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Copper opened Tuesday’s trading session with a small gap down but quickly covered the gap to extend bullish momentum to a second consecutive trading day despite swelling inventories, as demand is showing signs of pick-up while cross currents in supply reduced pressure cast by worries over a market surplus.
Inventories tracked by the London Metal Exchange rose by 10,025 tons to 328,525 tons, causing stocks of copper held at LME approved warehouses to rise by more than 60 percent since Aug. 11. However, stocks held by the Shanghai Futures Exchange fell to 152,404 tons as of September 2, down eight percent compared to the previous week.
The decline in SHFE may be the result of a marginal rise in demand in Europe and Asia after the summer vacation has ended. “Feedback from fabricators onshore points to a pick-up in orders from the construction sector in recent weeks”, said Standard Chartered.
Elsewhere, striking workers at Codelco’s small Salvador mine (producing 49,000 tons per year) and Anglo American’s Los Bronces mine (producing 437,800 tons per year) following failed wage negotiations in Chile – the world’s top copper producing nation – could cause production to fall further in the coming months.
Meanwhile, also on the supply side, Vedanta – India’s second largest copper producer with current output of 400,000 tons a year – is harboring the ambition to dethrone its rival Hindalco (500,000 tons) from first place in terms of output. Vedanta is reported to be restarting a cooper mine on Tasmania’s west coast in 2017, three years after the mine’s operations were suspended due to the death of two workers in 2014 and another in 2013. The mine is estimated to possess 200 million tons of reserves with an annual output of 100,000 tons
Previously, CEO of Vedanta’s Copper business R Ramnath stated that the conglomerate is planning to invest up to Rs. 3,000 crore ($450 million) in its Indian copper operations to double the capacity to 800,000 tons by 2019, making the firm India’s largest producer of the metal.
In a recent meeting with the government, India’s top copper producers — Hindalco, Vedanta and Hindustan Copper — have demanded that import duty on finished copper products be raised to 7.5% from 5% now as the country’s imports are growing at an alarming rate of over 20% for the last five years. These domestic producers are afraid that copper from Asean countries and Japan which is benefitting from export incentives could take over their market share that is about 80% at around 1 million tons a year in total.
Fig: COPPER D1 technical chart
Copper has been trading sideways in a thin range between 2.0900 and 2.0695 for nearly two weeks, after stabilizing post the sharp down move between mid/late July and August 24. The metal continues to remain in the downward sloping trading channel. Bears currently seem exhausted after having continuously pushed prices lower and held the market near oversold zone. Some bullish interest has come back into the market at the lows, but bulls are facing strong resistance at 2.0900. Bears are expected to get back into the market, after a period of short-covering inspired bounce-backs, and may push copper prices back down again.
Sell Stop at 2.0900, take profit at 2.0680, Stop loss at 2.1140