Copper prices rise skyward on Greece rescue package
Copper prices have rallied in the last few days, with prices touching a high of $8010 on the LME and Rs359 on the MCX. This rise in prices has been backed by declining inventories and positive economic data from the US. Even though economic issues in the Eurozone persist, positive economic updates from the US is providing support in the form of improving demand prospects from the world's largest economy. The red metal prices have rallied despite dollar strength as better economic prospects have offset the effect of dollar strength. Demand in Asia, outside China is also strong, especially Japan, Korea, Taiwan and the Middle East.
Strong fundamentals in the case of copper justify the rise in prices. Robust demand from China has been the catalyst to rising prices. Though factors like fund buying and declining inventories has helped the red metal to rise, Chinese demand has also played a major role. In 2010, copper demand in China is expected to grow between 8-10% as compared to 2009 and may exceed the 6 million tonne mark. Though China's demand may be slowing from a very high growth rate of 12% in 2009 a rise in demand by 7% would still be bullish for the copper market. In 2009, China consumed 5.7 million tonnes of copper and world consumption in the last year stood around 18 million tonnes.
Economic developments of the last week
Unemployment claims in the US increased by 18,000 to 460,000 in the week ended 3rd April as more Americans filed initial claims for jobless benefits last week. The week leading up to Easter and the two following that are usually considered volatile for unemployment claims.
FOMC Meeting Minutes indicated that recent data pointed to a noticeable pickup in the pace of consumer spending during the first quarter, but participants agreed that household spending going forward was likely to remain constrained by weak labor market conditions, lower housing wealth, tight credit, and modest income growth. Fed officials are looking for signs of self-sustaining growth before they begin their exit from the most aggressive monetary policy in U.S. history. Comments by the Federal Reserve Chairman were not very positive as he said that the US economic rebound had yet to produce a significant recovery in jobs. Eurozone GDP for the fourth quarter slipped to 0.0% from 0.4% in the third-quarter of 2009. Unemployment in the Eurozone remained at an 11-year high and this too is a major concern for the economy. However, some economic data has come as relief to the markets as economic confidence improved in March 2010 and manufacturing growth accelerated to the fastest pace since August 2007.
The ECB President said that Greece was not in danger of defaulting its debt and this provided some ray of hope to the dwindling currency. Greece's first-quarter budget deficit fell 40% and narrowed to 4.3 billion euro from 7.1 billion euro in the same period a year earlier.
Factors that will contribute to upside in copper prices from the short-term perspective:
· Restocking of copper
· Demand from China
· Supply uncertainty is expected to continue underpinning prices
· Improving economic scenario in the US, the world's largest economy
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Short-term fundamental outlook
We expect copper prices to trade with an upside bias as improvement in demand coupled with positive economic data will boost prices. But $8000/tonne level on the LME is very crucial and prices will sustain as demand growth from China and the rest of Asia boosts further.
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