Copper likely to be bearish in near term

A report last Friday showing US jobless claims fell in the week ended May 14 and sovereign debt issues in the Euro zone are likely to underpin a stronger dollar, which may be bearish for dollar-priced assets like copper in the near term. A stronger dollar makes assets priced in that currency costlier for other currency holders and reduces demand.

Another factor contributing to near-term bearish outlook is monetary tightening by China, which may slow manufacturing activity in the world's largest copper consumer. In the coming week, copper on MCX is likely to trade in a range of Rs 390 to 410 a kilo. On Saturday, the most active copper contract was down by 95 paise at Rs 411.10 a kilo.

Brokers adopt wait-and-see approach

Brokers who advise clients on investments in local commodity futures have asked them to wait on the sidelines until copper breaks out from a Rs 380-420 range on either side. Clients who have purchased futures at Rs 380 to 400 a kilo levels have been asked to hold on to their positions.

Smelters' stocks may correct

Major copper smelters like Hindalco and Sterlite are trading around their monthly lows and could correct by another 5% if the benchmark Nifty stock index corrects from Friday's close of 5486 to 5,300-5,250, which are strong support levels, feels Alex Mathew, research head, Geojit BNP Paribas Financial Services . As of last week's close, Hindalco traded at 1.7% above its monthly low at Rs 192.2 while Sterlite was up 3.2% at Rs 168.10.

Long-term fundamentals intact

Even though analysts expect negative price movement over the near term, emerging markets like China and India will continue to grow faster than developed economies and this is expected to be supportive for copper in the second half of the year. While Chinese monetary tightening may have slowed demand for copper by manufacturers, they will have to stock up once inventories erode and this will be supportive for prices. This is already becoming visible in the steady fall of copper inventories in Shanghai, London and New York over the past eight weeks. However, restocking by Chinese is unlikely to happen at a fast pace. On Friday, three-month rolling contracts on LME closed at $9071 a tonne, up 3.2% over the previous week.

Rupee movement crucial

Currency fluctuation plays an important role in determining the price an Indian copper importer pays. A $20-25 per tonne price change on LME impacts the local copper rate by Re 1 a kilo, as does a 20-25 paise movement in the rupee. So, if copper falls by $25 on LME and the rupee dips by 25 paise the price fall on LME does not benefit an Indian buyer. Similarly, a 25-paise gain in the rupee would offset a $25 rise in LME copper for an Indian buyer.