Copper ‘Greece balms sentiment’

During the past few weeks, market focus has been accentuated on the political stalemate in Greece, which harbored extreme volatility in the broader markets. However, we perceive a change in the tide for the coming few days, as pro bailout government is expected to hold incumbency after the second round of elections in Greece. In this regard, official exit polls indicate that Greek voters have preferred to accept pro-austerity government, implying that Greece remains very much in Euro zone and effectively mitigates immediate market concerns. It is projected that the New Democracy party probably have gained 29.7% of the vote, while the anti-austerity Syriza party is projected to finish second with 26.9% of the vote, followed by the formerly ruling Pasok party with 12.3%. In addition, there are growing expectations of a coalition between the New Democracy and Pasok party, which translates in to a formidable pro-austerity regime.  A pro-bailout win can effectuate broad based upside in the complete commodity complex, which in turn will also help the upside in copper prices. Moreover, ensuing strong euro would enact as a shot in the arm for the non-ferrous metals complex.

Subsequent to making a low of US$7,230/ton last week, LME copper prices staged a handsome recovery breaking the resistance of US$7,500/ton. Judged from the prior occasions when prices bounced from the supports during Nov-Dec’11, it is evident that prices have the potential to gain by over US$200/ton. This brings the current target to US$7,750/ton which could be achieved in the short run. A weaker USD index which can shed another 50-60bps from the current 81.4 level also augurs well for the rally in copper prices. 

In MCX, price is sustaining above Rs415/kg and moving towards positive trajectory from the sideways consolidation during past few weeks. Breach above Rs420/kg levels on the upside potentially can lead the prices towards Rs431/kg in the near term. Further, downward sloping trend line also corroborates the change in trend.