Overview

Red metal Copper has seen roller coaster ride in 2022 as its prices went up in first quarter but fell sharply lower in remaining part of the year as stringent zero Covid norms in China and slump in factory activity in China , surging power prices in Europe and ongoing inflation in the U.S  continued to exert pressure on the prices. In MCX its prices fell nearly 25 percent from nearly 800 in June 2022 to below 600 in July 2022. Moreover concerns of a global economic slowdown due to interest rate hike by the various central banks to curb inflation kept the prices downbeat. Also the sharp bounce back in dollar index kept price under pressure.

But prices stabilized in August and September 2022 and moved in range of 625-680 in MCX. Meanwhile due to ongoing political tensions in top-producing countries such as Chile and Peru supply side was effected which capped the downside. Recently a private sector survey showed China’s factory activity contracted for the first time in three months in August while nearly 70 Chinese cities reported declines in new home prices, the most since the start of the COVID-19 pandemic. China zero Covid policy and cost pressure continued to hurt businesses, causing a slump in factory activity. Recently, China has announced billions of yuan worth of stimulus support for various sectors, including infrastructure and electric vehicles which capped the downside in red metal. Chinese copper giant Maike Metals International Ltd has been seeking help from the government and financial institutions after liquidity issues forced it to delay some payments for imported copper .In near tem stronger dollar index and monetary tightening could cap the upside in red metal but fall in inventories and supply side issues in some mine may support the prices.

Factors impacting Copper prices

Movement in Dollar index and Fed tightening measures

Dollar index is witnessing strong bullish momentum as it tested above 20 year high above 114.4 due rapid increase in rates by Federal Reserve. In recent 21 September meeting US Federal Reserve raised its target interest rate by three-quarters of a percentage point to a range of 3.00%-3.25% on Wednesday and signalled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023 to battle continued strong inflation. Stronger dollar index is generally negative for copper prices.

Supply side impact of Copper mines 

A group of indigenous Peruvian communities that have been blocking a key copper corridor agreed to a truce recently after the country’s prime minister said he would meet with them. Peru is the world’s No. 2 copper producer. The blockade, which lasted less than a week, affected operations by Glencore’s Antapaccay, MMG Ltd’s Las Bambas and Hudbay Minerals Inc’s Constancia. Protesters are asking the state to carry out a formal consultation process on whether Antapaccay should be allowed to build a new copper project nearby known as Coroccohuayco.

LME Copper warehouses stock positions

On-warrant base metals stocks in LME warehouses totaled 400,302 tonnes, with total stocks standing at 579,979 tonnes. This represents a 58% decrease in total stocks since the beginning of the year, when stocks stood at 1,380,100 tonnes globally.

Decline in production in Chile

According to the International Copper Study Group, production in Chile, home to the world’s largest copper mine, Escondida, was down by 6.4 percent in the first five months of 2022.Chile is the world’s largest copper producer, putting out 5.6 million MT of copper in 2021 and with reserves of 200 million MT. The value of copper exports jumped more than 40 percent in 2021, according to Chile’s central bank, with copper shipments reaching US$53.42 billion last year.

Weekly Chart of Copper (LME)

Analysis

LME Copper prices have seen steady downside movement since the April of this of the year as it faced resistance near $10400. However the prices are expected to take support near $6950-6900 zone in medium term. Prices are below 10, 20 and 50 day moving average and RSI is below 50 indicating further weakness. On weekly chart it is has key support near $6900 and resistance near $9050 in LME.

Weekly Chart of Copper (MCX)

Analysis

MCX Copper prices have shown sharp downside momentum since the April of the year as it faced resistance near 800-820 range. Prices are below 10, 20 and 50 day moving average and RSI is below 50 indicating further weakness. On weekly chart it has key support near 580-600 and resistance near 720-740 in MCX. In near to medium term further weakness can continue as it can test the support zone of 580-600 in domestic market.

Disclosure

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