copper - the brown gold

8/3/2019 Copper - The Brown Gold

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A PROJECT REPORT ONA PROJECT REPORT ON

COPPER: THE BROWN GOLDCOPPER: THE BROWN GOLD

Submitted to theSubmitted to the Mumbai UniversityMumbai University in partial fulfillmentin partial fulfillment

of the requirement for the award ofof the requirement for the award ofM.M.S. DegreeM.M.S. Degree

GUIDEGUIDE

MR. SANJIV BARVEMR. SANJIV BARVE

by

SURESH CHANDRAN

MMS - FINANCE

ATHARVA INSTITUTE OF MANAGEMENT STUDIES

MALAD-MARVE ROAD, MALAD (WEST), MUMBAI 400095

BATCH 2006-2008


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CERTIFICATE

This is to certify that the project entitled COPPER: THE

BROWN GOLD is the bonafide work carried out by Mr.

Suresh Chandran, student of M.M.S. Batch 2006-2008,

Atharva Institute of Management Studies, during the year

2007-2008 in partial fulfillment of the requirements for

the Post Graduate Degree of Master of Management

Studies and that the project has not formed the basis for

the award of any other degree, associate-ship, fellowship

or any other similar titles.

Sd/-

Mr. Sanjiv Barve

Project Guide & Faculty Member

Atharva Institute of Management Studies

Date:

Place:


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ACKNOWLEDGEMENT

I would like to take this opportunity to express my sincere

and heart-felt gratitude towards my institute, Atharva

Institute of Management studies for giving me this

wonderful experience to guide my first steps into a Career

in Finance.

I express my appreciation towards our Dean, Mr. N. S.

Rajan, who believed in me and provided me with a great

learning canvass to expand my perspectives and learning

horizons.

I offer my sincerest thanks to my eternal academic

guiding star, Mr. Sanjiv Barve, my project guide for his

immense help. His guidance, constant inspiration and

extended cooperation throughout the project duration

have deeply assisted me in laying down a strong project

framework.

Last but not the least I would like to thank my parents,

friends, classmates, and family who have been an

immense pillar of support in assisting me in achieving my

objectives.


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EXECUTIVE SUMMARY

This report talks about the affect of various factors on copper and

developments that have affected copper prices in an effective

manner. Recent geopolitical and economic developments which

caused major movements in the commodities market have been

reflected in this report.

Continuous rise of copper demand in industrial use and narrowing

supply of copper globally has led to rise in copper prices. The US

Dollar affects the price of copper and has been a significant driver of

copper prices for a long time. Due to recent economic

developments, the copper prices and USD relationship has become

more complicated.

The Indian copper demand is primarily for Electrical and Industrial

purpose with the major demand coming from three industries, i.e.

Consumer Products, Electricity (especially Transmission &

Distribution), and the Telecommunication Industries. India, with its

present economic growth prospects, holds an important position in

the copper market. Worldwide market demand for copper is also

growing, while supplies of copper are quickly disappearing. Newhigh-tech uses for copper will further strain already-tight supplies in

the future.

For copper to shine, it needs much more investment demand. This

will happen because as the dollar loses more value, and at a more

rapid pace, people all over the world will turn to gold first, and then

to copper.


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TABLE OF CONTENTS

Sr. Chapter Page No.

1 Introduction to Commodities 1

2 Historical Backdrop 2

3 The Commodities Market in India 3

4 Structure Of Commodity Markets 5

5 Future of Commodity Derivatives 7

6 The Paradigm Shift in Commodity Trading 8

7 The Allure of Copper 11

8 Copper as a Global Commodity 15

9 The Influence of Copper 16

10 Current Copper Scenario 17

11 Global Copper Trade Scenario 27

12 Copper Trading Outlook for 2008 29

13 The International Copper Study Group Report 30

14 The Future of Copper 32

15 Copper Demand vs. Supply 34

16 Copper Price Movements 35

17The Effect of Refined Copper on CommodityPrices

37

18 Conclusion 39

15 Annexure 4016 Bibliography 41


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Copper: The Brown Gold by Suresh ChandranMMS Finance 2006-08, Atharva Institute of Management Studies 7


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Historical Backdrop

Recent years have shown that organized Commodity markets have

come into the limelight, but, we have a long history of Commodity

markets. It is believed that the establishment of "Bombay Cotton

Trade Association Ltd." in 1875 marks the beginning of organized

Futures Commodity market in India.

Further, while in 1900 futures trading in oilseeds was organized in

India with the setting up of Gujarati Vyapari Mandali, the same in Raw

Jute and Jute Goods began in Calcutta with the establishment of the

Calcutta Hessian Exchange Ltd. in 1919. Futures market in Bullion

began at Mumbai in 1920 and following the trend similar markets also

came up in various other key cities of the country.

Over the years, futures trading in various other Commodities like

pepper, turmeric, potato, sugar, gur, etc. also begun. After

Independence, the Forward Contracts (Regulation) Act, 1952, was

enacted to regulate Commodity futures markets and Forward Markets

Commission was also set up.

However in the seventies, most of the registered associations became

inactive, as futures trading in the Commodities for which they were

registered came to be either suspended or prohibited altogether. With

the gradual withdrawal of the government from various sectors in the

post-liberalization era, the need has been felt that various operators in

the Commodities market be provided with a mechanism to perform the



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turnover of MCX is around USD1.55 billion (Rs.7,000 crore - April

2006), with a record peak turnover of USD3.98 bn (Rs.17,987 crore)

on April 20, 2006.Financial Technologies (I) Ltd., State Bank of India

and its associates, National Bank for Agriculture and Rural

Development (NABARD), National Stock Exchange of India Ltd. (NSE)

are some of its major shareholders.

NCDEX is promoted by an elite group of financial institutions including

NSE, LIC, SBI, UBI etc. NCDEX also allows trading of futures on a host

of Commodities. NCDEX is a public limited company incorporated on

April 23, 2003 under the Companies Act, 1956. It obtained its

Certificate for Commencement of Business on May 9, 2003. It

commenced its operations on December 15, 2003. NCDEX is located in

Mumbai and offers facilities to its members about 550 Centers

throughout India. The reach will gradually be expanded to more

Centers.

NCDEX currently facilitates trading of 57 Commodities

(NMCE) was promoted by Commodity-relevant public institutions, viz.,

Central Warehousing Corporation (CWC), National Agricultural

Cooperative Marketing Federation of India (NAFED), Gujarat Agro-

Industries Corporation Limited (GAICL), Gujarat State Agricultural

Marketing Board (GSAMB), National Institute of Agricultural Marketing

(NIAM), and Neptune Overseas Limited (NOL). NMCE commenced

futures trading in 24 Commodities on 26th November, 2002 on a

national scale and the basket of Commodities has grown substantially

since then to include cash crops, food grains, plantations, spices, oil

seeds, metals & bullion among others



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Structure of Commodity Markets

REGULATORY BODY

Forward Markets Commission (FMC) headquartered at Mumbai, is a

regulatory authority which is overseen by the Ministry of Consumer

Affairs and Public Distribution, Govt. of India. It is a statutory body set

up in 1953 under the Forward Contracts (Regulation) Act, 1952.

The functions of the Forward Markets Commission are as follows:

(a) To advise the Central Government in respect of the recognition or

the withdrawal of recognition from any association or in respect of any

other matter arising out of the administration of the Forward Contracts

(Regulation) Act 1952.



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(b) To keep forward markets under observation and to take such

action in relation to them, as it may consider necessary, in exercise of

the powers assigned to it by or under the Act.

(c) To collect and whenever the Commission thinks it necessary, to

publish information regarding the trading conditions in respect of

goods to which any of the provisions of the act is made applicable,

including information regarding supply, demand and prices, and to

submit to the Central Government, periodical reports on the working of

forward markets relating to such goods;

(d) To make recommendations generally with a view to improving the

organization and working of forward markets;

(e) To undertake the inspection of the accounts and other documents

of any recognized association or registered association or any member

of such association whenever it considerers it necessary.



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Future of Commodity Derivatives

While the global Commodity markets are experimenting with various

new products and forms of derivatives, the Indian Commodity market

is still in a state of flux. This is ironical because India has had a long

history of Commodity derivatives trading, preceding that of most other

countries (CBOT and NYCE being the only officially acknowledged

forerunners to the Indian tradition). Owing to the size and relative

share of Indian agriculture, there is much potential for Commodity

derivatives trading.

But, over the years, the growth of the Commodity futures market had

been hampered both by managerial and policy-induced constraints.

The reluctance/inability of the exchanges to professionalize/modernize

their operations, failure to involve more players in the market, and the

scarcity mindset that prevailed during the 1960s to early 1990s, saw

the suspension/banning of Commodity derivatives transactions.

Globally (especially in the US and Europe), however, the derivatives

markets forged ahead with innovations in management (de-

mutualisation and product innovations, for instance), even as the

Indian exchanges languished.

Even the Indian stock market adopting some of the best global

practices failed to stimulate the Commodity exchanges -- despite their

traditional skills -- into modernizing.



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The Paradigm Shift in Commodity

Trading

Globally, futures trading are taking unexpected turns. The Commodity

markets are not lagging either, researching and inventing new

products, with trading taking place in many of their derivatives too.

The new developments mark a paradigm shift in futures transactions.

`Deliverability', for long the centerpiece of Commodity futures

transactions, was seen -- unlike other financial tools -- to make futures

prices move in tandem with spot rates. The `threat of delivery', that

the `long' and `short' have to be settled by physical delivery, acted as

equilibrating forces.

Though actual delivery is a mere 1-2 per cent of the total transactions

of any Commodity futures contracts (with most transactions being

squared up before maturity), it acts as a barrier against wild

fluctuations in the futures prices. In the process however, the volumes

in Commodity Derivatives Trading pales vis--vis those in the financial

markets.

The underlying logic in the new innovations is to hedge against risks,

be they price, cost, weather or pollution related. Hedging, therefore,

becomes the central theme of futures transactions, relegating price

discovery to the sidelines.

The exchanges themselves are undergoing change in terms of

managerial structure, technological adaptations, and so on -- all steps

towards becoming self-regulatory organizations. More developments



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are in the pipeline in the face of corporate interest in setting up

modern exchanges for derivatives transactions.

Domestic Financial Institutions (FIs), Mutual Funds (MFs) and

Commercial Banks are beaming with hopes that the amendment of

Banking Regulation Act, 1949 will open new vistas for them in the

booming Commodities futures business.

Minister of State for Food Processing Industries Subodh Kant Sahay

recently said that the government would amend the Act to remove

Commodities from the negative list-a move that would allow MFs and

FIs to participate in the Commodity markets.

Analysts say the step will also give a leg up to the yet-to-be launched

Commodity options by key exchanges.

Major exchanges such as Multi Commodity Exchange of India (MCX)

have already announced their plans to launch trading in options and

index futures soon. They say allowing financial institutions and banksin Commodity market, along with introducing of options and index

futures, would take the volumes in the market through the roof, as

fund managers of the institutions and banks, taking position in futures

market could mitigate their risk by hedging in the options market.

The introduction of options can give much flexibility to institutional

investors and banks as this will enhance the risk management abilityof these institutions, especially banks, as they can hedge gold

collaterals with them in the market. Moreover, the participation of

institutions will enhance the depth of the market further, besides



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refining the price discovery mechanism. The introduction of index

futures would also help institutions to hedge their risks better.

Commodity exchanges in the country recorded a total business of Rs.

2, 10,276 Crore in futures segment during the first 15 days of 2008-a

jump of 43% compared to the same period last year. Turnover of the

MCX stood at Rs. 1,69,572.92 Crore, while the NCDEX clocked a

turnover of Rs 32,682.39 crore during the period and Ahmedabad-

based MCE registered a turnover of Rs 633.72 crore. Among regional

bourses, Indore-based National Board of Trade recorded a turnover of

Rs 4,994.62 crore. Seeing this it can be said that the best is yet to

come.



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Building

construction

39%

Electrical and

electronic

products

25%

n

3%

Transportation

equipment

12%

Building

construction

39%

Electrical and

electronic

products

25%

n

3%

Transportation

equipment

12%

The Allure of Copper

Copper is an element, reddish brown in color, having atomic number

29 and pertaining to the scientific symbol Cu. Coming from the same

family of silver and gold, this element shares numerous common

characteristics with those precious metals.

This element is a highly ductile and malleable element and a very good

conductor of electricity. That is why it is highly used in the electrical

appliances as a thermal and electrical conductor and in building wires.

It occurs in various minerals on earth and is also forms part of a lot of

alloys. Copper also has characteristics that it is a creep and corrosion

free metal and all of its so very useful features make it an element on

which the worlds economy directly depends.



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Copper is a very important element and the oldest known Commodity

in the world that directly affects the worlds economy. It stands at the

third place in context of the world consumption after steel and

aluminum. It is largely used in electrical appliances, as it is the

cheapest metal, which is a good conductor of electricity. It is also

considered safe as a raw material in wire making. Alloys of Copper like

bronze, brass, copper nickel and speculum metal are also very popular

and are extensively used throughout the world.

Copper is an element that has a universal availability and is found

worldwide especially in the volcanic areas possessing high levels of

sulfur concentrations. In fact about 90% of the worlds Copper

deposits are located in the great basin of the western United States,

Zambia, central Canada, the Andes region of Peru and Chile and some

regions of Antarctica.

The production of refined Copper hovers around 15 million tons

annually. The leading Copper producing nations are United States and

Chile - both having 18% shares in the total worlds production . The

leading country in which Copper is refined is United States of America.

The consumption of Copper stands at the third position among the

most consumed metals in the world after steel and aluminum.

The consumption of this metal is concentrated in the highly

industrialized countries namely

Western Europe (29%)



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United States of America (19%)

Japan (14%)

Russia (10%)

China (6%)

The percentage given above denotes the % consumption of the total

worlds consumption. The consumption trend is on a rise with the

increasing contribution of the countries in Asia like Japan, South Korea

and Taiwan. There are various factors that influence the demand and

supply of Copper in the world such as the technological, social and

technological factors. This is the demand for Copper that governs the

findings of new mines and the expansion of old mines. Only 17% of

the total Copper produced in the world is available for trading.

The major Copper exporting nations include

Chile

Indonesia

Canada Australia

The largest Copper importing countries of the world includes

Spain

China

Germany

Philippines

The name Copper is derived from the Greek word chalkos. It is also

related to the Greek mythology as it is said that it was associated with



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the goddess Venus. The origination of this oldest known metal,

Copper, is not exactly known to the human race but it is estimated

that it was discovered in around 9000BC in the Middle East.

A Copper locket had been found in Iraq that is around 8500 BC old.

Smelting, one of the processes that is used to refine Copper, dates

back to around 4500BC and the smelting sites were located in the

areas of present day Israel, Egypt and Jordan at that time. This metal

was also used to make weapons, hammers and axes. The people in

Egypt discovered that by adding tin to Copper, the casting of the metal

becomes easier. The metal was getting popular in the east mainly in

China and India. China started the process of hydrometallurgy in which

a metal is separated from its alloys. Indian people made various other

crafts by using alloys of Copper like icons and lamps. The importance

of this very useful metal was identified and it was so extensively used

that the respective era of history is named as The Bronze Age

(3500BC- 1100BC).

The inventions of new technologies in the east were adopted by whole

of the world. It was found that Copper is a corrosion free substance

and then it marked the invention of a new use of Copper-in plumbing

systems and protecting wooden ships from algae. Ships of Christopher

Columbus too, use to have this copper guarding. With time, more and

more new uses and new techniques to extract Copper were invented.

Copper coins have also played an important role in the history as a

medium of currency. The earliest instance found of Copper being used

as a currency was in the form of lumps in the 6th century BC by the

people of Italy. The shapes of Copper lumps were molded to coins with



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the invention of new Copper alloys. Rulers like Julius Caesar and

Octavians use to have their own coins having their own symbols. This

shows that Copper has ever been a prominent contributor to the all of

the various aspects of history, culture, technology and medicine and is

still used extensively.



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Copper as a Global Commodity

Economic, technological and societal factors influence the supply and

demand of Copper. As society's need for Copper increases, new mines

and plants are introduced and existing ones expanded.

Land-based resources are estimated at 1.6 billion tons of Copper, and

resources in deep-sea nodules are estimated at 0.7 billion tons.

The global production of refined Copper is around 15 million tons

The major Copper-consuming nations are Western Europe (28.5%),

the United States (19.1%), Japan (14%), and China (5.3%).

Copper and Copper alloy scrap composes a significant share of the

world's supply.

The largest international sources for scrap are the United States and

Europe. Chile, Indonesia, Canada and Australia are the major

exporters and Japan, Spain, China, Germany and Philippines are the

major importers.

Copper as an Indian Commodity

The size of Indian Copper Industry is around 4 lakh tons, which as

percentage of world Copper market is 3 %.

Birla Copper, Sterilite Industries are two major private producers and

Hindustan Copper Ltd the public sector producers.

India is emerging as net exporter of Copper from the status of net

importer on account of rise in production by three companies.



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Copper goes into various usages such as Building, Cabling for power

and telecommunications, Automobiles etc. Two major states owned

telecommunications service providers; BSNL and MTNL consume 10%

of country's Copper production.

The Influence of Copper

Copper prices in India are fixed on the basis of the rates that rule on

LME the preceding day.

World Copper mine production through exploration of new mine andexpansion of existing mine.

Economic growth of the major consuming countries such as China,

Japan, Germany etc.

Growth and development in the Building, electronics and electrical

industry

Major Trading Centers of Copper

Copper is an important Commodity that is traded mainly in

London Metals Exchange (London)

New York Mercantile Exchange (New York)

Shanghai Futures Exchange (China)

These Commodity exchanges direct the world market in the context of

prices. The eight leading refining nations, viz., United States, Japan ,



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International Trade in Copper

Copper is traded around the world.

Producers store it in warehouses until it is sold and shipped to the

buyer.

The price changes daily, depending on supply & demand. The principal

place where the trading takes place is in London, at the London Metal

Exchange.

There, Copper sellers try to find a buyer who will pay the highest price

for shipment at a certain time, while buyers look for the lowest priced

Copper.

Role of Exchanges in Copper Trading

Copper, as any other good or merchandise, is traded between

producers and consumers. Producers sell their present or future

production to clients, who transform the metal into shapes or alloys,

so that downstream fabricators can transform these into different end-

use products. One of the most important factors in trading a

Commodity such as Copper is the settling of the price for the present

day (spot price) or for future days.

The role of a Commodity exchange is to facilitate and make

transparent the process of settling prices. Three Commodityexchanges provide the facilities to trade Copper: The London Metal

Exchange (LME), the Commodity Exchange Division of the New York

Mercantile Exchange (COMEX/NYMEX), and the Shanghai Metal

Exchange (SHME). In these exchanges, prices are settled by bid and



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offer, reflecting the market's perception of supply and demand of a

Commodity on a particular day. On the LME, Copper is traded in 25

tonne lots and quoted in US dollars per tonne; on COMEX, Copper is

traded in lots of 25,000 pounds and quoted in US cents per pound;

and on the SHME, Copper is traded in lots of 5 tonnes and quoted in

Renminbi per tonne.

Exchanges also provide for the trading of futures and options

contracts. These allow producers and consumers to fix a price in the

future, thus providing a hedge against price variations. In this process

the participation of speculators, who are ready to buy the risk of price

variation in exchange for monetary reward, gives liquidity to the

market.

A futures or options contract defines the quality of the product, the

size of the lot, delivery dates, delivery warehouses, and other aspects

related to the trading process. Contracts are unique for each

exchange. The existence of futures contracts also allows producers and

their clients to agree on different price settling schemes to

accommodate different interests.

Exchanges also provide for warehousing facilities that enable market

participants to make or take physical delivery of Copper, in accordance

with each exchange's criteria. With the rapid deployment of the

Internet, new means of buying and selling Copper are emerging.



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LME COMEX SHANGHAI MCX

Contract

Grade A

Copper

Grade 1 electrolytic Copper

Copper Copper

Lot size 25 tonnes 25,000 pounds 5 tons 1 Ton

Quotation

US dollars

per tonne

U.S. cents per

pound

Yuan

(RMB) per

ton

Rs.per 1

KgMinimum

Price

Movement

50 US cents

per tonne 1 cent per pound

10 yuan

/ton

5 paise

per Kg


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Current Copper Scenario

Copper prices rose quite sharply this February, primarily on back of

severe fund buying, falling inventories, supply disruption in China and

Chile, short covering, weakening dollar and speculative buying.

Fresh investments pouring into Commodities boosted industrial metals,

with Copper touching recent highs. The index money and long-term

pension money has been flowing thick and fast into the base metal

complex.

Spot settlement price at the London Metal Exchange (LME) appreciated

by more than 16 percent during the month, thereby averaging

$7887.69 per ton, surpassing the estimate of $7450 per ton. The price

went up from $7345 per ton on February 1 to $8540.5 per ton on

February 29.

Copper received strong support from the falling inventories, that

declined by nearly 20 percent at LME, touching 143,650 tons on

February 29 from a month-beginning level of 177,800 tons.

There were cancelled warrants that signaled the possibility of a further

decline in inventories.



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Fund buying was much stronger as compared to general expectations.

Moreover, the weakening dollar has made metal purchase cheaper as

against other currency.

Copper futures rose steadily, as market participants bought back

previously sold positions amid continued declines in inventories and

cancellation warrants pointing towards a further decline in the near

term. This provided further support to the rising prices.

There has been quite a deal of short covering. Rather, declining

inventories were providing support to Copper price which failed to

attract Chinese buyers after the New Year holidays.

The market was in backwardation for majority of the trading sessions

in February, with cash-to-3 month Copper backwardation widening to

as high as $100 on certain trading days in March.



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Following LME, Copper futures traded on the Shanghai Futures

Exchange (SHFE) has gained substantially all through the month.

Initially, the market received solid support from the concern that

snowstorms in China would dampen Copper production further. Heavy

snowfall in central, eastern and southern China since the middle of

January resulted in transport difficulties and power shortages across

the country. Production was severely hampered as major smelters had

to cut down their production quite significantly.

This was clearly reflected in the backwardation situation that existed in

the market for the first half of the month. A major Copper producer,

Jiangxi Copper, said that the company had to shut down more than 40

percent of its smelting capacity due to power shortage and transport

chaos.

However, the second half witnessed the market going back to

contango scenario, thereby reflecting the market was perhaps going

back to normal situation, thanks to the resumption in production by

Chinese plants. However, since end February, SHFE witnessed another

dose of sharp increase in price, on back of speculative buying as SHFE

was trading at a discount to LME.

Media reported on February 20 that Chinese Copper was returning to

normal after severe snowstorms before the Lunar New Year forced

them to scale back production.

As per the report, more than 85 percent of output capacity of Jiangxi

Copper's mines had resumed, and this was some relief to the Chinese

market. But it is expected that high volumes of imports into China

would probably keep SHFE price under a check.



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Similar to the global trend, Copper spot price recorded a sharper

increase of more than 18 percent during the month at the Comex

division of NYME. The market closed at $ 8492.2 per ton on February

29, from month beginning level of $7188.16 per ton.

Comex Copper showed quite a great deal of response to temporary

shocks, including poor US employment report in early February and

positive signal from the Institute for Supply Management's headline

manufacturing index.

There is market news that Chile may not be able to cope up with its

output as the country is facing energy crisis. Chile's Copper production

slipped 1.4 percent (y-o-y) in January to 439,123 metric tons from

445,537 tons in the same month of 2007. It was due to falling ore

grades at major mines, which led to a 9.3 percent drop in Copper

cathode output and a 2.3 percent decrease in Copper concentrate

production, the INE said.

Copper output at Corporacion Nacional del Cobre de Chile, the world's

largest Copper miner, fell in 2007 to 1.58 million tons, from 1.68

million tons in 2006.Things are expected to be even worse in Chile in

the next few months.



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Global Demand Supply Scenario

The Chinese buyers are usually very price sensitive. Therefore, as far

as physical demand of Copper is concerned, the scene is not very

optimistic from China at the prevailing high prices. With prices at$8000 per ton, demand from this part of the world will not be

significant. It has been learnt that fabricators in China are reluctant to

run at full capacity.

However, improving domestic weather is encouraging production. The

market is waiting to find out whether Chinese buyers resume their

buying significantly, or wait for some correction in prices.

World Copper market

outlook

(annual, thousand metric

tons)

2003 2004 2005 2006 2007

Production 15,234 15,836 16,512 17,366 18,283

Consumption 15,662 16,739 16,614 17,167 17,884

Year-end stocks 1,780 919 851 1,042 798

Despite declining inventories and cancelled warrants, which usually

signal buying, Chinese buyers have been a bit reluctant to buy at

these existing price levels.

In the meantime, China, one of the world's major refined Copper

producers, produced 257,500 tons of refined Copper in February,

thereby registering 8.1 percent (y-o-y) growth, but the output was

down by 44,900 tons from December, data from the National Bureau

of Statistics showed.



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Output in the first two months of 2008 has been 517,800 tons,

indicating January's output at 260,300 tons, down 42,100 tons from

the previous month.

Another major area of concern is the rising costs for big Copper

projects such as Petaquilla in Panama and a lack of new mines.

The World Bureau of Metal Statistics (WBMS) has noted that the global

Copper market was in a deficit of 161,000 tons in 2007 against asurplus of 278,000 tons in 2006.

In December, refined Copper production was 1.476 million tons and

consumption was 1.423 million tons. It is worth noting that



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consumption in 2007 has recorded an increase of 5.1 percent (y-o-y)

in 2007.

Meanwhile, the International Copper Study Group (ICSG) reported that

refined Copper has been in a 25,000 ton surplus in November.The refined Copper balance for the first 11 months of 2007 indicates a

market deficit of about 150,000 tons, compared with a surplus of

104,000 tons for the same period in 2006.

World refined Copper consumption exceeded production by 149,000

tons between January and November 2007, against a surplus of

104,000 tons in the corresponding period a year ago, the ICSG said.In January, Peru's Copper output rose 3.8 percent to 86,255 tons from

the same month a year earlier.

Kazakhstan's refined Copper output fell 12.9 percent (y-o-y) to 29,489

tons in January 07. 2007

.

Uzbekistan's Almalyk Mining and Metallurgical Combine, the only

Copper and zinc producer in the country, produced 89,655 tons of

cathode Copper in 2007, a decline of 3.6 percent compared with

93,003 tons in 2007, the company announced.

At the same time, there might be a shortfall in Copper output from

Chile by 68,000 tons in 2007. The expected Copper output for the year

was 5.7 million tons, noted economic research firm Hallgarten &

Company.



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Global Copper Trade Scenario

China's rising refined Copper production capacity and pre-holiday

stockpiling contributed to the higher-than-expected Copperconcentrate imports in January. It has been well triggered by removal

of 2 percent import duty on refined Copper.

China's imports of unwrought Copper rose 19 percent in January from

December and 7.1 percent from a year earlier, reflecting attractive

import margins.

Russia exported 22,700 tons of Copper in January, 8.1 percent less

than in January 2007, the federal customs service informed. Russia

exported 283,100 tons of Copper in 2007, an increase of 5.3 percent

compared with 2006, it said.



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The Australian Bureau of Agricultural and Resource Economics

(ABARE) feels that Copper prices would fall in 2008 as supply would

outpace demand.

Copper will fall by 4 percent this year to an average of $6,825 per ton,the forecaster said, adding that Copper prices in the long term will

almost halve to $3,500 per ton as supply outpaces demand.

Global refined Copper output will grow 7 percent this year, ABARE said

, despite the possibility of disruptions to smelting operations from

variable Copper concentrate supply. Demand will rise 5 percent,

reflecting strong growth in China, claimed ABARE.



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Copper Trading Outlook for 2008

There is a lot of fund interest in Copper now. Money has flown into

Copper at a very fast pace, thereby pushing Copper to high levels. Thefirst half of 2008 might find copper remaining in deficit, and this would

definitely support the speculative move of the fund.

Inventories have been remaining low and are declining steadily. With

all these factors at the same time, it is unlikely to hope for any major

decline in Copper prices. In the short term, the market is likely to

remain tight.

The speculators have surely re-emerged in the market and have made

it quite volatile.

So prices are likely to move in a range bound fashion between $8400

and $8600 per ton in March. Technical analysis signals that there is a

resistance at the $8800 level. If it breaks, then the market might see

record Copper prices.

However, there will be a constant chance of profit booking at these

high levels as everyone is ultimately worried about global slowdown,

mainly that of the US. In the immediate term, Copper LME is likely to

average $8500 per ton in March.



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The International Copper Study Group Report

The International Copper Study Group, the apex Copper body in the

world, say global Copper use in 2008 is projected to grow by 3.6 per

cent.

Following is the excerpt from the ICSG study:

According to ICSG data, after ending 2005 with a deficit of 120,000

tonnes (t ), the Copper market in 2006 turned to a calculated surplus

of around 330,000 t, about 1.9 per cent of annual usage. Projections

for 2007 indicate an additional surplus around 280,000 t and

projections for 2008 indicate a larger surplus of around 520,000 t.

Note that ICSG does not take into account changes in China's SRB

stocks, which are unreported and, particularly for 2006, might have

affected calculation of China's apparent usage.

World production of refined Copper (adjusted for both feed shortages

and production disruptions) is projected to reach 18.07 Mt in 2007, an



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increase of about 740,000 t (+4.3%) compared with that of 2006.

Refined production in 2008 is projected to increase by 4.9% to 18.95

Mt, an increase of about 880,000 t compared with that of 2007. .

Concentrates production in 2007 and 2008 is expected to restrain the

growth of refined production, with inventories of Copper concentrates

having been largely depleted during 2006.



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The Future of Copper

Copper and Copper-based alloys are used in a variety of applications

that are necessary for a reasonable standard of living. Its continued

production and use is essential for society's development. How society

exploits and uses its resources, while ensuring that tomorrow's needs

are not compromised, is an important factor in ensuring society's

sustainable development.

The demand for Copper will continue to be met by the discovery of

new deposits, technological improvements, efficient design, and by

taking advantage of the renewable nature of Copper through reuse

and recycling. As well, competition between materials, and supply and

demand principles, contribute to ensuring that materials are used

efficiently and effectively.

According to a recent report by a market expert, Copper is quietly

becoming the next high-yield investment. Over the past five years,

spot prices for this versatile metal have out-paced ever-popular gold

and silver buys by over 200%. And Copper is just getting started.

Copper is the perfect investment right now. Thanks in part to rapid

growth in India and China, worldwide Copper demand is at an all-time

high. Since 1990, demand for Copper has increased almost seven foldto the current yearly consumption of over 3.4 million tons a year. As a

result, Copper supplies and stockpiles have shrunk to five-year lows

and Copper prices have skyrocketed from 75 cents a pound to as high

as almost $4.



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Unlike other Commodities, there has not been a significant new Copper

mine discovery in nearly 100 years. According to the Metals Economics

Group, a world leader in mining industry intelligence, says "worldwide,

significant Copper discoveries between 1998 and 2004 have fallen well

short of what is needed to replace the Copper produced." Without new

mines, demand for Copper will continue to out pace supply and prices

will rise.

While these statistics alone make copper an attractive investment,

geo-political conditions are also pushing prices higher and higher.

Labor disputes in Chile, one of the planet's largest producers of

Copper, have reduced production by 60%. Many have speculated that

a prolonged strike could greatly affect the global supply.

Copper is certainly a speculative play. It does not have significant

inherent value like gold and silver but at the end of the day, you still

have a very bullish scenario in the Copper sector.

Copper is an important contributor to the national economies of

mature, newly developed and developing countries. Mining,

processing, recycling, and the transformation of metal into a multitude

of products create jobs and generate wealth. These activities

contribute to building and maintaining a country's infrastructure, and

create trade and investment opportunities. This is particularly

important for lesser-developed countries seeking to improve their

living standards.



43/54

Copper Demand vs. Supply

Copper is distributed in the earth's crust and oceans in various forms

and concentrations, which form the overall resource-base for Copper.

Often, there are references to "world reserves" of a metal. Reserves

indicate the amount of material that can be economically extracted or

produced at the time of determination. Improved extraction techniques

and technologies, new discoveries, depletion, and changes in economic

conditions are some of the factors that alter reserve levels. For

instance, world Copper reserves have jumped from 90 million tonnes

in 1950 to 280 and 340 million tonnes in 1970 and 1998, respectively.



44/54

Copper Price Movements



45/54

The producing countries play a very crucial role in moving the

international Copper prices. Domestic Copper prices in Indian market

are based on the international Copper prices. Chile, China, Japan, USA,

Russia are the major producers of refined Copper.

Any disruptions in the Copper production by these major countries

badly affect the Copper prices. If the production is going to be less andthe demand is more Copper prices will go up and vice versa.



46/54

China, USA is the major consumers of Copper. So they play a very

important role in moving the Copper prices. Demand for Copper from

these countries derives the Copper prices in the international market.

The Copper consumption of china is increasing year on year due to its

ever-growing economy. Industrial production in china has seen a rapid

growth thus increasing the demand for Copper.

The Chinese imports of Copper are showing a rising trend and are one

of the main reasons for the rising Copper prices.



47/54

The Effect of Refin ed Copper on Commodity Prices

Another main reason for the rise in Copper prices is the continuous

decline in warehouse stocks of Copper held by various metal

exchanges like the London Metal Exchange, COMEX, etc. As you can

see from the above figure, from 2003 onwards the global Copper

stocks started declining which lead to the rising Copper prices.

London Metal Exchange (LME) gives daily update of the global Copper

stocks at their warehouses, which affects the international Copper

prices. At 13.30 Indian times every Monday to Friday the data

regarding global Copper stocks monitored by LME is also released inIndia which plays a very important role in moving the Copper prices in

the domestic Commodity market.

If the Copper stocks are less and the demand is more Copper prices

will move up and vice versa.



48/54

Copper prices are based on the basic fundamental factor Demand-

Supply Relation. If the production is more than consumption Copper

prices are low and vice versa. Till 2002, the Copper production was

more than its consumption. From 2002, onwards-Copper consumption

started outpacing its production and lead to a tremendous rise in the

Copper prices.

The main reasons for the increasing Copper consumption are the rising

demand for Copper & Copper products from the worlds fastest

growing economies i.e. India, China & USA etc.



49/54



50/54

CONCLUSION

Market fundaments for Copper remain sound. The long-term picture

for Copper looks very bullish. Copper will continue to attract strong

investment demand as central banks, institutional and private

investors diversify their portfolios.



51/54

Worldwide market demand for Copper is growing, while supplies are

quickly disappearing. New high-tech uses for Copper will further strain

already-tight supplies in the future. World demand for Copper now

exceeds annual production and has every year since 1990, depleting

above-ground stockpiles of Copper.

For Copper to shine, it needs much more investment demand. This will

happen because as the dollar loses more value, and at a more rapid

pace, there might be rampant speculation. Since Copper is a smaller

market, and it is far more affordable to the masses than gold, this new

monetary demand will force Copper prices to move to staggering

heights by todays standards. Companies can fail, making their stocks

and bonds worth little to nothing. Governments can be overthrown or

suffer ruinous inflation, destroying their currencies and bonds.

However, if we did look at Copper as a mere commodity, perhaps

one should then study the historical price activity of other

Commodities.

The point is, whether Copper is money, a commodity, or somewhere in

between, the potential for price appreciation is vast.



52/54

ANNEXURE 1

CONTRACT SPCEFICATION FOR COPPER (MCX)

SymbolSymbol COPPERCOPPER

DescriptionDescription COPPERMMMYYCOPPERMMMYY

Trading UnitTrading Unit 1 MT1 MT

Quotation/Base ValueQuotation/Base Value 1 Kg1 Kg

Tick SizeTick Size 5 paise per Kg5 paise per Kg

Daily Price LimitDaily Price Limit 4%4%

Initial MarginInitial Margin 5%5%

Special MarginSpecial Margin Depends on market fluctuationDepends on market fluctuation

Maximum Allowable OpenMaximum Allowable Open

PositionPosition

For Individual Clients: 1000 MTFor Individual Clients: 1000 MT

For a member collectively for allFor a member collectively for all

clients: Not more than 25% ofclients: Not more than 25% of

the market wide open position inthe market wide open position in

a contract at any point of time.a contract at any point of time.

Delivery UnitDelivery Unit 9 MT with tolerance limit of +/-9 MT with tolerance limit of +/-

1% (90 Kgs)1% (90 Kgs)

Delivery MarginDelivery Margin 25%25%

Delivery CentreDelivery Centre Within 20 Kms outside MumbaiWithin 20 Kms outside Mumbai

octroi limitoctroi limit

Quality SpecificationsQuality Specifications Grade 1 electrolytic Copper asGrade 1 electrolytic Copper as

per B115 Specification.per B115 Specification.



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copper - the brown gold

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