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market | IST

Metals feel the heat; here’s why

Mini

Weakening real estate demand has been leading to lower demand for the metals. The potential tapering by the US Fed is also one of the reasons that has been putting pressure on metal prices.

Metal prices are under pressure for the second consecutive day. The US dollar is trading at a one-year high,  which is clearly one of the reasons for the decline in metal prices. Apart from that, there are concerns over China energy. The crunches continue to weigh on manufacturing, smelters, and downstream companies. Also, the Evergrande concerns continue to cast a shadow.
The weakening real estate sector has been leading to lower demand for metals. Euro power woes also weighing on the prices. So it is not just China, it seems to be getting spread around. The potential tapering by the US Fed is also one of the reasons that has been putting pressure on metal prices.
Talking specifically about copper, it has seen prices come up quite strongly. Copper has seen an all-time high of $10,700, and $9,100 is where the copper prices really seem to be consolidating around. The trading volumes also have continued to decline.
The open interest is sharply down from the month of May, where it was at 265,000 contracts,  now it is just at about 185,000 contracts. Also when you look at the September volumes on the major exchanges, that also has declined on a year-on-year basis.
CME and Shanghai, the two major indices or trading hubs, have seen 30 percent decline in trading volumes for the month of September. Also, the LME copper trading volumes have continued to decline for the past four months now.
Citi has come out with an important report. The brokerage has been quite bullish on copper for the longer-term,  which they continue to maintain. But for the near-term(next three months), they have turned bearish. So, even as the copper prices are trading at a $9,100 per tonne right now, they expect a three-month target at $8,200, which is nearly 10 to 11 percent lower from here in the next three months. So, quite a bearish view coming in for some of these metals right now.