Along with other Base metals, MCX Copper June futures prices declined by 0.85% to Rs 421.55 per kg with a trade volume of 64,700 lots as speculators offloaded their positions, tracking weakening trend in the overseas market after Euro-zone concerns soared once again. Bond yields for Euro-nations, includingSpainandItalyalso soared, triggering a major sell-off in risky commodities in the international markets. Subdued demand at domestic spot markets also put pressure on the metal prices at futures trade. Metal prices for the August contract also shed Rs 3.50, or 0.80%, to Rs 425.70 per kg, with a business turnover of 4,000 lots. The fall in copper futures can be attributed to a weakening global trend on concerns that the political impasse inGreeceand credit rating downgrades of Italian banks by Moody’s points towards a further contraction inEurope. Meanwhile, copper for three-month delivery fell 1% to $7,763.50 a tonne on the London Metal Exchange, the lowest since January 12. Amid weak trend in base metals overseas and sluggish spot demand, MCX Lead May Futures prices fell to Rs 108.80 per kg in the market today. Lead traded a shade lower at $2,034 per tonne in early trade today. Zinc shed 0.3% to $2,023.50 a tonne on the LME in early trade today. Weak economic data from China also dragged base metals lower.China is the biggest importer and consumer of most base metals. According to data released by the National Bureau of Statistics, Chinese copper production also declined (MoM basis) by 3.7% to 491,000 tonne in April from a rise by 16.7% to 510,000 tonne in March. Production of Aluminum also dropped 2% to 1.53 million tonne in April from 1.57 million tonne in March.
The post-Lehman financial crisis induced certain tightness in copper fundamentals over the last couple of years.Chinafor the first time failed to register double-digit growth in consumption last year, although it should be noted that the ever-increasing base level of consumption ensures that in volume terms, the country’s copper demand remains considerable. The Copper Survey also identifies that whilst all end-use sectors saw a slowdown in growth globally, the largest increase in both tonnage and percentage terms came from the electrical and electronic products sector, which registered a 5% gain last year, driven by ongoing power grid investment in emerging markets. Even though the current high levels of copper inventories have evoked concerns from investors, Jiangxi copper believes that the situation is only temporary despite Chinese hard landing. Jiangxi is China’s largest copper producer. Copper prices have been weakened over the past weeks as investors believed that high Chinese inventories will diminish Chinese imports. This fear is corroborated by the fact that Chinese copper imports fell by 4.6% MoM to 462,182 tonnes in March. Domestic Chinese demand is also seen to be weak, reflecting the slowing economic growth. Considering that China consumes about 40% of the world’s copper, a surge in copper prices cannot be expected unless Chinese demand picks up. But first and foremost, what is required is for Chinese inventories to come down to a level which would encourage higher imports since this will send a strong signal to investors and hopefully boost prices. There is a continued negative impact on sentiment and consumption from the ongoing Euro-zone crisis, and recent data and reports from China indicate a cooling economy and subdued demand conditions. Near-term downside risks remain high for risky assets in general, including copper. Chinese refined copper imports have risen sharply up a massive 76% YoY at the start of 2012, the rise in Shanghai exchange stocks and reports of building inventories of copper in Chinese bonded warehouses suggest that this material has not been going into end use consumption. However, the continued monetary easing in Europe, North America and China particularly in the face of weakening economic indicators should underpin price levels and support buying on dips. Prices could re-test the $9,000 level this year as improving demand and the impact of softer monetary policy drives increasing investment in the copper market. The market would, though, struggle to sustain any significant gains beyond this, given the current backdrop of heightened macroeconomic concerns and risks.
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