The demand for copper copper’s conductivity and durability make it indispensable for electrical systems, wind turbines, and solar power generation. The growing global push towards decarbonisation and clean energy projects is a key factor in driving sustained demand for copper, even as its prices remain highly volatile due to economic shifts and geopolitical tensions.
Factors influencing MCX copper prices
Globally, copper prices are influenced by several macroeconomic factors. Industrial demand, especially from China, the world’s largest producer and consumer of copper, plays a pivotal role. Any economic slowdown or policy shift in China reverberates across the global copper market. For instance, in 2022, copper prices on the MCX fell sharply from Rs 880 in March to Rs 600 by July. Similarly, in May 2024, prices saw another significant correction, plummeting from Rs 950 to Rs 770 by July’s end. These corrections closely align with weak economic data from China, particularly its manufacturing sector.
China’s manufacturing index, which hovered around a normal reading of 50.00, saw a notable decline to 47.50, reflecting a contraction in industrial activity. Additionally, China’s Producer Price Index (PPI), which had peaked at 12% in 2021, dropped to -5% by July 2023. This downward trend in PPI was a clear indicator of deflationary pressures in China’s industrial sector, leading to price corrections in base metals, including copper. By July 2023, copper had hit a low of Rs 700 on the MCX. However, as China’s PPI and manufacturing data began to recover, copper prices followed suit, climbing back to Rs 850. This underscores the significant influence of China’s economic health on copper prices.
ETMarkets.comHedging and risk management strategies
Given the cyclical nature of copper prices and their sensitivity to global economic data, investors in copper futures and derivatives need to employ effective hedging strategies to mitigate risks from price swings. Long-term investors can use futures contracts and options to manage exposure, while actively monitoring global macro trends, especially from China. The clean energy boom, along with continued industrial demand, provides a strong long-term case for copper, but volatility will remain a constant factor due to the commodity’s dependence on macroeconomic shifts.
In volatile markets like copper, hedging strategies, such as buying put options or using stop-loss orders, can help protect investments from sudden downturns. As the global economy recovers and copper continues to play a central role in industrial demand, particularly in renewable energy sectors, smart risk management will allow investors to navigate the cyclical price swings effectively.
Technical Analysis
Technically, copper has been in an uptrend since its low in July 2023. The recovery was aided by China’s decision to cut interest rates and infuse liquidity into the economy, providing a much-needed boost to the commodity markets. In the span of just three weeks in September 2024, copper prices surged from Rs 770 to Rs 850. This rally can be attributed not only to China’s policy actions but also to improving sentiment in global commodity markets.
ETMarkets.comOne useful technical tool for analyzing copper price trends is the Bollinger Band, which helps identify potential price movements and volatility. Copper has shown a consistent pattern of uptrends when prices rise above the median yellow line of the Bollinger Band. For example, in February 2024, copper prices breached the median at Rs 720 and rallied to Rs 900 by May 2024. A similar pattern is being observed in September 2024, with prices crossing the median and heading towards the upper Bollinger Band.
Looking at the current setup, copper faces resistance around Rs 900-Rs 925, which will likely act as a hurdle for prices in the short term. However, the ongoing rate cuts in China and improving macroeconomic indicators suggest that the uptrend may continue if these resistance levels are breached.
(The author is Vice President, Research Analyst – Commodity and Currency, LKP Securities)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)