China is importing large quantities of copper as a financial tool
Except for nickel, all the base metals have been going through a bearish phase for some time now. The domestic bond default in China coupled political tensions in Ukraine have been weighing heavy on copper in particular and industrial metals in general. While copper may still see some more downside, others in the counter are likely to bottom out in near to medium term.
Copper, the leading metal in the base metal counter, is down 13 per cent since January. Over the last few sessions it corrected nine per cent to $6380 a tonne from a recent high of $7220 on the London Metal Exchange.
The default on a bond payment by China's Chaori Solar last week hit the copper market. The anxiety in market led to heavy selling in copper.
Shanghai Futures Exchange's copper contract was at the lowest level in more than four years and the London copper benchmark fell to its lowest in more than three years. The continuing financial worries will affect copper more as the inventory levels of the metal were quite higher.
According to Navneet Damani, associate VP at Motilal Oswal Commodities Brokers, copper stocks in Chinese warehouses monitored by the Shanghai Futures Exchange had gone up 65 per cent since early January to around 200,000 tons, with no real rise in demand.
“Reports indicate that China has been using a large quantity of copper as a financial tool, not for industrial production. We have seen a substantial rise in inventories in China this year. There is expectation that around 60-80 per cent of China's copper imports in recent years may have been used as collateral,” he said.
Chinese imports of copper products hit a record 5,36,000 tons in January, up 53 per cent year-on-year. The inflow slowed somewhat in February to 3,79,000 tons but was still higher year on year.
Meanwhile, the industrial output and the retail sales in China registered a lower than expected growth in January and February. Tensions between Russia and Ukraine also affected growth-sensitive assets like base metals.
Other base metals too have been bearing the brunt of the copper correction. Aluminum has corrected $100 from $1,820 a tonne in January to $1,720, zinc fell by $150 from $2,100 and lead has come down from $2,200 to $2,000.
Nickel has been an exception. The ban on the export of nickel ore by the largest producer Indonesia has pushed the metal prices up by 15 per cent since January. From $13,400 a tonne in January, prices have risen to $16,000.
In the Indian market, MCX prices have largely been following the LME trend. However, the rupee movement too has been affecting the Indian prices. Copper is down nine per cent, zinc nine per cent, lead 10 per cent and aluminum five per cent. Nickel has moved up 17 per cent.
The price trend is copper is expected to continue in the near to medium term. “We can expect the pain to continue for a longer time than expected. Further downside to $6,250-6,150 per ton looks possible, which should act as a short-term bottom for prices.
On the MCX, prices can witness a pullback towards Rs 412-415 after which another round of selling would take it down towards Rs 385-390. We expect prices to take a hold around these levels for the short term,” said Damani.
However in case of other base metals, prices may bottom out in the near term, he added. Nickel may continue the bull-run for some more time.
Except for nickel, all the base metals have been going through a bearish phase for some time now. The domestic bond default in China coupled political tensions in Ukraine have been weighing heavy on copper in particular and industrial metals in general. While copper may still see some more downside, others in the counter are likely to bottom out in near to medium term.
Copper, the leading metal in the base metal counter, is down 13 per cent since January. Over the last few sessions it corrected nine per cent to $6380 a tonne from a recent high of $7220 on the London Metal Exchange.
The default on a bond payment by China's Chaori Solar last week hit the copper market. The anxiety in market led to heavy selling in copper.
Shanghai Futures Exchange's copper contract was at the lowest level in more than four years and the London copper benchmark fell to its lowest in more than three years. The continuing financial worries will affect copper more as the inventory levels of the metal were quite higher.
According to Navneet Damani, associate VP at Motilal Oswal Commodities Brokers, copper stocks in Chinese warehouses monitored by the Shanghai Futures Exchange had gone up 65 per cent since early January to around 200,000 tons, with no real rise in demand.
“Reports indicate that China has been using a large quantity of copper as a financial tool, not for industrial production. We have seen a substantial rise in inventories in China this year. There is expectation that around 60-80 per cent of China's copper imports in recent years may have been used as collateral,” he said.
Chinese imports of copper products hit a record 5,36,000 tons in January, up 53 per cent year-on-year. The inflow slowed somewhat in February to 3,79,000 tons but was still higher year on year.
Meanwhile, the industrial output and the retail sales in China registered a lower than expected growth in January and February. Tensions between Russia and Ukraine also affected growth-sensitive assets like base metals.
Other base metals too have been bearing the brunt of the copper correction. Aluminum has corrected $100 from $1,820 a tonne in January to $1,720, zinc fell by $150 from $2,100 and lead has come down from $2,200 to $2,000.
Nickel has been an exception. The ban on the export of nickel ore by the largest producer Indonesia has pushed the metal prices up by 15 per cent since January. From $13,400 a tonne in January, prices have risen to $16,000.
In the Indian market, MCX prices have largely been following the LME trend. However, the rupee movement too has been affecting the Indian prices. Copper is down nine per cent, zinc nine per cent, lead 10 per cent and aluminum five per cent. Nickel has moved up 17 per cent.
The price trend is copper is expected to continue in the near to medium term. “We can expect the pain to continue for a longer time than expected. Further downside to $6,250-6,150 per ton looks possible, which should act as a short-term bottom for prices.
On the MCX, prices can witness a pullback towards Rs 412-415 after which another round of selling would take it down towards Rs 385-390. We expect prices to take a hold around these levels for the short term,” said Damani.
However in case of other base metals, prices may bottom out in the near term, he added. Nickel may continue the bull-run for some more time.
