Copper Commodity Report: Chinese demand to sizzle copper
ü Demand drivers in China only getting stronger, demand in CY2007 to rise by 10.8-13.5% to 3.9-4.1mn tons
ü Current inventory levels at 3.5 days of cover, not enough cushion to drop in supply
ü Demand from Europe to surprise on the positive side
ü US demand for copper to continue further
ü Market back to backwardation on increased demand
Outlook:
We expect copper prices to remain strong in the near term as inventories are low and consumers are looking for opportunities to buy. A combination of the above factors will support t he rise in copper prices. The world demand is expected to rise by 6.4% in CY2007 to 18.11mn tons while the supply is expected to rise by 8% to 18.9mn tons in CY2007. The majority of the rise in the copper supply is expected to come in the last quarter of CY2007 and not before that. Thus, the gap between the demand and supply in the first half of the year is expected to keep prices in the range of US$7000-7500 in the first three quarters of CY2007.
Recommendation: BUY
The bearish phase in copper witnessed in Q4CY2006 was a buying opportunity for the market players. Copper prices are expected to remain firm on account of increased capital flows moving into commodity market and demand is expected to outpace supply. Although an increase in global copper stocks is possible in CY2007, holdings will remain relatively low. While growth in refined copper production is expected to be faster than that of refined copper consumption, majority of the new projects are expected to come online in the last quarter of CY2007 or beyond. We expect the current rise in the seasonal demand from China to push prices towards the US$8000 and then towards US$8500 levels in CY2007.
Technical recommendation:
The long term trend of copper is positive and the fall witnessed in the last quarter of CY2006 and January 2007 from the high of Rs398 was only corrective in nature. We expect the rally in copper prices will continue further and may see a new high in the next couple of months. MCX COPPER (April) is expected to rise to Rs360 and if this level is broken, prices are expected to rise further to Rs380.
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Warm Regards,
Tarang Bhanushali
India Infoline Commodities Pvt. Ltd.
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