Learn with ETMarkets: Do you know how to trade copper contracts using Bollinger Bands?

Copper, often considered a barometer of the health of the global economy, is expected to see a significant increase in demand in the coming years due to its utility in infrastructure projects related to renewable energy technologies, electric vehicles, and green initiatives. has been.

The demand for copper’s electrical conductivity and durability has made it essential for electrical systems, wind turbines, and solar power generation. Although copper prices remain highly volatile due to economic changes and geopolitical tensions, a growing global push towards decarbonization and clean energy projects is driving sustained demand for copper. has become an important factor in promoting

Factors influencing MCX copper price

Globally, copper prices are influenced by several macroeconomic factors. Industrial demand, particularly from China, the world’s largest producer and consumer of copper, plays a vital role. China’s economic slowdown and policy changes will impact the global copper market. For example, in 2022, MCX copper prices plummeted from Rs 880 in March to Rs 600 by July. Similarly, prices saw a significant correction in May 2024, plummeting from Rs 950 to Rs 770 by the end of July. These revisions are closely consistent with weak economic indicators in China, particularly in manufacturing.

China’s manufacturing economy index had been hovering around the usual level of 50.00, but it has dropped significantly to 47.50, reflecting the contraction in industrial activity. Additionally, China’s Producer Price Index (PPI), which peaked at 12% in 2021, declined to -5% by July 2023. This downward trend in PPI clearly indicates deflationary pressure in China’s industrial sector and led to price correction in China. Base metals including copper. By July 2023, MCX copper prices touched a low of Rs 700. However, as China’s PPI and manufacturing data started to recover, copper prices followed suit, rising to Rs 850. This highlights the significant impact that the health of China’s economy has on copper prices.

Hedging and risk management strategies

Given the cyclical nature of copper prices and their impact on global economic data, investors in copper futures and derivatives need to employ effective hedging strategies to reduce the risks posed by price fluctuations. Long-term investors can use futures contracts and options to manage their exposure while actively monitoring global macro trends, especially in China. The clean energy boom, combined with continued industrial demand, will be strong for copper in the long term, but volatility will remain a constant factor as copper commodities are dependent on macroeconomic changes.

In volatile markets like copper, hedging strategies such as buying put options and using stop-loss orders can help protect your investment from sudden declines. As the global economy recovers and copper continues to play a central role in industrial demand, particularly in the renewable energy sector, smart risk management will allow investors to effectively weather cyclical price fluctuations. Sho.

technical analysis

Technically, copper has been trending upward since its July 2023 lows. The recovery was boosted by China’s decision to cut interest rates and inject liquidity into the economy, providing much-needed stimulus to commodity markets. In just three weeks in September 2024, copper prices soared from Rs 770 to Rs 850. This increase can be attributed not only to China’s policy measures, but also to improved sentiment in global commodity markets.

One useful technical tool for analyzing copper price trends is Bollinger Bands, which can help identify potential price movements and volatility. Copper shows a consistent uptrend pattern as the price rises above the yellow middle line of the Bollinger Bands. For example, in February 2024, copper prices breached the median price of Rs 720 and recovered to Rs 900 by May 2024. A similar pattern is observed in September 2024, with the price moving above the median and towards the upper Bollinger Band.

Looking at the current situation, copper is facing resistance around Rs 900-925, which is likely to be a hurdle for prices in the short term. However, continued rate cuts and improving macroeconomic indicators in China suggest that the uptrend could continue if these resistance levels are broken.

(The author is Vice President and Research Analyst for Commodities and Currency at LKP Securities)

(Disclaimer: Recommendations, suggestions, views, and opinions expressed by experts are their own. (They do not represent the views of Economic Times)