global credit crisis deepens.

Copper prices are primarily driven by demand-supply fundamentals. Global financial markets are under tremendous squeeze. Several infrastructure projects are on hold because of a lack of funds, resulting in a pile-up of inventories at global commodity exchanges.

“We anticipated that the red metal has further room to decline below $4,000 a tonne towards the end of this year,” said Jayant Manglik of Religare Enterprises.

According to an Angel Broking report, base metals slumped last week as they succumbed to selling pressure on the back of the global financial turmoil. The global recessionary impact hit demand for base metals, creating a major negative sentiment in the markets.

Copper tumbled by 11 per cent on Friday alone, witnessing a 20 per cent decline on the week, the steepest weekly fall in over two decades on concern that the deepening financial crisis may choke global growth and commodity demand.

The red metal closed at $4,615 a tonne on Friday, losing half of its value of $8,800 a tonne, a record that it touched on the London Metal Exchange (LME) on May 5. The housing sector slump in the US, coupled with global credit risk, is slowing demand for the metal from the infrastructure sector, which accounts for about 46 per cent of the total demand.

Copper futures for delivery in December fell 26.15 cents to $2.1445 a pound on the Comex division of the New York Mercantile Exchange, after earlier touching $2.05, the lowest since January 6, 2006. Last week, the metal had dropped by 13 per cent, the second-biggest decline on record.

Other industrial metals followed copper. Aluminium settled with a marginal decline of 2 per cent to end the week at $162 a tonne, while zinc and nickel plunged by 12.16 per cent and 17 per cent to close at $1,336 and $11,950 a tonne respectively.

The sentiment remained weak in the domestic non-ferrous metals market too, with copper wire bar sinking 10.32 per cent at Rs 339 a kg followed by nickel falling by 11.49 per cent at Rs 700 a kg and zinc slab dropping by 5 per cent at 94 a kg.