Informist, Tuesday, Nov. 12, 2024
By Sandeep Sinha
MUMBAI – Copper prices are likely to remain under pressure in the near term as China policy support measures failed to lift investor sentiment. Donald Trump’s victory in the US presidential election raises the prospect of disruption in global trade and the emergence of protectionist policy that may reduce demand for red metal.
China's Standing Committee of the People’s National Congress announced a 10 trillion yuan ($1.4 trillion) package on Friday to refinance local government debt. China's Minister of Finance Lan Fo'an told central authorities would issue 800 billion yuan ($110 billion) a year in local government special bonds over five years targeted toward debt repayment. The measures left the market unimpressed and led to a sell-off in industrial metals, including copper.
The dollar, which has a negative correlation with copper, has seen a sharp appreciation after Trump’s victory and led investors to pare down their bullish positions on copper. The dollar index has gained 2.3% against rival currencies since Nov. 5.
"Copper is likely to struggle fundamentally as the US President-elect Donald Trump has threatened to cancel unused funds under the Inflation Reduction Act, which aims to reduce carbon emission. This may hamper the transition to green technology and hurt copper demand," Sriram Iyer, senior research analyst at Reliance Securities said.
Iyer said copper prices are also trading below the major key averages and the 14-period Relative Strength Index (RSI) is at 40.3, which indicates weakness in the price for the short-term. A movement above 60 or below 40 may indicate a trend shift. He sees LME copper prices to fall towards $9,000 per tonne and a breach of that will push prices lower towards $8,700 per tonne. On the Multi Commodity Exchange of India, prices are likely to head towards INR 800 per kg and INR 790 per kg.
At 1440 IST, the three-month copper contract on the LME was at $9,234 per tonne, down 1% from the previous close. The most-active November contract on MCX was at INR 807.2, down 1.7% from Monday's close.
"A Trump presidency will be negative in net terms for global metal demand. Downside risks to global growth have increased, particularly for Europe and China – although this creates both upside and downside risks for US growth in the short-term," Alex Tuckett, head of economics, CRU said in a note to clients.
The prospect of a global trade war has increased as Trump has promised to impose a universal import duty of 10% on all countries and 60% on specific nations including China. If other nations retaliate against US tariffs, it may lead to a new wave of trade tensions and economic disruption and hurt copper demand.
The LME and MCX copper saw sharp selling and prices have already declined 3.9% and 4.5% since Nov. 5 as investors liquidated their long positions. Yangshan copper imports premium have fallen to $45 per tonne from $69 per tonne on Oct. 10 because of demand concerns. Yangshan premium is the premium paid on top of the London Metal Exchange price for refined copper to be custom cleared and imported into China through Yangshan bonded area in Shanghai.
"We believe the initial negative price response should cover the near-term risks, as infrastructure spending plans and potential deregulation may boost demand for metals in the medium to long term," Ole Hansen, head of commodity strategy at Saxo Bank, said in a research note. End
US$1 = INR 84.39
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Vidhi Verma
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