Copper slips 3% on LME over low demand

Copper prices on the London Metal Exchange (LME) plunged to a four-month low on Friday, witnessing the largest weekly decline since September, owing to a fear of low demand for the red metal on huge stockpile in China, the largest user in the world.

Robin Bhar, a London-based base metals analyst, attributes the current decline in prices to speculative selling, driven in part by an increase in stock levels.

The red metal slipped below the psychological barrier of $7,000 a tonne to close the week at $6,938 a tonne, witnessing a weekly decline of about 3 per cent.

But, the current decline failed to percolate to the domestic market. In the Mumbai non-ferrous metals market, copper wire bar gained Rs 7 to close the week at Rs 408 a kg.

Copper armiture and sheet cutting also gained Rs 9 and Rs 6 respectively to settle at Rs 230 a kg and Rs 350 a kg respectively. Traders believe that domestic markets take at least 4 to 5 days to respond to the falling trend in the international market, while the rising trend gets noted very soon.

Copper inventory in the LME-registered warehouses shot up by 5,525 tonne last week to close the week at 148,200 tonne.

Traders are, however, tracking the future of base metals on the back of strong fundamentals.

"This is a temporary phenomenon and the market will overcome very soon. Those who stockpiled for a long period are offloading now and, therefore, the prices are declining," said Surendra Mardia, a copper scrap trader in Mumbai.

"The stockpiling has been affected owing to stockists' offloading and not because of fresh additional production of metals. This stock existed even at the time when LME was reporting inventory at 95,000 tonne," he added.

According to a Merrill Lynch report, the average price of copper will likely fall around 30 per cent in 2007 on declining demand in the US housing sector and the Group of Seven (G-7) countries, as well as a ramp-up in production by miners in China and elsewhere in response to high prices.

The fundamentals for all base metals remain strong and, therefore, LME copper prices would recover their early loss and touch $7,400 a tonne as early as by Tuesday, Mardia said and added that $8,000 is a dream figure for the red metal.

Bullish trend on the LME guided domestic zinc to close higher by Rs 15 at Rs 245 a kg in the week ended Friday. In London, however, the metal slipped to $4,459.5 a tonne on Friday after an unabated spurt till Thursday at $4,580.5 a tonne.

The current rise in the galvanising metal prices is attributed to falling inventory and a deficit forecast for 2007.

Zinc stocks fell below the critical 100,000 tonne level on Tuesday, but declined continuously to settle on Friday at 95,250 tonne.

The lower inventory was forecast by the diversified Canadian mining company, Teck Cominco Ltd, a few days ago, which had said the zinc market would remain in a 315,000 tonne deficit in 2007, resulting in a drawdown of inventories to such low levels that could curtail demand.

The rapid fall in inventories and lack of supply could become so severe as to curtail consumption, an analyst had said. As per an assumption, the supply shortfall this year is estimated at 460,000 tonne.