Positive Consolidation in Copper Continue Amidst Increased Supply Disruptions

The copper market continues to consolidate in the tight range as fundamentals driving it has remained consistently docile. No major improvement has been noticed in the demand though the supply side continues to apply the pressure on the prices. Since election of Donald Trump super enthusiastic approach to US infrastructural and a wider positive attitude for risky assets has gone a bit too far pushing up the copper prices which has risen by about 15 per cent he pledged to increase spending on infrastructure in the last quarter of 2016, but since then lack of major thrust on the demand has failed to sustain the upsurge. The other economic activity in the global economies has also failed to support the copper prices. The major economic factors affecting the copper prices are movement in the Dollar index against other currencies, PMI data of China, US, Europe and Latin American countries. 

The market is still being pressured by abundance of supplies and lagging demand. World mine production is estimated to have increased by around 5 per cent (900,000 t) in the first eleven months of 2016 with concentrate production increasing by 7 per cent and solvent extraction-electro-winning (SX-EW) declining by 2 per cent. The increase in world mine production was mainly due to a 41 per cent (630,000 t Cu) rise in Peruvian concentrate output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada, Indonesia and the United States, and expanded capacity in Mexico, also contributed to world mine production growth. However overall growth was partially offset by a 4.3 per cent decline in production in Chile, the world’s biggest copper mine producer, and a 5.5 per cent decline in DRC where output is being constrained by temporary production cuts. On a regional basis, production rose by 6 per cent in the Americas and 10.5 per cent in Asia but decline d by 4 per cent in Africa while remaining essentially unchanged in Europe and Oceania. World refined production is estimated to have increased by about 2.5 per cent (500,000 t) in the first eleven months of 2016 with primary production (including Electro-winning) increasing by 3 per cent and secondary production (from scrap) declining by 1.5 per cent: The main contributor to growth was China (increase of 6 per cent), followed by the United States w here production increased by 10 per cent and Mexico (16 per cent) where expanded SX- EW capacity is contributing to refined production growth. Output in Chile and Japan, the second and third leading refined copper producers, declined by around 2 per cent and increased by about 5 per cent respectively. Production in the DRC and Zambia declined by an aggregated 12 per cent mainly due to the impact of temporary production cuts. On a regional basis, refined output is estimated to have increased in the Americas (2 per cent) and Asia (6 per cent) while declining in Africa (12 per cent) and in Europe (including Russia) (3 per cent) and remaining essentially unchanged in Oceania. 

The global miner BHP Billiton reported it’s planned to halt production at the Escondida mine in Chile (which holds a 57.5 per cent position) due to a workers strike since February. A strike at the world’s largest copper mine faces a critical phase this week as the union expects management to tempt workers with an offer that could end the stoppage in northern Chile. After 30 days of strike, on March 10, BHP Billiton Ltd.’s Escondida can legally make individual offers to workers. If it manages to convince more than half of the workforce, the union will have to concede defeat and end to the strike. On 6th March 2017, the strike at Escondida overtook the 25-day stoppage at the same mine in 2006, which at the time was the longest strike in at least a decade among Chile’s major copper mines. Other mine operators in Chile are watching the Escondida dispute closely as it is expected to set the tone for upcoming negotiations this year. If enough workers do yield, the union is ready to resort to an article of the existing labor code that allows workers to extend their expired contract for 18 months, negotiations would then resume under Chile’s new labor rules, which kick in on April 1 and guarantee existing benefits, which is one of the major sticking points in the dispute. This current disruption of production in Escondida is likely to support the prices in the coming days. Apart from Escondida, Issues in relation to export permits for copper mining in Indonesia further strained world supplies of copper. Freeport-McMoRan, the Phoenix-based mining company operating the Grasberg mine in Indonesia, is facing trouble in exporting copper out of the country due to a ban on ore concentrate exports imposed by the Indonesian government in January 2017.

World apparent refined usage is estimated to have increased by around 2 per cent (475,000 t) in the first eleven months of 2016. Growth mainly due to an increase in Chinese apparent demand as world usage excluding China remained essentially unchanged. Chinese apparent demand (excluding changes in unreported stocks) increased by around 3. 5 per cent based mainly on 6 per cent growth in refined production as in fact net imports of refined copper declined by 6 per cent. Net refined copper imports have been on a declining trend in 2016 with the monthly average in Jul-Nov 36 per cent below that of the 1st half of the year. Monthly average Chinese apparent demand in Jul-Nov 2016 is 7 per cent below that in the first half of the year. Usage in the United States and Japan, the second and third leading refined copper using countries, is down by 2 per cent and 3 per cent respectively. On a regional basis, usage is estimated to have increased by 3.5 per cent in Asia (when excluding China, Asia usage increased by 3 per cent) and by 2 per cent in Europe (by 1.5 per cent in the EU), while declining by 3 per cent in the Americas.

Copper supply set to under-perform demand for much of the next half decade. As the global economy departs from several years of stagnation, so too does the outlook for copper pricing. The combination of stronger than expected Chinese demand, a clear lack of visible copper inventory build, an end to cost deflation, and the U.S.-centric reflation story after the Trump election victory sparked positive price momentum through the latter stages of 2016. On the demand side, there's now little to worry about, since the dramatic crunch in capital expenditure cuts since an extended broad-based commodities slump hit the market in the summer of 2014. In 2016, China's real copper consumption likely rose by 5.7 per cent and for the last phase of the current decade is projected to be in the range of 3 to 7 per cent. 

Long term investment sentiment still remains intact as the reports of supply disruptions and improving global economic scenarios.

Copper Likely to Consolidate Further after Steep Rally

The financial health of the global economies is being reflected in the copper prices. It made a sharp rally in the last two to three months and at present is searching for support as the bullish sentiments are losing steam and are paving way for consolidation. The rating of the copper industry by various rating agencies also played a crucial role in deciding the direction of the market. Last year, Moody's embarked on a sector-wide review of the 87 global mining majors that it covers, eventually downgrading 36 companies, including marquee names like Rio Tinto, BHP Billiton, Freeport-McMoRan and Chile's state-owned Codelco. The likes of Anglo American and Vale also lost their investment grade rating for the first time leading to large scale production cuts, adding partial support to the copper market. At the same time simultaneously, the global economy was facing the major economic slowdown the entire industry contracted and it led to crash in demand for copper which eventually led in the state of surplus adding increased bearishness in the copper prices. But, towards the end of 2016, from the month of 0ctober the scenario began to change with added stimulus being provided by the projection of high industrial demand from China and positive economic data flowing in from major global economies. At present, the copper market is on lookout for sustained support from the end using industry to sustain the prices. 

The supply of copper in the world market continues to be on the surplus side putting pressure on the prices. World mine production is estimated to have increased by around 5 per cent (815,000 t) in the first ten months of 2016 with concentrate production increasing by 7 per cent and solvent extraction-electro-winning (SX-EW) declining by 1.5 per cent. The increase in world mine production was mainly due to a 43 per cent (590,000 t) rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada, Indonesia and the United States, and expanded capacity in Mexico, also contributed to world mine production growth. However overall growth was partially offset by a 4.5 per cent decline in production in Chile, the world’s biggest copper mine producer, and a 6 per cent decline in DRC where output is being constrained by temporary production cuts. On a regional basis, production rose by 6 per cent in the Americas and 10 per cent in Asia but declined by 4 per cent in Africa while remaining essentially unchanged in Europe and Oceania World refined production is estimated to have increased by about 3 per cent (540,000 t) in the first ten months of 2016 with primary production (including Electro-winning increasing by 2.5 per cent and secondary production (from scrap) by 6 per cent. The main contributor to growth was China (increase of 7 per cent), followed by the United States where production increased by 12 per cent and Mexico (18 per cent) where expanded SX-EW capacity is contributing to refined production growth. Output in Chile and Japan, the second and third leading refined copper producers, declined by around 1 per cent and increased by about 4 per cent respectively. Production in the DRC and Zambia declined by an aggregated 13 per cent mainly due to the impact of temporary production cuts.

On the demand side there has been increase in few countries. World apparent refined usage is estimated to have increased by around 3 per cent (515,000 t) in the first ten months of 2016. Growth mainly due to increase in Chinese apparent demand as world usage excluding China remained essentially unchanged. Chinese apparent demand (excluding changes in unreported stocks) increased by around 5 per cent based mainly on 7 per cent growth in refined production as in fact net imports of refined copper declined by 4 per cent. Net refined copper imports have been on a declining trend in 2016 with the monthly average in the third quarter 40 per cent below that of the 1st half. Monthly average Chinese apparent demand in the 3rd quarter 2016 is 5 per cent below that in the first half. Usage in the United States and Japan, the second and third leading refined copper using countries, is down by 4 per cent and 3 per cent respectively.

As per the latest Moody’s report on the global base metal sector, the industry has witnessed a starkly different picture, with higher metal prices and, for the most part, stronger company balance sheets, better liquidity, and better debt-maturity profiles, which is expected to provide more support to the industry. After the US prudential election results, the things have changed on the positive side with US going for more infrastructural expansion. The other major driver of the rally in base metals and positive investor sentiment towards mining came on the back of improving data from China that largely reflects stimulus spending by the Beijing government last year. Moody’s upward revision of Chinese GDP expansion to 6.6% and 6.3% in 2016 and 2017 respectively from 6.3% and 6.1% before is also likely to provide support to the copper prices. 

The recent Development in the market suggests that the market is likely to consolidate for a longer period than expected and then make a slight downside movement. Any negative effects on commodities from Trump’s victory effect would only exist in the medium term. The US dollar has rolled back all gains from Trump’s winning presidential election, and appears to have been oversold and this has weakened the investor’s risk appetite and propelled them towards risk aversion. But commodities did not erase all gains from previous expectations of infrastructure construction pushed by Trump as the US dollar fell. After slump in domestic bond market, the People’s Bank of China (PBOC) conducted continuous and small currency injection through open market operation so as to ease year-end cash tightness, improving the market. Nonetheless, with curb in asset price bubble, China’s monetary policy is likely to tighten in the future leading to shrinking of industrial demand. 

On the fundamental side of the supply & demand, there is no major reversal in the scenario with inventories both in China and abroad growing continuously. The proportion of canceled warrants decreased, and spot prices remained below futures prices. The producers are not building stocks actively during low-demand season. The Baltic Dry Index (BDI) which mostly moves in line with metals is falling continuously indicating marginal bearishness existing in the market. The latest rebound in copper prices was due mainly to capital inflows. Commodity markets are witnessing net capital outflows this week after two weeks of growth, meaning shorts leaving are the market after profit-taking. CFTC speculative funds still hold high net longs, reflecting overbought. Net longs increased for the first time in last four weeks. Thus, one can conclude that all is not yet over as per as the businesses in the copper prices are concerned, but one must be cautious if investing for short term gains. Long term investment sentiments are still safe and sound.

Commodity Options in Indian Market Scenario

Currently in Indian market, the futures trade has been functioning successfully for the last 14 years. It has been increasingly supported by the participation of traders and merchants and few of the large and medium farmers. Involvement of small and marginal farmers, who comprises of about 78 per cent of the farming community, is still not so acclimatized with the futures trading. Still a lot of effort is needed in this direction. With every passage of time the commodity futures trade have evolved with increased strength and transparency.

The introduction of commodity options trade as a new instrument is likely to enhance the participation base as it requires lesser exposure capital thereby reducing the enormity of loss. In simple terms, in a futures contract, both participants in the contract are obliged to buy (or sell) the underlying asset at the specified price on settlement day. As a result, both buyers and sellers of futures contracts face the same amount of risk. On the other hand, the option contract buyer has the right but not the obligation to buy (or sell) the underlying asset. Hence the term "option" and this option come at a price in the form of a premium (more specifically, the time value of the premium). With this "option", the option buyer's risk is limited to the premium paid but his potential profit is unlimited. Sellers of options take on an additional volatility risk in exchange for the premium. However, their potential profit is then capped while their potential losses have no limit. Hence, this premium can be high if the underlying asset is perceived to be very volatile. The other major difference is that Options can be exercised at any time before they expire while a futures contract only allows the trading of the underlying asset on the date specified in the contract. In futures, the performance of the contract is done only at the future specified date, but in the case of options, the performance of the contract can be done at any time before the expiry of the agreed date. Apart from the commission paid, futures do not require advance payment, but options require the payment of premium. In futures, a person can earn/incur an unlimited amount of profit or loss, whereas in options the profits are unlimited, but the losses are up to a certain level.

The very motive of starting the Commodity futures was to facilitate efficient price risk management and price discovery in a fair, transparent and orderly manner. The futures market was to help Indian farmers to hedge their produce against potential risks arising out of price movements in spot markets so that they can get guaranteed price for their produce in the future. But, in spite of 14 years of futures trading through Commodity Exchanges, majority of the farming community is till away from participating on the platform either due to lack of awareness or due to complexity of the trading process. Currently, the futures markets continue to be dominated by speculators and non-commercial players who frequently indulge in price rigging and other market abusive practices with impunity.

I feel that the desired penetration level has not been achieved owing to lack of liquidity and existence of fear factor in the minds of small and marginal farmers who are still depended on the whole sellers and local aggregators. According to market estimates, not even 2000 farmers in India are directly trading on commodity futures exchanges. Even the participation of farmers marketing cooperative bodies (such as NAFED, HAFED and Farmers Producers Group) is very limited due to lack of adequate knowledge of the functioning of futures market. Such bodies can act as aggregators and hedge positions in futures exchanges on the behalf of their farmers. Thus with such level of penetration in the market, we can apprehend that futures have failed to achieve their avowed objectives of price discovery and price risk management especially for small and marginal farmers (owning less than 2 hectares of land).     

In the Indian Scenario where an average Indian farmer lacks a basic understanding of what is involved in futures trading. The options trading are even more difficult to comprehend as it adds yet another layer of complexity on what is already a very complex trading instrument. In the same vein, small enterprises lack the resources and capacities to trade actively in derivatives contracts for hedging purposes. Even experienced traders struggle to understand the risks involved in trading both futures and options contracts. Moreover the bulk of trading in the Indian commodity futures market is carried out by speculators and non-commercial traders who attempt to profit from buying and selling futures contracts by anticipating future price movements but have no intention of actually owning the physical commodity, while the participation of hedgers is almost negligible. Time to time the commodity exchanges are conducting short duration training workshops for small stakeholders but such workshops are inadequate to impart information and insights on the complexities of derivatives trading.

Having said all about the complexity of the futures and options trade, the introduction of Option in the Commodities trade is still a very welcome step, but the quantum of challenges to implement it is enormous. The major challenges could be enlisted as:

·         Lack of awareness about the options

·         Majority of actual participants (Farmers, Producer’s Organization, Government entities & banks) are still not clear on the process of how it could be applied on the agricultural products.

·          Liquidity is still lacking in most of the agricultural products being traded on exchanges

·          Fragmented nature of spot market

·         Over-politicization of state agricultural produces marketing committees (APMCs) and state agricultural produces marketing boards (APMBs)

·         inadequate warehouses, storage and grading facilities

·         poor condition of roads and other infrastructure in the rural India

If these challenges are met, option trading in Commodity market for India is bound to make remarkable changes in the Indian Agriculture System. 

Copper Finding Sustained Support from Rising Strength in Global Economies

From the last couple of quarters, copper prices have been find increased support from the improving economic scenario in major economies and declining supplies from major producing countries. The US election results has infused strength in the global economies and provided further strength to dollar pushing the copper prices on the higher levels. The strength in the copper is coming from the continued reduction in supplies, improved demand from China, improving economic scenario in China and rising dollar strength. 

On the supply side the market continues to be in deficit. According to preliminary ICSG data, the refined copper market for September 2016 (excluding the adjustment for changes in China’s bonded stocks) showed an apparent production deficit of around 15,000 MT. World mine production is estimated to have increased by around 6% (820,000 MT) in the first nine months of 2016 compared with production in the same period of 2015. Concentrate production increased by 7.5 per cent while solvent extraction-electro-winning (SX-EW) declined by 0.5 per cent. The increase in world mine production was mainly due to a 44 per cent (+530,000 MT) rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada, Indonesia and the United States, and expanded capacity in Mexico, also contributed to world growth. However overall growth was partially offset by a 4 per cent decline in production in Chile, the world’s biggest copper mine producer, and a 7 per cent decline in DRC where output is being constrained by temporary production cuts. The average world mine capacity utilization rate for the first nine months of 2016 increased to 86 per cent from 85 per cent in the same period of 2015. World refined production is estimated to have increased by about 3 per cent (510,000 MT) in the first nine months of 2016 compared with refined production in the same period of 2015: primary production was up by 2.5 per cent and secondary production (from scrap) was up by 5.5 per cent. The main contributor to growth was China (+7 per cent), followed by the United States where production increased by 13 per cent and Mexico (+19 per cent) where expanded SX-EW capacity is contributing to refined production growth. Output in Chile and Japan the second and third leading refined copper producers increased by around 1 per cent and 3 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. Based on the average of stock estimates provided by independent consultants, China’s bonded stocks increased by around 70,000 MT in the first nine months of 2016 from the year-end 2015 level. Stocks decreased by around 130,000 MT in the same period of 2015. In the first nine months of 2016. 

Mining disruption in major mines is supporting the copper prices. Workers at the giant Escondida copper mine in northern Chile, the world's largest, have rejected an opening pay offer as insufficient as the two sides prepare for the start of a new collective wage agreement. The BHP Billiton-controlled operation produced 1.153 million MT of copper in 2015; however, production fell by almost 20 per cent last year as the mine worked through lower grade ores. The company posted a 43 per cent drop in profits for the first nine months of 2016, reflecting the lower production and copper price in the period.

World apparent refined usage is estimated to have increased by around 3 per cent (565,000 MT) compared with that in the same period of 2015 mainly due to Chinese apparent demand as world usage excluding China remained essentially unchanged. Chinese apparent demand increased by around 7 per cent in the first nine months of 2016 based on a 2 per cent increase in net imports of refined copper and 7 per cent growth in refined production. However, net refined copper imports have been on a declining trend in 2016 with the monthly average in the third quarter 40 per cent below that of the 1st half. Monthly average Chinese apparent demand in the 3rd quarter 2016 is 5 per cent below that in the first half. In the first nine months of 2016 aggregated usage in the EU, Japan and the United States is down by 0.6 per cent. 

Nine large Chinese copper producers reduced production by close to 5 per cent more than 200K MT. Mining disruption in major mines is supporting the copper prices. Workers at the giant Escondida copper mine in northern Chile, the world's largest, have rejected an opening pay offer as insufficient as the two sides prepare for the start of a new collective wage agreement. The BHP Billiton-controlled operation produced 1.153 million MT of copper in 2015; however, production fell by almost 20 per cent last year as the mine worked through lower grade ores. The company posted a 43 per cent drop in profits for the first nine months of 2016, reflecting the lower production and copper price in the period. 

The development of China – US relationship is also going to have significant impact on the copper market. A huge amount of copper in China is believed to be tied to carry trades. In a typical carry trade, importers in China open an LC (letter of credit) with foreign banks by paying a portion of the total import costs. Chinese importers then sell the copper and get cash. The typical payment time for an LC is three to six months. In this way, Chinese importers get access to cheap US dollar funds. The basic premise behind these deals is the arbitrage between interest rates in China and the developed world. As the differential between US and Chinese interest rates is expected to narrow following the rate hike, we could see some unwinding in copper carry trades. This could impact copper’s financial demand. The rate hike could also have some impact on US real copper demand. Copper serves as a raw material for various industries. The construction and transportation sectors are among the major copper consumers. One of the factors driving higher car and home sales has been lower mortgage rates. Now, with the Federal Reserve embarking on a tightening path, the housing and automotive sectors could see some repercussions. To be sure, it’s not going to be an overnight impact. However, higher rates could certainly have some impact in the medium-to-long-term. 

The price trends for copper for the past two years have been bearish, but the rally in prices started in copper after winning of Donald Trump in the US presidential election. The rally has been partly based on speculation regarding the impact of the President-elect’s $500 billion infrastructure plans on demand for the metal. It has also been fuelled by a pick-up in Chinese imports, responsible for almost 50% of global copper demand, which is seen a good omen for the industry’s health. The copper concentrate imports into China have risen sharply as smelters there have taken advantage of an increase in the fees they charge to turn concentrates into metal. But as they've boosted production, the glut in concentrates has slowly fed through into the refined market, putting pressure on local premiums for copper cathode and causing imports of finished metal to get slower. The investment bank now believes that increased demand from China will leave the market tighter than previously expected, which will support a more "bullish" environment for the metal at least to mid-2017. Moreover, the slowing supply growth outlook primarily to production cuts in China, the world’s top consumer, and declining ore grades in Chile, the world’s largest producer of the red metal is also likely to provide more support to the copper market.

Increased Chinese Support Sustained Northward Surge in Copper Prices

The copper market scenario has been improving in the last couple of month owing to the improvement in the Chinese demand though the supply of copper continues to be on the surplus side. The prices have also found support from the series of supply disruptions at major mines. The changes in the global economic scenario and more impetus on the growth have also adequately supported the price rally in copper. The trend has been positive but it’s too early to assume that the market has overall entered the bull phase.

On the supply front, World mine production is estimated to have increased by around 5.8 per cent (730,000 MT) in the first eight months of 2016 compared with production in the same period of 2015. Concentrate production increased by 7.5 per cent while solvent extraction-electro-winning (SX-EW) declined by 0.5 per cent. The increase in world mine production was mainly due to a 45 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia, also contributed to world growth. However overall growth was partially offset by a 4 per cent decline in production in Chile, the world’s biggest copper mine producer, and a 7 per cent decline in DRC where output is constrained by temporary production cuts. The average world mine capacity utilization rate for the first eight months of 2016 increased to 85 per cent from 84 per cent in the same period of 2015. World refined production is estimated to have increased by about 3.1 per cent (470,000 MT) in the first eight months of 2016 compared with refined production in the same period of 2015: primary production was up by 2.5 per cent and secondary production (from scrap) was up by 5.5 per cent. The main contributor to growth was China (+7 per cent), followed by the United States where production increased by 14 per cent and Mexico (+19 per cent) where expanded SX-EW capacity is contributing to refined production growth. Output in Chile and Japan the second and the third leading refined copper producers increased by around 2 per cent and 3 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. The average world refinery capacity utilization rate for the first eight months of 2016 remains practically unchanged from that in the same period of 2015 at around 83 per cent.

During the same period, world apparent refined usage is estimated to have increased by around 3.8 per cent (570,000 MT) compared with that in the same period of 2015 mainly due to increases in China. Chinese apparent demand increased by around 7.5 per cent compared with the same period of 2015 based on an 8 per cent increase in net imports of refined copper. However July and August net refined copper imports at 176,000 MT and 175,000 MT respectively were the lowest since April 2013 and compares to a net monthly imports average of 312,000 MT in the first half of 2016. Aggregated usage in the EU, Japan and the United States remained essentially unchanged.

Global copper consumption is recovering as well, led by China. China’s refined copper consumption will probably rise by around 7 per cent this year led by strong demand for power cable, high performance sheet and strip for the auto and computer appliance sectors, by a recovery in magnet wire demand, and general demand as the economy recovers. China’s infrastructure spending is and will continue to be a multiple of whatever the US’s will be under its new president. For instance, in the first 10 months of this year, China’s spending on infrastructure alone was $1.4tn and it will probably spend as much if not more in the next 10 years as in the last since government plans to migrate another 200m from the rural areas to the urban world, making a migration of some 400 million over 20 years.

The global demand of copper has expanded by about 1per cent by December 1^st 2016 and is been adequately supported by the positive growth figures from E7 and G7 monetary data. Global policy has shifted from focusing on austerity to one of inflating the global system. What is missing from most equations is that when this shift starts, inventory moves out of the raw material chain into refilling the massive global manufacturing chain from the final product, such as a transformer or an aircon, all the way through the individual sectors to the semi-fabricator, which of course has been emptied in recent years. As per a report world refined consumption will probably rise by 4.5 per cent both in 2016 and 2017 and at least by 2.7 per cent in 2018. These numbers clearly indicates larger supply and demand deficits resulting in significantly positive copper prices.

A number of recent disruptions in the global copper supply show that the metal’s price rally is supported at least in part by fundamentals. About 415,000 tonnes of copper have been lost so far this year due to disruptions, the majority of which have occurred in recent months. The halt in operations at UK-based Anglo American’s central Chile mine began on November 17 following a dispute over negotiations with contractor companies. On November 17, a landslide caused by heavy rains at Park Elektrik Üretim Madencilik Sanayi ve Ticaret AS’ Siirt Madenköy mine in Turkey caused at least five worker deaths. Operations have been halted this situation is likely to continue till early next year. In addition, overall production in Chile has slipped this year, with year-to-date output falling 4.7 per cent to 4,581,000 tonnes from 4,808,000 tonnes in 2015. Production in October declined to 445,000 tonnes, off 3.4% month-on-month and 11 per cent year-on-year.

The positive PMI Data released by Caxin Services (53.1 against the expectation of 52.7) provided increased support to the copper prices. News of Chinese fund buying and supply disruption of copper concentrate supplies from Mongolia which generally feed the smaller smelters supported the unconfirmed reports that fabricators in China have yet to fully meet their buying requirements. China continues to be the key driver of sentiment, and prices have been susceptible to volatile moves as they are directed by news flow. As long as Chinese demand remains healthy, the risk of a sudden and rapid reversal in the short term remains low. In addition, copper is benefiting from a supply side experiencing sudden tightness. Despite positive market sentiment surrounding copper prices, downside risks are quite high due to a practical growth outlook for China and the USA, as well as the probability of an oversupplied market next year. Thus, in spite of the positivity gripping the copper market, one should invest in the market with caution.

Demonetisation: Positive Move to Strengthen Indian Agriculture

Agriculture plays a vital role in India’s economy. Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. Agriculture, along with fisheries and forestry, is one of the largest contributors to the Gross Domestic Product (GDP). In 2015–16, agriculture contributed 17.4 per cent to India’s Gross Domestic Product (GDP), as compared to 18.3 per cent in 2013–14. As against the Twelfth Five Year Plan’s (2012–17) target of 4 per cent growth for the agriculture and allied sectors, the growth registered was 4.2 per cent in 2013-14, -0.2 per cent in 2014– 15, and an estimated 1.1 per cent in 2015–16. The agriculture sector in India is expected to generate better momentum in the next few years due to increased investments in agricultural infrastructure such as irrigation facilities, warehousing and cold storage. Factors such as reduced transaction costs and time, improved port gate management and better fiscal incentives would contribute to the sector’s growth. But all these growth momentum has witnessed a temporary jolt as the Government announced the banning of the 500 and 1000 denomination currency notes as a legal tender. 

The major aim of demonetisation of bigger denomination currency was as follows; first, it is an attempt to make India corruption free, second it is done to curb black money, third to control escalating price rise, fourth to stop funds flow to illegal activity, fifth to make people accountable for every rupee they possess and pay income tax return and finally, it is seen as an attempt to make a cashless society and create a Digital India. 

Major benefit of demonetisation in agriculture is that the ban on high value currency will also curb the menace of money laundering. Now such activity can easily be tracked and income tax department can catch such people who are in the business of money laundering. Most of the fake currency put in circulation is of the high value notes and the banning of 500 and 1000 notes will eliminate the circulation of fake currency. This move has generated interest among those people who had opened Jan Dhan accounts under the Prime Minister’s Jan Dhan Yojana. They can now deposit their cash under this scheme and this money can be used for the developmental activity of the country. Most of the people who have been hiding their income are now forced to come forward to declare their income and pay tax on the same. Even though deposits up to Rs 2.5 lakh will not come under Income tax scrutiny, individuals are required to submit PAN for any deposit of above Rs 50,000 in cash. This will help the income tax department to track individuals with high denominations currency. Finally, all the monetary transaction has to be through the banking methods and individuals have to be accountable for each penny they possess. 

Such good are the benefits of demonetisation, but since majority of our agriculture transaction have traditionally been heavily cash dependent, short terms aftershocks of this move were expected. Cash is the primary mode of transaction in agriculture sector which contributes 15% to India’s total output. Formal financing in many parts, especially Punjab, Uttar Pradesh, Odisha, Maharashtra, Gujarat and Kerala is significantly from cooperative banks, which are barred from exchange-deposit of demonetized currency. Notably, this is a time of kharif harvest and start of rabi sowing, partly explaining why this period is dubbed the ‘busy season’ from a standpoint of credit demand, the other being bunching of festivals and weddings. Agriculture is impacted through the input-output channels as well as price and output feedback effects. Sale, transport, marketing and distribution of ready produce to wholesale centres or mandis, is dominantly cash-dependent, disruptions, breaks in the supply chains feedback to farmers as sales fall, increased wastage of perishables, lower revenues that show up as trade dues instead of cash in hand and when credited into bank accounts with limited access affect the sector. 

These were some of the after effects of demonetisation but majority of farming community is slowly learning the new means of trade. But, now farmers are accepting the new mode of transaction (Cashless or Bank to bank Transaction). It is the myth the farmers refuse to accept cheque payment as Small dairy farmers in Andhra Pradesh accept cheques, Sugarcane farmers accept cheques from sugar factories, Moong farmers are accepting cheques from government procurement agencies, Apple farmers accept cheques from large buyers, Potato contract farmers accept cheques from food companies, Maize farmers in Nabrangpur - Odisha's poorest district are accepting cheques, and coconut farmers in Karnataka took cheques from state agencies and such mode of transaction has been increasing day by day. Moreover, Farmers accept insurance and disaster relief cheques. Thus dealing in cheque is not a new mode of transaction for the farmers. In some states government has failed to deliver the payments by cheque not because there is no mechanism, but due to local middlemen resistance. Food Corporation of India tried but failed to pay Punjab and Haryana farmers by cheque for wheat, only because the powerful commission agents want to first deduct the loan repayment amounts. So to portray that the farming community is not at all aware of modern means of cashless transaction is not so appropriate. 

Few issues of cash payment is involved in payment of labourers, transporters and other small channels, cashless mode can be adopted after due persuasion and training. In the current scenario, It is true that the small and marginal farmers who sell off their produce in the village itself are hurt by the demonetisation. Similarly, value chains with minimal processing and direct consumer sales such as fruits and vegetables are hit. Most fresh produce is sold by small hawkers and vegetable mongers in the streets of India. Since they take payment in cash and buy their wares from the mandi in cash, business is down. These are symptoms of the crying need for reform and high time that the new systems are in place replacing the old traditional ones so as to ensure the every person is made accountable for each and every penny one earns. 

The demonetisation has been accepted as a financial cleanup process by the people at large; the governments should make use of demonetisation as an opportunity to secure the economic wellbeing of the poor farmers in the country. The demonetisation could be an occasion to popularize Kisan Credit Cards, while making it available for not only to men farmers but also to all women farmers. The credit card should be in a position to help farmers purchase the needed inputs without much difficulty. 

Demonetisation could then lead to a new era in agriculture provided it is managed and implemented judiciously.

Copper Industry Finally Sees a Glimmer of Hope with Turnaround in Chinese Demand

Copper market dynamics are largely being guided by the way Chinese demand as China, is world's second-largest economy, also a biggest commodity consumer, accounting for about 45 per cent of the global demand. The price of copper has maintained lower ebb ever since the slowdown in Chinese economy commenced. In the times before 2014, China controlled the market as a growing industrialized nation with an enormous geographic scope and a breakneck growth rate, China became a large consumer of raw materials and commodities. A cheap dollar over the past six years only accelerated these themes, as it made the relative cost of these commodities cheaper on a per-unit basis, all factors held equal. Copper had significantly wider industrial usages than Gold or Silver, and was often be found in electrical wiring. Copper has been the preferred electrical conductor in pretty much every area of wiring with the exception of overhead electric power transmission, in which aluminum is often used. This meant that a growing, industrialized economy was using more of copper, as wiring was going to be a necessity as a country was building its infrastructure.

But Chinese growth began to slow heavily from the 10 per cent growth rates seen for much of the decade leading into 2014, down to 8 per cent; followed by a 7.5 per cent growth target in March of 2014, and then a target of ‘around 7 per cent’ in March of 2015, and most recently, a 6.5 per cent target set for 2016 to 2020. This slowing of growth has had a dramatic impact on Commodity prices, and perhaps one of the best markets to look at for this evidence is in Copper. As China slowed, Copper prices have seen a significant move as this demand for Copper’s industrial usage has waned. After that high in February of 2011, Copper prices have moved down by more than 53 per cent. In the current scenario, we can derive the expectation for additional weakness in metals prices, and this can lead to additional pain for economies with significant mining operations, as lower Copper prices will squeeze margins, and that leads to less hiring, lower wages (or fewer wage increases) and an overall contraction in business. Following the trend’s weakness the copper prices are down almost 30 per cent over the past year. On the contrary the Chinese stocks are up over 40 per cent leading to sustained weakness. 

According to the ICSG, China is expected to drive copper production and demand growth in 2016 and 2017. The ICSG also added that the demand is expected to stay the same in 2016 but forecasted to grow by 1.8% in 2017, mainly supported by the increase in industrial demand from China. The latest copper market forecast report released by the International Copper Study Group (or ICSG), the market will be very close to supply-demand balance in 2016 and 2017, and China is expected to be the biggest contributor to supply and demand growth. China is expected to add about 550,000 tonnes both in smelting and refining capacity next year versus 500,000 tonnes in smelting capacity and 450,000 tonnes in refining capacity this year.

Amidst the major supply side indicators, China is the largest producer of refined copper in the world, it accounts for over one-third of the global refined copper production followed by Chile and Japan. Chile’s refined copper production has fallen 5.2 per cent YoY (year-over-year) in the first seven months of 2016 compared to the same period last year. The country’s copper production has been impacted negatively by a range of issues from floods to labour problems. Chinese copper production has continued to rise in 2016. In the first eight months of 2016, China’s copper concentrate imports rose ~34 per cent YoY. It’s important to note that China’s copper smelting and refining capacity has expanded at a fast pace in the last decade. As a result, the country imports large amounts of concentrates. On an annual basis, the net imports of refined copper rose 9 per cent year-on-year. For the first half of 2016, net refined imports reached 1,874kt, rising 20 per cent year-on-year from H1 2015’s 1,559kt. It processes the concentrates domestically. This helps job creation in China. Higher copper concentrate imports are reflecting in China’s copper production. Production has risen 8 per cent YoY in the first eight months of the year. According to the data released by National Bureau of Statistics on September 19, China’s copper output rose to almost a six-month high in August. According to the data, the output rose to 743,000 metric tons in August. This is higher than July’s output of 722,000 metric tons. It’s also higher than the output of 663,000 metric tons in August last year. Copper started the day on a weaker note amid an increase in China’s output. However, it recovered losses amid a weaker dollar. Chinese copper exports have also been rising over the last few months, while its refined imports have fallen. Since the increase in Chinese copper imports wasn’t exactly backed by end user demand, some of the Chinese refined copper imports found their way into SHFE (Shanghai Futures Exchange) warehouses. As a result, SHFE copper inventories rose to record highs in March. 

In the second half of 2016 the copper scenario seems to be improving with investment stimulus being pushed into the Chinese market, stable dollar and improvement in demand. Thus, in spite of the gloom surrounding the copper market at present, the future is showing signs of recovery. China's demand for copper is expected to rise 4-4.5 per cent in the later part of 2016 and 2017, with the exact level depending on economic growth, investment in power projects and bank credit to small- and medium-scaled factories. State investment in the power sector is expected to rise next year after slowing in 2015. Still, copper is used only when grids fund projects and place orders for power cables and wires. China is likely to spend at least 2 trillion yuan ($315 billion) to improve its power grid infrastructure over the 2015-2020 period, which an executive at a state-owned copper producer told Reuters could consume some 1.3 million tonnes of refined copper. Refined copper production may rise from 6-7 per cent to 7.87-7.94 million tonnes in 2016 as production at new smelters that came on stream this year and last year rises gradually, said He. Growth expected for this year is 7.7 per cent. These, alongside a steady increase in demand from China’s electric vehicle sector of around 200,000 tonnes over the next five years, account for more than 2 million tonnes of copper, compared with current forecasts on total copper consumption over the period of about 105 million tonnes.

Amidst so much of positivity flowing in the Chinese Economy, the copper prices have been working higher in recent days and given recent weeks has been London Metals Weeks when the global industry gathers, the price performance suggests sentiment is far from bearish and possibly even getting a bit more bullish. Tin price are ramping higher, given the shortages in LME stocks that is not surprising and without the backwardation flaring out, the market seems relatively orderly. Finally, the market had become too complacent about the bearish China trade and the rebound since mid-January caught many in the market wrong-footed. A counter-trend move is now in progress; given the low level of LME stocks and rising prices, a period of restocking may ensue.

NBHC’s First Kharif Crop Estimates for 2016-17

With the Kharif season almost on the verge of completion we at NBHC are releasing our 1st Kharif Crop Estimate - 2016-17. As per our analysis and industry’s feedback on the sowing progress and the status of the current crop, the total Kharif Cereals production is likely to improve by 8.25 per cent. For the current season the monsoon had arrived about 7 days late but spread uniformly over the country barring few pockets. The entire season monsoon was found to be 3 % below normal and the spread details are as: Excess – 13%, Normal – 72 % and Deficient – 15 %. In the deficient regions, out of the 9 deficient sub-divisions, 4 sub-divisions were from South Peninsula (Coastal Karnataka, South Interior Karnataka, Kerala and Lakshadweep), 3 from Northwest India (Haryana, Chandigarh & Delhi, Punjab and Himachal Pradesh), and 1 each from Northeast India (Assam & Meghalaya) and Central India (Gujarat region). The crops sown in these areas are already experiencing moisture stress, but the rest of the country is expected to have good crop. Based on the above conditions we fell that the total Kharif crop production scenario for the year 2015-16 would turn out to be as explained in table given below. 

Rice is expected to show a marginal Improvement in area by 5.26 per cent and a rise of 4.96 per cent in production over last year owing to wide spread rains in major paddy growing areas. Maize is the other cereal crop with significant improvement in area as well as production. The area is expected to increase by 13.95 per cent and the production is expected to improve by 28.26 per cent to 19.05 Million MT as major stretch of maize producing areas in major states are experience conducive weather situations. Maximum improvement is expected in Jowar whose production is expected to expand by 25.55 per cent in spite of significant decline in acreage. Lack of remunerative income has led Jowar & Bajra farmers to shift their cropping pattern to other cash crops though the good rains are expected to boost the yield keeping the overall production on the positive side. 

In the pulses sector, the increased positive focus of the government was clearly visible. In the pulses growing states of Madhya Pradesh, Karnataka, Andhra Pradesh and Telangana major production overhaul is expected. We expect the area under Tur, Moong and Urad to increase sharply by 45.05 per cent, 26.66 per cent and 37.02 per cent and likewise the production also to improve by 53.58 per cent, 37.84 per cent and 42.78 per cent respectively. Overall, the total Kharif pulses production is likely to soar up by 47.88 per cent over last year. 

The oil seed sector is likely to see a marginal improvement of production by 15.61 per cent. Maximum increase of 13.68 per cent in production is expected in case of groundnut. 

In this current monsoon season, the cash crop section is likely to show a negative growth in terms of production. In sugarcane, the production is likely to decline marginally by 8.51 per cent and in cotton the production is likely to decline by 2.67 per cent.

Increased Uncertainty in Demand Grips Major Investment Plans in Copper

Major copper supplying companies and countries are finding it really hard to balance their economy in the wake of sustained weakness in copper demand. The burden of over supply continues amidst lack of increased demand from China (which consumes about 45 per cent of the global supply) and other emerging markets. The slackness in demand has led major copper supplying companies to production cuts and lying off of the expansion plans. Copper consumption in China has been a vital measure of that country’s economic growth as the red metal forms a key network of its infrastructure, transporting water, and conducting electricity. China, with its huge manufacturing sector, is by far the largest consumer of copper. It has been estimated that 70 per cent of copper used in China is imported. Many markets whose returns are positively correlated with China’s industrial/investment cycle (base metals, iron ore, commodity currencies) continued to rise in the spring and early summer of 2016 despite the lack of much lift in Chinese industrial production and fixed asset investment as the authorities provided stimulus, but the copper continues to lag behind on reduced demand and falling prices. 

The situation of over supply is likely to continue for the entire 2016 as there are no signs of improvement in demand. Copper got a boost in recent weeks from encouraging economic data from China that signaled stability for the major copper consumer, but the recent check in the infrastructural growth. China, the world’s biggest consumer of copper, cut imports of the refined metal to the lowest level in 18 months in August as domestic production climbed amid increasing foreign purchases of ore and concentrate. Inbound shipments of refined metal slumped for a fifth month to 232,066 MT from 251,235 MT in July and 262,691 MT a year earlier. Refined-metal exports jumped more than four-fold from a year earlier. Purchases of refined metal were still 16pc higher in the first eight months from a year earlier, the data showed, after record shipments in the first half on the back of a credit boom and property rebound. 

World mine production is estimated to have increased by around 4.5 per cent (430,000 MT) in the first half of 2016 compared with production in the same period of 2015. Concentrate production increased by 6 per cent while solvent extraction-electro-winning (SX-EW) declined by 1 per cent. The increase in world mine production was mainly due to a 50 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia also contributed to world growth. However overall growth was partially offset by a 5.5 per cent decline in production in Chile, the world’s biggest copper mine producer and a 10 per cent decline in DRC where output is constrained by temporary production cuts. The average world mine capacity utilization rate for the first half of 2016 remains practically unchanged from that in the same period of 2015 at around 84.5 per cent. World refined production is estimated to have increased by about 3 per cent (320,000 MT) in the first half of 2016 compared with refined production in the same period of 2015: primary production was up by 2.5 per cent and secondary production (from scrap) was up by 4.5 per cent. The main contributor to growth was China (+6 per cent), followed by the United States where production increased by 16 per cent. Output in Chile and Japan, the second and third leading refined copper producers, increased by about 2 per cent and 3 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. 

Amidst, lack of concrete demand, the marginal fluctuation in prices is been governed by movement in the energy prices, news of supply cuts and movement in dollar prices. Historically, there hasn’t been much of a correlation between copper and energy prices. However, copper and Brent crude oil have had a much higher correlation in the last couple of years. One of the reasons driving commodities lower has been the steep decline in energy prices. If crude oil prices recover as a result of production cuts, we might see an upward price action in copper as well. Copper producers such as Southern Copper (SCCO), BHP Billiton (BHP), and Rio Tinto (RIO would benefit if copper prices increase. It’s worth noting that copper’s long-term fundamentals are better than some of the other commodities such as steel and aluminum. However, in the near term, oversupply and negative global sentiment seem to weigh on copper prices. As per the supply cuts are concerned, Late last year, Glencore — one of the world’s largest copper miners — decided to mothball its largest mines in Africa, taking up to 400,000 MT of copper production off the global market. In Chile, the single largest supplier of copper in the world, the state-run copper commission announced big investment cuts through 2025, eliminating eight mine-development projects worth nearly $23 billion.

World apparent refined usage is estimated to have increased by around 5 per cent (570,000 MT) compared with that in the same period of 2015 mainly due to strong Chinese apparent demand. Chinese apparent demand increased by around 11 per cent based on a 20 per cent increase in net imports of refined copper from the lower net import level in early 2015 and consequently lower apparent demand. Excluding China, world usage remained essentially unchanged. On a regional basis, usage is estimated to have increased by 5 per cent in Europe and 7 per cent in Asia (when excluding China, Asia usage declined by 2 per cent), while declining by 17 per cent and 4 per cent in Africa and in the Americas respectively and remaining essentially unchanged in Oceania. 

Now, going by the details of the Chinese market, the global copper status is heading nowhere as the pressure of increasing stock in China is going to pressure the prices any time. Reuters reported that China’s SRB had bought 150,000 MT of copper. That’s quite a big number when we look at annual copper consumption, which is expected to reach 23 million metric tons this year. Moreover, the bonded copper stocks, which are held in free-trade zones in China, have risen over the last few months. The data haven’t been released officially, but Bloomberg estimates the figure at a whopping 600,000 metric tons as of the end of May. China’s bonded copper stocks have risen by 220,000 MT since February 2016. On the demand side, the total floor area under construction (in square meters) by Chinese real estate development enterprises has risen by 4.8 per cent in the first seven months of the year. The rate of growth has fallen 0.2 per cent points as compared to the first six months of the year. In the first seven months of 2016, building sales increased by 39.8 per cent YoY (year-over-year) in China. However, the growth rate has fallen by 2.3 per cent points as compared to the first six months of the year. Thus, we can see that the historically high Chinese imports that we saw earlier this year are not sustainable, as they are not backed by actual end user demand and might ultimately find their way into the Shanghai Futures Exchange warehouses and bonded locations. The above facts clearly explain that all is not well with copper market and it’s not the right time for the new investors to make fresh entry.

Investor’s Sentiment in Doldrums Amidst Absence of Significant Stimulus

Copper trade is still lacking support from the major industry players amidst pressure form the abundance of supplies and global economic slowdown. In spite of the few scattered efforts to add strength to the economic growth in the major consuming countries, the market lacks the sustained support which is required to push up the copper prices and maintain it on the higher levels. Copper tumbled in the past three years as China, the biggest consumer, headed for its slowest economic growth in a generation following years of investment in output by miners. Demand for copper continues to the main concern as there are already signs of China’s wavering demand. The country’s imports of refined copper shrank in July to the smallest in 17 months, while exports jumped fivefold from a year earlier. 

On the supply side the surplus in no more a surprise for the industry. World mine production is estimated to have increased by around 4 per cent (345,000 MT) in the first five months of 2016 compared with production in the same period of 2015. Concentrate production increased by 5.5 per cent while solvent extraction-electro-winning (SX-EW) remained essentially unchanged. The increase in world mine production was mainly due to a 52 per cent rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years. A recovery in production levels in Canada and the United States, expanded capacity in Mexico and a ramp-up in production in Mongolia also contributed to world growth. However overall growth was partially offset by a 5 per cent decline in production in Chile, the world’s biggest copper mine producer and 11 per cent decline in DRC where output is constrained by temporary production cuts. The average world mine capacity utilization rate for the first five months of 2016 remains practically unchanged from that in the same period of 2015. World refined production is estimated to have increased by about 3.5 per cent (330,000 MT) in the first five months of 2016 compared with refined production in the same period of 2015, primary production was up by 3 per cent and secondary production (from scrap) was up by 5 per cent. The main contributor to growth was China (+7 per cent), followed by the United States where production increased by 18 per cent. Output in Chile and Japan - the second and third leading refined copper producers - increased by around 3.5 per cent respectively. Refined production in the DRC and Zambia declined due to the impact of temporary production cuts. The average world refinery capacity utilization rate for the first five months of 2016 increased to 83.5 per cent from 82.2 per cent in the same period of 2015.

Though there has been a marginal improvement in the demand, it has significantly failed to keep pace with the rising supplies. In the first five months of 2016, world apparent refined usage is estimated to have increased by around 5 per cent (510,000 MT) compared with that in the same period of 2015 mainly due to strong Chinese apparent demand. Chinese apparent demand increased by around 12 per cent based on a 22 per cent increase in net imports of refined copper from the lower net import level in early 2015 and consequently lower apparent demand. Copper imports by China have been declining since April 2016 after reaching a peak in March. This increase in its export data and a decline in imports raised concerns over the strength of demand for copper in China. Excluding China, world usage remained essentially unchanged. After taking imports of unwrought copper and products to a record in the first half, China cut purchases to 360,000 MT in July, the lowest since August 2015. On a regional basis, usage is estimated to have increased by 6 per cent in Europe and 8 per cent in Asia (when excluding China, Asia usage declined by 2.5 per cent), while declining by 20 per cent and 4 per cent in Africa and in the Americas respectively and remaining essentially unchanged in Oceania.

The industry has been trying to cut the supplies in order to match up with the decline in the demand but copper-output cuts spurred by lower prices aren’t enough to end a surplus this year and demand won’t catch up with supply until 2017. Production outpaced demand by about 147,000 MT in 2015, the biggest surplus since 2009. Till now, around 700,000 MT of supply will have been removed in about the year through mid-2016 as prices sank to a six-year low. Still, new supplies from mines added this year indicated that the glut would not be completely wiped out in 2016. Stockpiles of the metal are ballooning, further pointing to a demand slowdown. Inventories monitored by the London Metal Exchange have jumped to a 10-month high. Supplies are likely moving out of China and into warehouses tracked by the London Metal Exchange. 

Going by the above situation of supply glut and shrinking demand, the industry is keenly looking forward to the economic situation of major consuming countries for support. A partial support came from the data released by the China Logistics Information Centre, which showed that China’s Manufacturing PMI rose to 50.4 in August. This is better than July’s value and is also higher than the market’s expectations of 49.9. The reading above 50 indicates the expansion of manufacturing activity. This better-than-expected factory data gave support to copper prices as healthy manufacturing activity in China implies a healthy demand for copper. But this support was short lived as the US dollar weakened due to weaker-than-expected manufacturing data for US which showed the ISM Manufacturing PMI data as 49.4 in August. This was disappointing, as the market expected a manufacturing PMI reading of 52. This weaker-than-expected data weighed on the US dollar pulling down the scope of sustained improvement in copper prices. 

In spite of the marked gloom encircling the copper market, the silver lining comes from the improvement in the apparent demand of copper in China. Copper’s apparent demand has been better-than-expected this year on the rise in Chinese construction activity coupled with an increase in the country’s bonded stocks. The supply side of the equation has also been somewhat supportive of copper prices. Along with the curtailments by companies like Freeport-McMoRan (FCX) and Glencore (GLNCY), weather-related disruptions in Chile, which is the world’s largest copper producer, have prevented the market from moving to a larger surplus. Other positive developments in global economy supporting copper market are coming from US and Japan. In the United States, the No. 2 copper user, the two leading presidential candidates have pledged to step up spending on infrastructure if elected. In Japan, Prime Minister Shinzo Abe’s government is embarking on a plan to spend $77.5-billion Canadian on infrastructure. Thus, though for the short term there is no support to the copper industry, the long term investors should stay invested and refrain from panicking.