Sticky outlook for copper prices

After weeks of decline, demand seems likely to stabilise unless euro crisis worsens

Copper prices are unlikely to fall much from current levels, as prices have corrected significantly from April this year and demand support is expected at lower levels. Also, some new mining investments are being deferred, which are also expected to limit supplies in the medium term.

In the past three months, prices on the London Metal Exchange have declined 13.3 per cent, dragged by the euro zone crisis and slowing growth in China. On March 13, three-month copper on the LME was trading at $8,530 per tonne; it had declined to $7,397.50 a tonne yesterday.

Prices are already near their base level of $7,000 per tonne. A further fall is unlikely and the downside risk is limited, unless the euro crisis worsens significantly, Gayle Berry, base metal analyst from Barclays Research told Business Standard on Thursday.

At lower levels some demand support from China has already come in, containing the fall. While China's industrial output and retail sales trailed estimates, its demand for copper tails has gone up. In May, the country imported 419,740 tonnes of copper, though it went mostly for inventory building.

In a development that could change the medium to long-term supply scenario, some investments in mining internationally are being deferred. Codelco, the Chilean state copper producer, said yesterday that some mining companies were postponing their investment programmes and this was likely to remove expectations of a copper market surplus in 2015. Hence, the deficit situation is likely to continue, proving to be bullish for prices.

The International Copper Study Group also expects the world to be in a deficit for the third such year. This is likely to be 240,000 tonnes this year, the report says, and would limit the fall in prices despite the macroeconomic concerns. In the very near future, investors are cautious as they await the outcome of the Greek general elections on Sunday, a vote that mighty determine whether the country stays in the euro zone. If a Left government led by Alex Tsipras comes into power, then his agenda starts with cancelling the bailout terms and on implementing austerity, which may put the country at loggerheads with the European Union and raise its changes of being kicked out of the single currency unit.

Keeping in mind the uncertainty in markets, prices could fall to $7,000-7,100 per tonne, said Reena Walia, analyst with Angel Commodities, a 4.5 to five per cent decrease from current levels.

As China is known for buying the metal at lower levels, the continuing demand for the base metal is likely to cushion the fall in international copper prices, she said.

Gayle Berry hedged her comment with, “There are great risks on the horizon and the macro economic crisis will continue to be a major concern for the next few months.” Price movement would be uncertain, she said, till there was clarity on which way Europe was moving.

Copper prices may rebound in the third quarter or the second half of the year if the Chinese economy picks up pace as expected, she believes.

Demand in the Indian markets is good, she said, capping the fall in prices on the Multi Commodity Exchange, despite a significant decline on the LME. Ashok Bafna, president, Bombay Metal Exchange, said demand in India was good and likely to continue. The current price levels are the right time for investors to buy the metal, he said.