Copper could see a correction due to a slowing seasonal demand

Copper prices, which have gained more than 50% in 2009, could see a correction in the coming one month due to historically sluggish demand in the period. Currently, international benchmark, LME (London Metal Exchange) copper (3-month) is trading at $4630 per tonne, up more than 60% from its December low of $2820. On the other hand, domestic prices as reflected by the MCX (Multi Commodity Exchange) futures have gained 67% in this time period.

Copper demand generally follows February-April-July-November- February cycle. While the demand rises in the Feb-Apr and July-November periods it shows a slow down in the months of April-July and November- February.

Source : Bloomberg * Includes refined copper & copper alloys and scrap


The adjacent chart shows import of copper products to China, the world���s biggest consumer of copper, reflecting this trend. It comprises of monthly imports of refined copper & alloys and copper scrap & waste to the country since 2004. In four out of last five years, the imports have paced out post the month of April or mid May.

According to Praveen Singh, research analyst, Sharekhan Commodities, ���Even as the recent data show a near 7% rise in Chinese imports of copper for the month of April, the seasonality cycle indicates that such import demand may not last for long���

���While the momentum in prices on the back of rising global equity markets and a weaker dollar can take international prices towards $4900-5100 range, there could be a significant correction considering that there are little signs of real economic recovery,��� he added.



While there was no change in global demand expectations, the recent rally in prices since early February is believed to be triggered by bulk buying by China State Bureau (CRB) of the order of 3 lakh tonnes. The gains were then supported by declining inventories on the London Metal Exchange (LME).

���Chinese import numbers have shown a significant rebound as the government is believed to be going ahead with their spending on construction and infrastructure activities. However, historically, there has been a trend of massive stockpiling by the country in the first quarter which then is followed by a slow down in demand and hence imports,��� said Naveen Damani, research analyst, Anand Rathi Commodities.

Currently LME inventory stand at 379025 tonnes, down more than 30% from a five- year high it reached in February 2009. The cancelled warrants or the number of contracts for material that have been cancelled for delivery but haven���t necessarily moved out of the warehouse have also seen a rise in the period and they are currently at 20% of total inventory.

On the other hand, inventories on the Shanghai Futures Exchange (SFE), which showed a 60% decline since February, are on a rise from the last week of April.