Copper gains on rising cancelled warrants

MUMBAI: Copper, the base metal whose price movements reflect industrial activity, has gained over 12% in a week. However, rather than viewing the gain as a sign of economic revival analysts attributed it to a reaction caused by the metal breaking out of a price range.

���A breakout of a price range caused some technical buying, which was supported by the change in London Metal Exchange (LME) warehouse statistics,��� said Harish Gallipeli, research head, Karvy Comtrade.

The benchmark LME copper price has surpassed a resistance of $3,350 per tonne and is currently trading near the $3,600 level. The domestic price, on the other hand, has managed to break out of the Rs 150-175 per kg range. The depreciating rupee has added its mite to the price.

A sudden rise in LME cancelled warrants ��� the number of warrants on materials cancelled for delivery but not necessarily taken out of the exchange warehouses ��� indicate more stocks are expected to be taken out of warehouses. These warrants rose to 12% of total inventory on Wednesday while total inventory also declined by 4% from its recent peak at 548,400 tonnes.

According to Debjyoti Chatterjee, VP, commodities research, Mape Admisi Commodities, rising cancelled warrants which grew from 3% to 12% of total inventory in a week���s time, have increased speculation that the China State Reserve Bureau (SRB) is buying certain commodities to support its smelters. ���Among all the LME warehouses, most of the rise in cancelled warrants is concentrated in South Korean warehouses, supporting the opinion that Chinese buying has caused an overall rise,��� he added.

The bounce in prices has been linked to possible measures by Chinese authorities to prevent a higher pace of decline in growth, as experienced in the last few quarters. There are mounting expectations that China is expected to announce another stimulus package in the country���s annual legislative meet due to start from Thursday. Also Chinese Investment Corporation is likely to invest $22 billion in miners and producers of commodities like copper in order to soften the adverse effect of steep plunge in these commodity prices.

���This however does not change the fundamental backdrop which points towards a tame scenario for prices in coming quarters. While higher volatility due to hedge fund activities cannot be ruled out, the underlying trend for industrial commodities is still bearish,��� said Praveen Singh, research analyst, Sharekhan Commodities.