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Trade war shadow over copper

Author: Arpit Chandna/Wednesday, April 25, 2018/Categories: Commodities

Trade war shadow over copper

Despite a 10% dip in prices of copper, the red metal, at the London Metal Exchange and MCX futures in the first quarter of calendar 2018, there is hope that speculative buying in the metal, which is treated as a refuge against risk in other asset classes, will support prices further.

In January, copper prices firmed up on positive cues from the weakening dollar and outlook of the World Bank on global economic growth. However later, prices weakened when China reported a 16.7 per cent jump in refined copper output.

In February, prices fluctuated and mostly traded in the negative marked by the absence of Chinese on account of their New Year but better manufacturing data from other Asian countries kept supporting the prices. Prices cheered reports that Peru posted a 3.9 per cent rise in production of copper to 2.4 million tonnes in 2017. This was, however, followed by a setback on reports of unwrought copper imports in China declining by 2% in January.

During March, the prices kept its downturn over lower demand from China as the country’s imports fell 20 per cent in February from a month earlier. Copper prices further weakened as the dollar strengthened ahead of Federal Open Market Committee meeting, at which the U.S. central bank raised the interest rates for the first time this year.  Also, negative impact was seen over prices due to rising LME inventory level which rose 61% in March.

Copper refiners in China have already lowered their minimum treatment and refining charges for copper concentrate by 10.3 per cent for the second quarter of 2018 which will likely to attract good demand from miners.

Future Outlook

The fundamental outlook on copper remains intact. Trade tensions are devaluing the dollar index which will support higher buying interest in copper and the entire base metal segment.  The ban over copper scrap import in China is likely to fuel up demand for more ore. Chinese metal recyclers and smelters like Jiangxi Copper Co have been increasingly looking to use Southeast Asian countries as an alternative location for processing copper scrap. Production of refined copper is likely to increase in the Asian and Oceania region. The trade war fear continues to loom over the global markets wherein equity as well as metals market are bound to have an inevitable impact but at the same time the dollar can breathe easy which will make dollar-traded metals cheaper.

The author is a fundamental analyst at Karvy Comtrade

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