Commodity Talk: Copper could test $11,000 by year end; less hawkish stance may spark rally, says Saumil Gandhi

“Looking at the current demand and supply scenario in copper, it appears that copper price could retest $10,500 to $11,000 level before the end of year. In the long term, our view on copper is moderately bullish. A less hawkish stance could spark a rally in base metals prices over the short term,” says Saumil Gandhi, Senior Analyst (Commodities), HDFC Securities .

Amid talks of slowdown, is the current banking crisis in the US a harbinger of troubled times ahead for commodities which are already reeling under pressure?
Commodity markets witnessed an insane amount of volatility over the last few weeks as uncertainty on the interest rate path and recent turmoil in the banking sector weighed on the outlook for economic growth. Looking at the current scenario, we expect price pressures in key commodities, leading to further downside in the short term.What is your view on the prospects of copper in light of a statement from Trafigura which said copper could hit record highs in the next 12 months?
Looking at the current demand and supply scenario in copper there is a possibility that copper price could retest $10,500 to $11,000 level before the end of year. In the short term, we expect LME copper prices to consolidate in the range between $8,300 and $9,300. In the long term our view on copper is moderately bullish.

What is the situation on the supply front and how bad the shortage situation is?
Other than China, copper supply is tighter. Copper stocks at LME’s registered warehouses and Comex warehouses continue to decline and are at historical lows. European buyers are avoiding Russian materials and mining supply issues in Chile and Peru are key reasons for the ongoing tightness in supply situation in copper. It will take time to balance the demand and supply gap.

Will China demand keep prices on the higher side of curve?
China is a global manufacturing hub and Chinese demand plays a key role for base metals price trends. China’s copper consumption has been rebounding and is likely to stay strong in the next quarter, buoyed by a seasonal peak in demand and easing of COVID-19 restrictions.

The recovery in the property sector is boosting copper cable orders, while copper tube makers are also running strong. As per Chinese state-backed research house Antaike, predicted demand for refined copper in China could grow 2.7% this year to 13.68 million tons. The dragon nation accounts for about half of the global demand.

What is the demand outlook for copper in India and what will be the impact for the domestic industry if Trafigura’s assessment comes true?
After the sharp recovery in demand for copper in FY22, we expect it to increase further as higher government spending on infrastructure and demand from automobiles and energy sectors is likely to increase the consumption. The demand of copper in India stood at 12.5 lakh tons in FY22, as compared to 9.78 lakh tons in FY21.
What will be the impact of the Fed’s decision on the prospects of base metals? Do you see a rate pause this year?
Fed has small room to alter its policy according to our assessment. The Central Bank’s focus has now shifted from inflation mitigation to financial stability. We expect it to pause its rate hike cycle after March depending upon the upcoming macro data and event.
A less hawkish stance and could spark a rally in base metals prices over the short term.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)