Vijay Kumar Gaba

Moreover, the discount between spot prices three months future at LME widened to the largest since 2006, indicating poor outlook for copper demand in the near term.

Copper prices have fallen over 10% in the past one month alone on disappointing growth data from China. The hopes of a sharp recovery in Chinese growth in near term are fading as more downgrades are indicating. Goldman Sachs reportedly revised its average copper price forecast for 2023 by over 11% to US$8698/t from US$9750/t earlier. Though the optimism over Chinese growth and consequent firmness in copper prices is not lost completely. For example, Bank of America is still maintaining its US$10,000/t copper price forecast for 2023 end in the hope of large demand ramp up as China accelerates spending on its power grid. Nonetheless, the general mood is drifting towards accelerated slowdown in demand.

Since copper is used in infrastructure (power, shipping, buildings etc.) machinery and discretionary consumption (housing, vehicles, appliances etc.) its demand is widely accepted as a lead indicator of the direction of the economy. For its ability to provide a correct prognosis of the health of the economy, the bright metal is popularly known as Dr. Copper.

So, if the latest prognosis of global economy by Dr. Copper is correct—

·         We shall see an accelerated slow-down in global economic activity with little support from China, in the next few months. This shall reflect in poor export demand for India also.

·         The inflationary forces may weaken as tighter money constricts demand further; eventually leading to the next round of monetary easing by the end of 2023 or early 2024. RBI’s growth forecast for FY24 may also get moderated resulting in change in the present “withdrawal of accommodation” monetary stance.

·         Deflation, rather than inflation, could again emerge as the major concern of global policy makers by the end of 2023. Japanese markets that have majorly outperformed the developed peers on easing deflationary pressure could again face pressures.

·         Notwithstanding the Debt Ceiling tantrums and political rhetoric, for global investors bonds may emerge as preferred asset class in near term over equities.

·         Overall, a foundation for a decent equity rally in India over 2024-25 could be laid in the next 6months.

(Inputs from Copper price slides as global demand drops sharply published in the Financial Times)