Commodity Call. Slowdown worries hammer copper

Copper prices plummeted to their six-year low last week. Renewed concerns about the downturn in China, coupled with a strong dollar, dragged the commodity lower. The copper futures contract traded on the COMEX (Commodity Exchange, Inc) fell over 6 per cent in the past week to record a low of $2.03 per pound.

Copper futures on the Multi Commodity Exchange (MCX) usually move in tandem with the COMEX copper contract. MCX Copper declined over 5 per cent to a low of ₹299.6 per kg last week. It is currently trading at ₹300.

Recent weak economic data releases from China have added fuel to prevailing slowdown worries. The economy grew at a slower pace of 6.9 per cent in the third quarter of this year, down from a 7 per cent growth recorded in the previous quarter.

The country’s manufacturing sector has been sluggish for three months now. The recent official Purchasing Managers’ Index (PMI) for October was at 49.8. Industrial production fell to a six-month low of 5.6 per cent in October from 5.7 per cent in the previous month.

The series of weak economic data releases from China has increased concerns that demand will remain weak for copper. The metal could continue to remain under pressure.

However, on the charts, a series of important supports are coming up for copper.

Although a strong reversal in the trend is not possible anytime soon, the presence of these supports on the chart suggests that the pace of the fall could slow down and the metal could possibly find a bottom.

The COMEX-Copper futures contract, currently trading at $2.06, has a series of supports near current levels. The key immediate supports are at $2.05 and $2.00. A strong reversal from these supports can trigger a corrective rally to $2.26. If it manages to surpass this hurdle, then the contract can extend its upmove to $2.47. An immediate break above $2.47 looks unlikely at the moment. A downward reversal from this resistance will see the overall downtrend resuming towards $2 once again.

Broadly, if the COMEX-Copper sustains above $2 in the coming weeks, then there is a possibility of a range-bound move between $2 and $2.26.

Below the support at $2, an important long-term trend line support is present in the $1.93-1.91 zone. As long as the contract trades below its important medium-term resistance at $2.50, the chances of the metal price extending its fall in the coming months to test this long-term support zone exist. But as the contract has been declining sharply for more than two years now, the possibility of it finding a bottom in the $1.93-1.91 zone looks high. This may not happen immediately, though. On the domestic front, the downtrend that had begun in May from the high of ₹421.4 remains intact. Key resistances are at ₹350 and ₹370. Immediate support is at ₹300. A strong break below this can drag the contract lower to ₹281 — a key 61.8 per cent Fibonacci retracement support level. A bounce-back rally from here can take the contract higher to ₹310 and ₹320 thereafter. But a further break below ₹281 will result in the contract extending its fall towards ₹270.

The MCX-Copper futures contract hovers above a key psychological support at ₹300. If it manages to head higher from this support, then a rally to ₹315 and ₹320 is possible in the short term. The ₹315-320 is a strong resistance zone and an immediate break above ₹320 looks unlikely. If the contract manages to sustain above ₹300, then there is a strong likelihood of a consolidation between ₹300 and ₹320 for some time. If the contract declines below ₹300, it can fall to ₹290 and ₹285 thereafter.

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