Wednesday, April 6, 2011

(06/04) The story of Copper and its high expectations

April 06, 2011

Widespread expectations of Copper to reach above $11,000 remained muted with sluggish spot market prices coupled with continuously tight credit environment and geopolitical tensions kept the sentiments brittle. The factors recently confusing the investor mind are inflation, geopolitical tensions and Japan's natural disaster.

Chinese persistent watchdog on inflation and escalating unrest in Libya assisted bears to acquire the ground temporarily. Recently with the continuous effort to curb inflation, Chinese copper imports have witnessed a sharp decline turned copper cash market to discount form premium. However, vital economic indicators from the major economies saw some improvement, helping market to sustain higher.

Copper posted a golden performance in last year with prices climbed to all time high, broke $10,000 mark on LME, posting more than 30 percent gain in last year as macroeconomic and fundamentals factors remained positive, supported the prices. Due to Chinese restocking, stocks at major warehouses reported sharp decline with LME stocks dropped by 25 percent in the last year. Weaker dollar against the major currency also added positive cues. Further, shortage of supply from major mines and improving demand will be the major cues in the coming quarter as demand from emerging countries and western countries are expected to improve.
Japan, the world's third largest economy, has been hit hard by the 8.9 magnitude quake that struck the northeast coast of Japan, trigged a tsunami resulted power plants, oil refiners and ports to temporarily shut activities. The quake's aftermath is also being felt in the financial markets. If we look for copper, then domestic demand for copper as well as other base metals will drop for short time as Japan's manufacturing plants remain closed due to quake damage amid power supply disruptions, however in long term demand may expected to rise.

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