A broad advance in industrial metals took domestic copper prices to record levels last week. A firm overseas market due to fresh Chinese stimulus measures, concerns over tightness in global mine supply, and hopes of strong green demand boosted prices.
In the key domestic MCX futures, prices of copper are hovering near Rs 900 a kg, gaining more than 23 percent so far this year. A similar rally was witnessed in the international markets with LME futures breaking above $10,000 per tonne for the first time in two years.
To stimulate its sluggish economy, the Chinese government announced plans to raise 1 trillion yuan through a long-awaited bond issue. This stimulus package is primarily focused on the key sectors of the Chinese economy. The bonds will be utilized to support infrastructure developments which contribute to the country’s economic growth. This has raised expectations of increased demand for industrial metals.
Copper is a critical energy transition metal to the global rollout of clean energy, and there are expectations that the copper demand will be doubled over the next decade. However, speculations are high that the world’s mines will struggle to meet the upcoming demand. Traders are optimistic that millions of tonnes of new supply would be needed in coming years in areas like electric vehicles, renewable energy, and vastly expanded power grids.
Meanwhile, some reports suggest copper supplies are expected to start declining soon. As against their earlier forecast of a narrow deficit of refined copper for 2024, Goldman Sachs now sees the shortfall ballooning to more than half a million tonnes. Few other agencies also predict a major deficit in the copper market next year.
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A resurging manufacturing activity in the key consumers like the US and China also aided the prices. The US manufacturing activity expanded in March for the first time after contracting for 16 months. China’s manufacturing data also showed a positive trend with the key PMI numbers rising to 51.1 in March, posting a fifth straight month of growth. A turnaround in manufacturing activity indicates a revival in demand for industrial commodities like copper. Banning of Russian base metals in the US and UK futures platform added concerns over supply threat. Recently, the London-based LME and the US Chicago Mercantile Exchange announced that they would no longer trade in new copper, aluminium, and nickel produced by Russia. Despite a bullish long-term outlook, the prolonged crisis in the Chinese property market and a moderate global growth outlook are likely to affect the short-term prospects of the metal. In addition, seasonally elevated levels of inventories during the peak demand season and near-record output levels in China will perhaps disappoint the metal soon. The new tariffs imposed by the US on goods imported from China and uncertainty over US rate cuts may also create near-term volatility in prices.
At the same time, LME copper has a stiff resistance at $10600 a tonne, which if cleared would continue the bullish waves. Downside reversal is seen only a close below $8000. In the domestic market, Rs 900 per kg may act as a psychological resistance and may see a mild correction. Anyhow, major corrections are unlikely unless any key changes in its fundamentals.
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(The author, Hareesh V, is Head of Commodities, Geojit Financial Services)