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Copper uptrend could continue up to Rs 430

Thursday, December 09, 2010
By Manik K. Malakar

As stockpiles in LME warehouses shrink 30%...

A gold coloured metal has been in the news recently as the price of the metal has been on the upswing and no the said metal in question is not Gold. It is copper, a metal whose price rose for the sixth day in succession till Tuesday before correcting on Wednesday.

A combination of factors both strategic as well as business have contributed to the rise of copper and this increase seems set to continue.

Three-month copper on the London Metal Exchange fell 1 per cent to $8,795.50 a tonne, after ending 1.1 per cent higher on Tuesday, just off the record high at $9,044 struck earlier in the day, according to inputs from IIFL. “The move above $8,565 was a sign we had broken the downtrend and we are well above there. There was appetite to push the market higher, but the move was probably overdone,” says Tarang Bhanushali AVP - Research -India Private Clients, IIFL.

On Wednesday copper futures prices fell by 0.36 per cent to Rs 403.10 per kg today after speculators booked profits amid a weak trend at the London Metal Exchange as strong dollar reduced some of the commodities’ appeal.

But the uptrend for the metal seems set to continue. “Copper prices should trend higher towards Rs 430/450 before any significant correction,” said Anand James, Chief Analyst, Geojit Comtrade Ltd.

It appears that demand for copper just will not die down. Copper stockpiles in LME warehouses have shrunk 30 % this year, dropping to 352,375 tonnes, the lowest level since October 2009, according to information provided by IIFL on Tuesday. “The year-end corrections normally seen may be delayed this year, but is likely to evolve before February 2011,” James informed.

But there are hiccups that may affect the march of copper. The US market will be a concern as their employment and housing sectors are still a cause of concern according to Geojit inputs. However, the support of the US government and also European governments will keep the macro situation from deteoriating.

And ironically the very strengthening of the price of the metal may be an indication of global well-being. “Copper is an indicator of economic growth and hence it is often considered a lead indicator for the real world,” says RL Narayanan, Vice President- Equity and Institutional Sales, Bonanza Portfolio Ltd  
According to information provided by Bonanza the latest estimates indicate a global surplus of 2 lakh tonnes as of 2010 calendar, which going ahead would move to a 4 lakh tonne deficit in 2011. This should keep copper prices firm,” Narayanan said.

Speaking on the price trends for copper, IIFL’s Bhanushali said, “Sell below 397 SL (Stop Loss) 403 TGT (target) 387.”

And for the prospects of Indian companies that operate in the copper space Narayanan had this to say, “Both Hindalco and Sterlite currently have approximately 5 lakh and 4 lakh tons of smelting capacity respectively. Sterlite has plans to double its capacity to 8 lakh tons by FY13. Hindustan copper has a smelting capacity of close to 50,000 tpa. The Vedanta group through its arms is more concentrated in copper whereas Hindalco is more into aluminium.”

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