Starting with a record high in gold price last August, precious as well as industrial metals have all hit 52-week peaks over the past one year. Gold was joined by silver, palladium and then copper in the rally, which caught many investors by surprise.
Gold has since seen a correction, with Comex (CME) spot gold easing by $230, or 11 per cent, from its all-time peak of $2,073 an ounce hit in August, 2020. Copper hit its peak of $4.89 per pound earlier this month ($10,440 a tonne on LME), but has since come off 5 per cent.
Copper is the third most consumed metal after steel and aluminium, and is widely used in a range of industries including construction, power transmission and electronics.
The latest bout of weakness in copper prices amid surging inflation and a fall in demand from China has left analysts and investors divided as to whether it is a warning sign in the current rally or a temporary lull before the next big rally. That came at a time when all other metals, barring nickel, have zoomed to multi-year highs.
Some analysts say copper is set to climb higher levels on a rebound in the global economy, as demand is bouncing back from the Covid-induced depression. But others are skeptical about the commodities boom.
Commodity party bracing for abrupt end?
Investment guru Jim Rogers expects a correction in most commodity prices. “The fundamentals are probably sound, but they have all been going straight up. When things go straight up, they usually correct for a while even if the bull market continues,” he told ETNow last week.
“Silver is up a lot, but it is still down 50 per cent from its all-time high. Be careful of those commodities, including copper, that have gone straight up,” he said.
Among optimists are analysts who see demand from China, the world’s largest consumer of copper, remaining strong for its major infrastructure push. They expect the bullish trend in copper to continue in the near term.
In the pandemic-hit 2020, tighter supplies and robust industrial demand from China underpinned copper prices, as inventories in major warehouses dipped to decadal lows.
Shortages of copper supplies in the physical market amid brighter demand prospects from the green energy space are expected to propel prices above the record levels, Manu Jacob, Commodity Research Analyst at Geojit Financial Services, told ETMarkets.
“Copper inventories in Shanghai Futures Exchange warehouses have surged, while those in London Metal Exchange have shrunk,” he said.
Those echoing similar views say a combination of fundamental factors is likely to drive copper prices in the coming months. These are:
- Clean energy policies, including EVs, that may boost copper demand
- Lower inventory and supply disruptions in global market
- Post-pandemic demand from China
- Promising PMI data and global recovery from Covid-induced slowdown
NS Ramaswamy, Head Of Commodities at Ventura Securities, says the rally in the metal pack looks set to continue and copper futures can take a breather before heading upward again.
Where is it headed really?
Ramaswamy’s most optimistic level in the near-month MCX copper futures contract ranges from Rs 900 to Rs 925 following a decisive close above Rs 815. “Optimistic fundamental support is on post-Covid demand from China, lower inventory and mine supply disruptions,” he said.
On the flipside, his most pessimistic target is in the Rs 660-630 range following a decisive close below Rs 735. In this scenario, the second wave of coronavirus in India may hurt copper demand along with strength in the Dollar Index, he said.
The transformation from fossil fuel to copper-intensive electrification is expected to translate into firm demand for copper, said Jacob. “Besides, infrastructure funding and rising downstream consumption have already lifted demand for copper to above pre-pandemic levels in China.”
At Friday’s close, copper (LME) traded 95.52 per cent higher than the lower end ($2.39 on May 25, 2020) of its 52-week range, and 4.56 per cent off its record high of $4.89 hit on May 10, 2021.
On MCX, the near-month futures are 4.84 per cent away from the record price Rs 812.60 a kg.
Ajay Kedia, Founder and Director of Kedia Advisory, expects MCX copper to find support at Rs 760 and face resistance at Rs 785. He suggests taking a long position at Rs 768 for a target of Rs 785 with a stop loss at Rs 760 from a one-week perspective.
Jacob sees a turnaround in MCX Copper at Rs 728 (CMP Rs 773) with support at Rs 712/652 and then at Rs 585. The contract has upside potential till Rs 1,080, after it takes out key resistance at Rs 815 and Rs 880 levels, he adds. That translates into a 40% per cent upside from Friday’s closing price.