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AN INSIGHT INTO COPPER

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com Phone.(0731)4295950 CONTENTS Introduction Factors Affecting Copper price Supply & Demand of Copper The Volatility of Commodity Prices The Effect of Rising Copper Prices World resources Substitutes Technical View Composite Indicators Short Term Outlook Long term Outlook www.com .capitalheight.info@capitalheight.

exploration for the metal was extended throughout the world laying down the foundations for the industry as we know it today. The construction industry also accounts for copper's second largest usage in such areas as pipes for plumbing.capitalheight. construction material and as components in telecommunications and alloys. wire and electrical products for both the electrical and building industries.standardbank. heating and ventilating as well as building wire and sheet metal facings. Copper is the third largest consumed metal after steel and aluminum in the world.com Industrial consumption Asia 43 America 32 Europe 19 Africa 4 Oceania 2 Total 100 Industry % Source: Standard CIB Global Research www.com Phone.co. World copper production Region % Source: WBMS www. As the ages and technology progressed the uses for copper increased.info@capitalheight. Copper is an excellent conductor of electricity. as such one of its main industrial usage is for the production of cable.world-bureau.com . Copper is used as electrical conductor.za Electrical/Electronic 42 Construction 28 Transportation 12 Consumer/General 9 Industrial 9 Machinery Total 100 www. With the increased demand.(0731)4295950 Introduction Copper was the first mineral that man extracted from the earth and along with tin gave rise to the Bronze Age.

(0731)4295950 Factors affecting copper prices The wide production base means there are numerous factors that can affect production and therefore prices. it takes enormous financing. production is often affected by labor unrest.info@capitalheight. All these factors make it hard for the market to balance supply and demand. In North and South America. weather is an important factor affecting supply. These price fluctuations generate risk and opportunity to different participants in the market and the metal exchanges around the world provide the means for all those involved with the market to either hedge their risk or take on risk as an investor or speculator. With such a large and diverse market it is little surprise that copper's fundamentals are continuously changing and as they do. Their Supply and Demand and their expected Demand and Supply. take for example the closures of the Bougainville mine in Papua New Guinea and the decimation of production in Zambia. The copper prices change constantly as the market attempts to balance supply and demand at any given time. requires endless environmental permissions and needs extensive infrastructure as well.capitalheight.com . in parts of Asia and Africa production can be affected by political unrest.com Phone. Below is a table which depicts supply and Demand of Copper by major Copper producing and consuming economies. www. so does the price. In addition. Their expected Supply demand in next half of 2011. New production also takes years to commission as the scale of mining is large. with floods and droughts either hitting the production process or the transport of raw materials.

copper demand will exceed the supply and as such inventories are expected to be lower at the end of 2011 from where they stand currently.com . www. In other words.601 (Kt) in 2010.com Phone.2% in 2011. which increased 10.info@capitalheight.1% to 19. In aggregate the expected copper shortfall is anticipated to be about 825 (Kt) in 2011.(0731)4295950  The world’s Demand of and Supply of copper Demand Global consumption was reported at 17.capitalheight.800 (Kt) in 2009. Currently Barclays Capital does expect global consumption to grow about 4. Many people would argue that at some point copper prices will become so extreme that it will eventually lead to demand destruction.

34/lbs in 2009 to $3.com Phone. Production at Escondida.capitalheight. Hence.3% to 5. While this was a 5% to 6% increase year over year (depending on how you account for the “disruption allowance” factor) it is below the market expectation for production growth which was 8%. no new major copper supply will be seen in 2011 further tightening the inventory situation.152 (Kt) in 2010.com . It seems fairly logical to argue that as the flat price of copper (i.42/lbs in 2010. Oftentimes these countries are prone to shocks such as labor strikes. cash copper prices) rise further and further.256 (Kt) in 2009 and increased to 19. Due to shortage of domestic mines and a low percentage of productivity in the existing mines. the world’s largest copper mine. Talk about inelastic supply! Currently Barclays Capital projects copper production to increase 2.e. As such.info@capitalheight. is anticipated to drop as much as 10 % in the next 12 months because of lower grades. it is actually a substantial shortfall. www. India is already suffering loss in the level of production for Copper. Global copper production increased only 5% to 6% in 2010 despite a 46% increase in the average price of copper from $2.(0731)4295950 Supply Global production of copper was 18. “labor” becomes increasingly concerned that they are not getting what they see as their fair share of the prosperity. If copper at $3/lb provides temptation for labor to take a stab at increased wages. copper over $4/lb makes that temptation far greater. While this might seem inconsequential. sometimes violent and very disrupting. strikes. Copper Supply Constraints Copper is similar to many other commodities in that the vast resources are typically located in countries that are developing politically and economically. Many leading mines across the globe that were developed over two decades ago are yielding ore with less and less metal content. Rising prices are attracting companies to start newer venture but copper mining projects take a long time to commence. can and do occur.5% (depending on global disruptions expectations).

South Korea’s Public Procurement Service is also looking to raise copper stocks to 46 days of consumption in 2011 from 2010’s 42 days.g.capitalheight. Since the fundamentals of the metal are strong.(0731)4295950 The China and India effect Growing economies e. In the past one year. Most copper ore is mined or extracted as copper sulfides from large open pit mines in copper porphyry deposits that contain 0. such negative factors could only drag copper prices down for a short period. and are responsible for at least 30% to 45% of all base metals consumption. Another fear is of the substitution. Overall. The People’s Bank of China has alread y increased key one-year lending and deposit rates by 25 basis points effective from 18 th Feb 2011. Over 40 per cent of world copper supply comes from North and South America. India accounts for 3% of the global output but still has to depend completely on the copper ore imports. Rising copper prices will encourage use of other metals in plumbing & construction. www.com . The world’s growing economies may choose to increase interest rates in an attempt to curb liquidity and control inflation.4 to 1.com Phone.info@capitalheight. China and India are among the largest demand sources for industrial metals since the beginning of the last decade. though the buying would not be that aggressive. 31 per cent from Asia and 21 per cent from Europe. The pace of depletion in copper inventories at London Metal Exchange monitored warehouses is also indicative of a very strong demand outlook amid tight supply. China’s State Reserves Bureau (SRB) will buy more refined copper in 2011 even as the prices hover near a record high. copper stocks at LME-monitored warehouses have declined nearly 25%. new usage like electric and hybrid cars should make up for the loss of demand caused by substitution. But at the same time. India and China’s copper imports are expected to go up this year and demand is also likely to rise by 7% in 2011 from last year. Substitution will pull out around 3% of the copper in 2011.0 percent copper.

capitalheight.com Phone. but there are costs and delays involved in switching between them. both demand and supply are assumed to be inelastic in response to price movements. The low price elasticity of demand for copper usually stems from a lack of close substitutes in the market. price volatility stems from a lack of responsiveness of both demand and supply in the short term. aluminum or plastic may act as a substitute to copper for some uses. For some products and processes.(0731)4295950 Estimated Copper Consumption versus Domestic Production – China  The volatility of Commodity Prices As we have seen. www.com .e. i.info@capitalheight.

Nonetheless price theory would predict an increase in demand for scrapped copper and perhaps a substitution effect away from copper towards aluminum. so buyers in the market will bid up the price either to finance immediate delivery (the spot price) or to guarantee delivery of copper in the future (reflected in the futures price). These external costs include atmospheric emissions from recycling plants and waste products dumped into rivers. And the take off in wireless technology and fiber optics will also have an impact. And as stocks fall. The Effects of Rising Copper Prices The demand for copper will continue to remain strong provided that the global industrial sectors continue to expand production.com Phone. But if price remain high then we can expect to see some shifts occurring. In recent years. copper can be recycled although the costs of doing so are often high and there are fears concerning the negative externalities arising from the pollution created by trying to recycle used copper. copper mining production has fallen short of expectations.capitalheight.com . And in the medium term high prices and emerging new technologies may cause an even bigger shift in demand away from copper based products. if the price is high enough suppliers will eventually respond! www. Plastics provide lower material and installation costs for businesses. It can take huge price swings in the market for supply and demand to respond sufficient to bring the market back to some sort of equilibrium. If existing copper mining businesses are working close to their current capacity then a rise in world demand will simple lead to a reduction in available stocks. Supply is usually unresponsive to price movements in the short term because of the high fixed costs of developing new extraction plants which also involve lengthy lead-times.(0731)4295950 The elasticity of supply is also low. And higher prices might also be the stimulus required for an expansion of copper ore production as supply responds to the incentives of increased potential revenues and profits. For a start. But as with any market.info@capitalheight.

capitalheight. copper resources indicated 550 million tons of copper in identified (260 million tons) and undiscovered resources (290 million tons). There is no doubt whatsoever that aluminum has replaced copper in wires. True. www. And anyone who would have you believe that you could one day stop using copper altogether in lieu of aluminum should consider this one fact: If you took all the aluminum stockpiles in the world. it seems logical to assume that demand for copper could go way down in coming years. optical fiber substitutes for copper in some telecommunications applications. drain pipe.8 A preliminary assessment indicates that global land-based resources exceed 3 billion tons. automobile radiators. power cables and other wires are being made with aluminum. electrical equipment. conductors and various electrical parts – especially as copper prices have more than tripled recently. and plastics substitute for copper in water pipe. After all. But how likely is it that everyone will all of a sudden stop using copper in lieu of aluminum? The bears argue that copper is far heavier and more expensive than aluminum. demand for both metals has soared in tandem. even if aluminum could be used to replace copper in every function under the sun (which it could not) we would only have enough to last nine days. and cooling and refrigeration tube.com . In fact. Deep-sea nodules were estimated to contain 700 million tons of copper.S. And in recent years. conductors. and plumbing fixtures. Copper is in not in the danger of being totally replaced just yet. In other words. which is also a very good conductor of electricity. titanium and steel are used in heat exchangers. That’s evident by the rise in aluminum prices.info@capitalheight. and is lighter and much cheaper. Substitutes: Aluminum substitutes for copper in power cables. But that has always been the case. you can bet that anywhere it was feasible to replace copper with aluminum it was done.com Phone. One has not risen at the other’s expense.(0731)4295950 World Resources: A recent assessment of U. But the increase in aluminum has not had any major effect on the demand for copper. it would only be enough for nine days of global consumption.

2% $364.08 23. we have illustrated our technical view on Copper by presenting its various averages. Fibonacci retracement levels.40 $343.8% $522.36 61.(0731)4295950 The developing world needs both metals – not just one.38 Target Price .58 $521.98 $295.38 Monthly Pivot SCRIPT R4 R3 R2 R1 P S1 S2 S3 S4 Copper $577.com Phone.46 38.capitalheight.8% $310.78 $432. In next section.8% $421.53 $315.10 $434.$510 Fibonacci retracement levels SCRIPT Copper 0.0% $275. TECHNICAL VIEW Copper CMP .81 100 Day $433.18 www.2% $240.0% $427.info@capitalheight.8% $666.86 161.38 $375.45 Expansion levels SCRIPT Copper 38.00 131.$399.80 200 Day $414.40 61.18 50.87 $351.0% $125.6% $195.58 $239.2% $608. and on the basis of these our technical target on Copper.75 Moving averages Moving Averages Daily Weekly 20 Day $415. Expansion levels and in-depth analysis using various technical indicators on different time frames of charts supporting our technical view.92 100% $516.27 $408.com .27 50 Day $426.04 138.55 100.00 $384.18 $464.

capitalheight.100 Day MACD Oscillator Sell Sell Sell Strong Average Weak Weakening Strengthening Strongest www.info@capitalheight.50 Day MACD Oscillator 20 Day Bollinger Bands Sell Sell Sell Sell Hold Average Weak Strong Weak Weakening Weakening Weakening Strongest Rising Short Term Indicators Average: 80% Sell Medium Term Indicators 40 Day Commodity Channel Index 50 Day Moving Average vs Price 20 .8 Day Moving Average Hilo Channel 20 Day Moving Average vs Price 20 .100 Day MACD Oscillator 50 Day Parabolic Time/Price Sell Sell Sell Sell Average Strong Weak Average Weakening Strengthening Strongest Weakest Medium Term Indicators Average: 100% Sell 60 Day Commodity Channel Index 100 Day Moving Average vs Price 50 .com Phone.(0731)4295950 Composite Indicators TrendSpotter Signal Sell Strength Maximum Direction Weakening Short Term Indicators 7 Day Average Directional Indicator 10 .com .

3476 4.2% Retracement from 4 Week High Price Crosses 9 Day Moving Average Stalls 14-3 Day Raw Stochastic at 70% Price Crosses 18 Day Moving Average Stalls 38.194 4.195 Key Turning Points Price Crosses 18-40 Day Moving Average Price Crosses 9-40 Day Moving Average Price Crosses 9-18 Day Moving Average 14 Day RSI at 80% 14 Day RSI at 70% 13 Week High 52 Week High 4 Week High 5.com .1673 38.com Phone.(0731)4295950 Support/Resistance Levels Price 7.8351 4.1774 4.1825 4.6698 4.623 4.2% Retracement from 13 Week High Price Crosses 40 Day Moving Average Stalls 50% Retracement from 13 Week High/Low Price Crosses 40 Day Moving Average 14-3 Day Raw Stochastic at 80% 38.336 4.398 4.2625 4.1936 4.2085 4.capitalheight.2531 4.2% Retracement from 13 Week Low 14 Day RSI at 50% www.2352 4.info@capitalheight.6 6.3365 6.

9161 4 Week Low 13 Week Low 3.6977 3.capitalheight.7725 50% Retracement from 52 Week High/Low 38.4794 14 Day RSI at 20% 52 Week Low 3.2% Retracement from 52 Week High www.8977 3.info@capitalheight.1102 4.com .0915 4.9396 3.2% Retracement from 52 Week Low 14 Day %k Stochastic Stalls 3-10 Day MACD Oscillator Stalls 3.2% Retracement from 4 Week Low 3-10-16 Day MACD Moving Average Stalls 14-3 Day Raw Stochastic at 30% Price Crosses 9 Day Moving Average 14-3 Day Raw Stochastic at 20% Current Price 14 Day %d Stochastic Stalls 38.(0731)4295950 4.com Phone.9853 Current Price 3.8407 14 Day RSI at 30% 3.2849 2.902 Price Crosses 18 Day Moving Average 50% Retracement from 4 Week High/Low 14-3 Day Raw Stochastic at 50% 38.9605 3.0642 4.7751 3.0257 3.15 4.027 4.1533 4.

we can see that Copper has corrected 38.capitalheight. In our short term outlook we expect Copper could correct further and may test the level of $368 .2%. Below 50 RSI indicates a bearishness of Copper in near future.info@capitalheight. the RSI is at 45.com . Copper from here have a downside and it can correct to 50% that is at $368 where we meet our long standing support trendline which is drawn from the troughs of December 2008.(0731)4295950 Short Term Outlook:If we look at Copper weekly chart and simply apply a Fibonacci retracement of its recent uptrend starting from May 2010 to its peak of $464. www.$370.10 in Feb 2011. Further.com Phone.15 on weekly chart and is on over all downtrend taking resistance of trendline.

info@capitalheight.35 to $365.com . Copper is ranged between 61.(0731)4295950 Long Term Outlook:In our long term outlook for copper.8% to 38.com Phone.capitalheight. From here Copper on the maximum can test the level of $368 .50 from where it retraced to $270 and headed for its next uptrend. We have seen an expansion of coppr prices from $125. Currently. www.$370 and from then create a next uptrend to its 100% expansion which coincide with our target of $510.2% and is seeing a correction.$520. we are bullish on the upside and see 15% – 20% return once it completes its short term correction.

Now.com Phone. we have shown the expansion of copper from its 2nd rally starting from $271. Copper has retraced 100% of this decline and is seeing minor correction / profit booking and may come down to test its lower support line at $365 . In this chart.info@capitalheight.$370 which is also our short term target and from here next retracement of copper is at 138.2% which coincides to our technical target of $510 .96 to $464.10. After making a peak at $464.(0731)4295950 In our next chart.50.com . it could retrace to 76.capitalheight. www. as our short term outlook goes. we have shown copper retracement from peak of $427 to lows of $125.4% where it meets our technical long term target of $510.35.$520.10 it saw profit booking and came down to $384.

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