Daily Copper Price Outlook and Strategy

Transcription

1 Decision enabling market analysis & price outlook Feb 02, 2015 Market Recap and Summary Outlook for next 3days LME copper, during Friday s trading session, traded in a positive note amidst a sharp short covering rally in crude oil prices that led to profit taking in Copper as well from its five and half year lows. US economic growth slowed to 2.6% in Q4, but remained at a renewed 4 year high last year keeping the investor confidence in the demand outlook for industrial metals intact and thereby supporting the prices. Going ahead, in the next couple of days, Copper will be supported by the rally in Shanghai prices amidst hopes of stimulus measures from China after the weak manufacturing PMI numbers. However, the weak Chinese numbers indicating the sluggish demand in the factory sector for metals will keep the prices under pressure capping the upside. Key factors for the coming days are: Global growth outlook and weak Chinese manufacturing and industrial sectors Deflation concerns across the globe amid low commodity prices Increasing concerns of supply overhang amid record high Chinese production Resumption of trend in refined copper imports by China Expectations of stimulus measures from China and ECB s QE LME / SHFE / MCX as on 30 th Jan 2015 Price outlook summary Price outlook Summary LME 3M: USD (+1.23%) SHFE 3M: CNY ( 0.43%) MCX Feb 15: INR (+1.66%) Concisely, LME copper prices are expected to hold support of USD zone and witness a sharp bounce towards USD 5950 in coming week. Price Range for next 5 days Procurement (LME Cash) Futures Review strategy Strategy Range Price Bias Mixed Feb 15 buying requirements are completed at USD 5860 against the monthly average of USD % of Mar 15 buying requirements completed at USD 5600 on Jan 27, Wait for pricing in remaining 50% of Mar 15 buying requirements. For existing positions, traders should consider the below mentioned strategy. Trading Strategy Filled on Position Entry Objective Stop Loss LME 01/30/2015 Long Fundamental Analytics Over the weekend, China reported the factory sector shrank in January for the first time in more than two years as the manufacturing PMI came in at 49.8, down from 50.1 in December. HSBC PMI as well was reported at 49.7 indicating contraction in the factory sector. Chinese manufacturing companies slowed production due to seasonal factors, such as the New Year holiday and the upcoming Chinese New Year holiday while continued declines in commodity prices leading to widened factory gate deflation put a dent in production augmenting the 1 Discuss with our expert Phone: E mail: services@transgraph.com Internet:

2 slowdown in the sector. However, Shanghai Copper rose by more than 2% on Monday s trade amidst expectations of stimulus measures from China after the downbeat numbers. The euro zone s January CPI fell 0.6% YoY, a decline bigger than the expected 0.5% and level with the record low. This indicates that the single currency area is now confronted with worsening deflation amidst lower crude oil prices. However, Germany s retail sales posted the highest growth in two and a half years in December, while Spain s retail sales and France s consumer spending both exceeded expectations keeping the investor sentiment intact while ECB continues to push money into the market through QE. Fundamentally, Copper prices continue to remain under pressure amid mounting fears of supply overhang in the refined market while uncertainties over Chinese demand outlook keeps the investor cautious. Chinese industry ministry has said that refined copper production rose 13.8% to 7.96 million tons in In the final quarter alone the production has rose by close to 22% with December s production at 833 thousand tons. On the flipside, prices may find support, in the medium term, from the supply disruptions in mine production and gradual surge in imports of unwrought Copper from China. At the global supply demand balance front, ICSG reported that world refined copper market remained in a deficit of 616 thousand tons during Jan Oct 2014 compared to a deficit of 159 thousand tons during Jan Oct Including Chinese bonded stock change, the deficit stood at 675 thousand tons. For the year 2014, with the physical market activity remaining steady, the balance is estimated to have improved to a deficit of 321 thousand tons, similar to that witnessed during While the overall talk of a supply overhang has been in place for more than a year now, the data being reported does not show any such surplus. Market estimates of 94 thousand tons surplus in 2014 too is yet to be supported by ICSG data. Also, a Reuters poll showed that the analyst expect, in 2015, the global refined Copper surplus to shrink to 221,000 tons from their previous forecast of 350 thousand tons mainly due to the capacity curtailments in mine production after the prices decline and technical reasons as well. Meanwhile, Chinese unwrought copper imports continue to witness stable increase with YTD imports from January to December at 4.83 million tons up 7.4 % YoY. Further, China has put in place an export tax rebate of 9% for copper bars, rods and profiles at the beginning of 2015, while increasing the export tax rebate for copper foils to 17% from 13%. The new rebate is expected to push up exports from downstream units is expected to push up the import demand for refined Copper. Copper stocks at exchange warehouses have increased during the past few weeks to 8 month highs amidst subdued demand from manufacturing activity which has, presumably, pressured the bonded warehouse premiums in China to as low as USD 60 from USD 95 in the past month. However, strong physical activity in China ahead of the holiday period led to revival in the premium to USD 85. Stocks at LME are currently at 248,125 tons, after having increased by 675 from the prior day while cancelled warrants have remained at around 23 thousand tons. Stocks at SHFE rose to 137,042 from 134,137 the prior week. The gradual surge in stocks and open tonnage is likely to exert pressure on the prices. Overall, although slowing global economic growth and gradual surge in stocks will continue to exert pressure on prices while inevitable supply overhang in the refined market is likely to lead sluggish price performance in the medium term as well, expectations of any stimulus announcement from PBOC and restocking activity ahead of the Chinese holiday period may keep the prices supported in the short term. Technical Outlook 2

3 LME Copper 3 month forward prices continued to witness handsome bounce on Friday and early today session indicating overall market has placed a short term bottom and extension of this week s bounce would stretch towards USD 6000 in coming week. Unable to cross resistance of USD 6550, prices witness a sharp weakness during last 3 weeks in an internal leg structure of which last leg is unfolding indicating overall bearish momentum is still intact. Prices have retested USD 5300 zone earlier than expected indicating a full force corrective rise ahead. Momentum indicators like RSI and Stochastics are getting into oversold zone would keep market actions very volatile and both sided during coming week. On longer term charts, prices would take support of a long term channel line, which is, lower channel line connecting last 6 month s lows. On downside, USD 5300 zone acts as strong support. On upside, USD zone acts as immediate resistance followed by USD Concisely, LME copper prices are expected to hold support of USD zone and witness a sharp bounce towards USD 5950 in coming week. Copper Commodity Price & Risk Parameter Chart Links Spot market prices and fundamental data Copper Market and details 30 Jan Jan 2015 Change %Change LME Copper CSP, USD per ton % Changjiang Copper Spot, Yuan per ton % Copper Wire Scrap, #1 Bare Bright, USD per ton % Mumbai Copper Spot, INR per ton % LME warehouse stocks (In tons)* % 3

4 *LME releases stocks data for the prior day a day later by 09:00 hrs (London Time) Futures and forwards prices Copper Market and details As on 30 Jan, 2015 Open High Low Close Previous Close Change %Change LME Copper 3 Month Forward, USD per ton % SHFE Copper 3M Forward, Yuan per ton % MCX Copper futures (Feb '15), INR per Kg % MCX Copper futures (Apr '15), INR per Kg % Euro USD % USD/INR % 4

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