Copper gains on rising cancelled warrants

Devangi Joshi 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.
    devangi.joshi@timesgroup.com