Copper likely to rebound on rising demand from China

MARKET OUTLOOK

Copper may bounce back this week as buyers from China, the world’s largest consumer of industrial metals, are set to return to the market after a week-long Foundation Day (October 1) holiday.

Sensing a bottoming out of base metal prices, Chinese traders are expected to boost orders to build adequate inventory to meet future demand.

Copper for delivery in three months on LME fell to $5,710 a tonne on Friday on bargain-hunting, but recovered soon to close at $5,910, a decline of 14.72 per cent or $1,000 over the week. Similarly, aluminium, nickel and zinc nosedived 6.72 per cent, 9.91 per cent and 11.17 per cent to close the week at $2,332 , $15,500 and $1,590 a tonne respectively.

On MCX, aluminium October 08 contract lost 2.73 per cent to Rs 112.05 a kg, copper November 08 contract slipped by 8.88 per cent to Rs 289.45 a kg, nickel November 08 contract dipped by 5.33 per cent to Rs 767.30 a kg.

“The Chinese demand is here to stay. Infrastructure development across the fastest-growing Asian economies is set to continue. Hence, base metals’ demand may rebound very soon,” said Ashok Mittal, an analyst at Karvy Commodities Broking.

Navneet Damani of Anand Rathi Commodities feels that the recent $700-billion bailout package of the US economy may bring some respite to the liquidity crunch in the commodity market. As a result, funds will have enough room to invest in commodities, especially in base metals.

Amid a falling demand, especially from the discouraging US housing sector, copper is turning out to remain in surplus in 2009 from the deficit in 2007 and 2008. But it remains to be seen how Chinese traders will behave in the next few weeks.

They may wait till copper breaches the support level of $5,200, which is just $600 away from the current level. They may also start booking their orders as the red metal has slumped to $5,800 from a peak of $8,800 last May, said Damani.

Last week, base metals on the London Metal Exchange (LME) were hit badly on the back of a heavy sell-off amid a gloomy global economic environment. Develpments from Europe were also grim and that took the US Dollar Index to a high of 80.79, pulling dollar-denominated commodities lower. The strengthening dollar is turning base metals unattractive for holders of other currencies.