Copper may decline on weak US data, demand

MARKET OUTLOOK

Copper is likely to continue downward march this week on expanding inventories in the LME-registered warehouses increasing concerns of waning red metal demand globally.

Additionally, world’s largest producer and consumer, China is concentrating on the ensuing Olympic Games thereby, fresh demand for the metal used largely in housing is unlikely to emerge. Secondly, the second largest consumer, the US, is struggling to cope with indications of economic slowdown thereby, threatening the fresh user demand.

Meanwhile, stockpiles of copper monitored by exchanges in London, New York and Shanghai have risen 15 per cent this month to 189,693 tonnes, the highest since March 26 and equivalent to 3.7 days of global consumption, compared with an average of 4.9 days around same time last year. On the LME alone, copper inventories jumped 8.4 per cent last week to 144,650 tonnes, the highest since February this year.

Generally, August is considered to be the lean season for base metals in which construction activities usually await fresh flow of funds for existing projects. Thus, price commonly declines, if history is any indication.

However, a small section of users also anticipates the price to rise as the current volatility has already taken the red metal to the recent lows. The price of the metal is heading for a fourth straight weekly decline at $7,920 a tonne.

Copper futures for September delivery dropped 8.15 cents to $3.58 a pound on Friday at the Comex division of the New York Mercantile Exchange. Copper is looking bearish on global economic factor and a slowdown in demand, said Kishore Narne, head - Commodities of the brokerage firm Anand Rathi.

Meanwhile, strengthening dollar is also reducing appeal for investors to hedge against global uncertainty and reducing demand from investors who buy commodities as a hedge against inflation. The US currency rose as high as $1.5515 against the euro and traded at $1.5552 in early New York trade.

Importantly, the US unemployment rate climbed to 5.7 per cent in July, its highest in more than four years as employers cut payrolls for a seventh month in a row, though less severely than predicted. Fresh addition in global production capacities may create a fresh pressure on nickel which is already reeling under substitute and low uses threat. The metal is currently traded at $18365.

Moving in tandem with copper, aluminium, the metal used in packaging, construction and transport, traded at $2,934 a tonne on Friday, down from $2,980 on Thursday. Since, China is discouraging exports by imposing a 5 per cent tax on exports of unwrought aluminium alloy, the price of this metal is set to rise this week.