In an interview, Hindustan Copper chairman Shakeel Ahmed said he was expecting copper price to rise to $8,000 (Rs 443,038.5) a tonne, an appreciation of $60 (Rs 3,322.7) from the present level.
As it would happen, Ahmed has proved to be somewhat prophetic, for soon after he made the remark, a copper rally on the London Metal Exchange (LME) was triggered by some mildly positive news from China, which accounts for nearly 40 per cent of world copper consumption, the US and Euro zone, where the sovereign debt crisis refuses to go away. Even while Ahmed has made Hindustan Copper a lot more cost-effective than ever in the past by focusing on mining, production of copper concentrate than metal where it has neither the size nor technology and workforce rationalisation, it stays in the comfort zone if the metal trades above $7,500 (Rs 41,5348.6) a tonne.
Earlier Metal Bulletin Research said copper would discover a price of $8,010 (Rs 443,592.3) in the current quarter and $8,400 (Rs 465,190.4) in the final quarter of 2012. We have more robust price forecasts from JP Morgan and Macquarie.
Whatever the fundamentals, copper more than any other metal and like oil responds instantly to news breaks. Considering the volume of Chinese copper use and imports of copper concentrate (for smelting and refining) and metal, traders remain glued to developments there. Experts that Metal Bulletin spoke to for its ‘price expectations’ feature agree that China will continue to cast the most significant impact on the base metals market as Europe and the US struggle with economic woes. The more important points they make are: (a) China is heading for a soft landing, whatever the numbers say at this point; (b) policy loosening in the form of rate cuts and growth talk by Chinese leaders will improve that country’s market presence; and (c) thanks to support from provincial governments, Chinese metal production has not contracted in the expected volume.
Market moves on news. For most of this year, the market lived with more discouraging developments than positive stories, suppressing the risk appetite of traders. Thinning trade volume in commodities will bear that out. It is, therefore, not at all surprising that some good story flow from the US, Euro zone and China has perked up copper trade, though price gains fluctuate. In early 2011, copper commanded a price of over $10,000 (Rs 553,798.2), a premium of more than $2,500 (Rs 138,449.5) over the ruling rate. Long denied any developments that could give a shot to the market, traders are expected to latch on to any sparks like new house building permits in the US rising to a four-year high. Is this a sign of oncoming US recovery? Morgan Stanley’s Ruchir Sharma says, “Every US recovery in the post-war era has coincided with very strong growth in residential investment and this rose 10 per cent on average in the first two quarters of 2012, albeit from a very low base.” This bodes well for copper.
Why does copper react faster than any other metal, except for precious metal, gold, for its haven reasons and umbilical links to movements of major currencies, to shifts in growth realities in major economies? Apparently, this is because copper finds applications in electrical, plumbing, tubes for conveying gas and steam, automobiles and many other areas. Improvement in housing outlook in the US and the likelihood of China easing house building without encouraging speculation should bring copper closer to $8,000. Any demand spurt in copper will ideally be viewed in the context of steady decline in ore quality in many major mines in the world. In this context, government owned Hindustan Copper’s move to invest nearly Rs 3,450 crore in eight projects to lift mining capacity from 3.4 mn tonnes to 12.4 mn tonnes in five years calls for commendation. The projects include opening of new mines, expanding the ones in operation and bringing back into stream some mines mindlessly abandoned earlier. The country’s copper smelting and refining industry with capacity of around 900,000 tonnes, mostly with Hindalco and Vedanta group, depends entirely on imported concentrate, except for marginal contribution by the PSU. Its mining capacity expansion will leave little impact on the country’s concentrate imports though extra concentrate will add much muscle to the company.
Ahmed and his industry colleagues must be elated at news that inventories at copper warehouses within LME ambit are at their lowest since early June. This is happening because of demand improvement, albeit slowly. A Reuters report says that Chinese smelters are lobbying the government to revive a state-run scheme to build stocks of industrial metals. A scheme like this should help in supporting prices as it is to open the door for larger imports.
Research agency Minmetals says following the recent Chinese tolling scheme tax adjustment making it easier for local smelters to export copper, they have started stocking up on concentrate for ‘fear of being caught short in the future, especially during periods when arbitrage window is shut for imports.’ Smelters are doing so in order not to miss out on exports when overseas prices rule high. Whatever it is, a sustained improvement in copper will happen when the world’s major economies go for significant loosening of their monetary policies.
