Copper May Witness Consolidate Range Of Rs 390-422/Kg

MUMBAI: Copper prices witnessed worst month of the year as prices declined by over 10% at MCX, near to 3 and half year lows on LME, as worries about China's economy clouded the outlook for demand. Prices were smashed by fears of spreading defaults in top user China that could damage demand, as worsening fundamentals and dollar appreciation led to downward pressure on prices. Weakness started after the red metal was rattled by a bond default by a Chinese solar panel company last week, which ignited worries about risk in the country's credit market.

A good amount of copper held in China's bonded zones was tied up in financing deals in which importers sell the met-al on domestic markets to raise credit for more lucrative invest-ments elsewhere, and there were fears that these arrange-ments may unravel. However later on, Premier Li Keqiang was quoted as saying during the month that China could speed up investment and con-struction plans to ensure do-mestic demand expands at a stable rate which indicated that authorities are considering practical measures to support slackening economic growth. Reflecting an improved outlook for supply that continued to suppress prices, the global copper market turned in a production surplus of 34,000 tonnes in December, data from the International Copper Study Group showed which further capped the upside in prices.

China's yuan fell to a 13-month low during the third week of the month while also posted its biggest weekly fall during the period after the central bank lowered the mid-point of its permitted trading range, which was seen as a signal of official comfort with the currency's recent losses. Metals also posted fall along with stocks and bonds after Fed Chair Janet Yellen said that the Fed would probably end its massive bond-buying programme this autumn, and could start raising interest rates around six months later. This led to the rise in dollar against its major currency peers, while global equities pulled back as investors posi-tioned for a speedier rise in U.S. interest rates than previ-ously thought. Adding to fears was Chinese data released earlier in the month showing growth in investment, retail sales and factory output falling to multi-year lows. Industrial output rose 8.6 percent in the first two months of 2014 from a year earlier, missing market expectations.

Copper prices have corrected steeply over the last few weeks amidst high volatility witnessed in the brethren. Earlier the base metal suc-cumbed to the bearish forces after failing repeatedly to fis-sure above Rs 460/Kg which made it vulnerable for a down-fall, however a crack below Rs438/Kg swayed the market strongly in favor of bears for the short term. Having said, the recent decline has dragged the price closer towards its long term support levels of Rs390/Kg odd levels, where its long term uptrend line is offer-ing a robust support. The weekly RSI has also reached the oversold trajectory which strongly favors the case for a rebound in the prices in the immediate short run at least. At the same time, any decisive close below the said level can take prices towards Rs365/Kg over the short to medium term. The current technical setup suggests the prices can take a breather and consolidate in the range of Rs 390/Kg - Rs422/Kg before the next leg of the trend unfolds. Higher levels of around Rs422/kg are likely to exert selling pressure all over again. Only a close above Rs422/Kg mark can extend the pullback rally towards Rs 440/Kg at the most.