Copper falls 2.70% amid rising inventory, strong dollar– What next?

Copper falls 2.70% amid rising inventory, strong dollar– What next?

Copper mcx prices have witnessed more than two and half percent weekly drop last week.  Prices plunged near to its July 2023 low, as strong dollar, high inventories weighted down the sentiment.  

 The U.S. dollar currency index jumped above its sixth month high against its major counterparts, as after the U.S. Federal Reserve signaled monetary policy would remain restrictive for longer.

Adding to this, rising copper inventory of the base metal was another reason behind last week’s fall. Copper held on the LME has more than doubled over a two-month period, which is a clear signal of weakening demand.  The discount for near-term delivery versus the LME three-month copper contract (CMCU0-3) was at a four-month high, indicating plentiful immediate supply. Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 16.9% this week, according to the exchange.

However, since morning prices traded neutral amid growing concerns over more economic headwinds in major importer China.  Copper futures steadied at $3.6675 a pound, down 0.77% after ending the prior week slightly lower. While, MCX Copper traded at 714.45 up 0.06% at 714.35.

Concerns over China’s property market came to fore on Monday after embattled developer China Evergrande Group said it will be unable to issue new debt due to an ongoing government investigation into a unit.

This ramped up concerns over a broader debt freeze in the property market, which could have dire consequences for China’s economy. The sector is struggling with a three year-long cash crunch, and has seen limited fiscal support from Beijing.

The property market accounts for about a quarter of overall Chinese economic growth, and is also a key driver of copper demand.

Focus this week is also on Chinese purchasing managers’ index data, due on weekend, for more cues on business activity.

Technical Outlook – Copper:

Copper futures

Since 15 September 2023, copper prices turned negative and gave up more than 2.70%. Prices continued to drop from the peak of 742.45 and made a low of 711.50, the lowest levels after 3 July 2023.

Today, prices touched intraday low 712.10 and traded at 714.85 levels.

On the above chart, prices are trading on a verge of multiple support of 708.00. A break below only extends a drastic fall towards 702-698. Alternatively, prices may consolidate in between the range of 710-722.50 in days to come.

On the upside, massive resistance is seen at 723.80 and a break above only prices regains towards 729-735.50.

Adding to this, Concerns over China’s property market and rising inventory is likely to hold volatility in the prices

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