base metals outlook

The base metals pack staged a mini-recovery on the back of a weakness in the US Dollar and a bout of short-covering yesterday. However, this rise in prices could be temporary as the dollar weakened and hence buying emerged. The trend in the dollar is still upwards but could change in the coming months and provide some respite to prices. Base metal prices showed strength despite of bearish inventories for five out of six base metals.

Copper and Aluminum prices changed little as these metals plunged to multi-year lows in the morning. Inventories for copper gained 2,525 tonnes and this has been the seventeenth consecutive gain in inventories for the metal. Aluminum inventories jumped a whopping 44,425 tonnes. Gaining inventories amid a global economic recession is adding to concerns over declining demand. Zinc prices jumped 5% yesterday despite of an increase in LME inventories. Nickel prices gained sharply as output cutbacks have helped provide support. BHP Billiton said that it had scrapped a study on developing an integrated nickel project in Indonesia.

On the macroeconomic front, the US Dollar weakened and provided a respite to further decline in prices. US jobless claims jumped to a seven-year high of 516,000 as weakening demand led companies to fire more workers. This factor led to weakness in the dollar. Japan announced that it would offer up to $100bn to the International Monetary Fund (IMF) in order to support emerging economies.

OUTLOOK

Base metal prices received some respite yesterday on the back of a weakness in the US Dollar. We feel that this recovery on the back of a weakness in the dollar is short-lived as the trend in base metals remains down. The change in trend could be seen only in the coming months as prices could react to physical buying in China, which is expected to pick up. Currently prices remain under pressure of the global economic slowdown as the macroeconomic picture is bleak. Financial markets across the globe are facing pressure and this is leading to volatility.

Rising inventories in the case of Copper and Aluminum are expected to put pressure on the downside. Since demand from China is expected to pick p in the next year, there is no current reason for gain. Hence, any gains in these metals could be followed by technical selling in the short-term.

On the macroeconomic front, the US is expected to announce data on retail sales, Michigan sentiment and business inventories today. This data could affect the dollar movement as a weakness in the data could weaken the dollar and provide some relief to the base metals market.

Copper

Immediate support is seen at Rs.183.30 levels for MCX November contract. Further below, support is seen at 180.60 levels. Copper is expected to trade sideways down.

Whereas resistance is seen at Rs.191.40 levels & further upwards at Rs. 194.90.

Zinc

Immediate support is seen at Rs.57.20 levels for MCX November contract whereas crucial support is seen at Rs.55.80 levels. Zinc is expected to trade sideways for the day.
Short-term resistance is seen at Rs 60.80 whereas major resistance is seen at Rs 62.10.

Zinc prices are currently trading around 93 levels. Immediate support is seen at Rs 92.30 levels for MCX Feb contract whereas crucial support is seen 90.60 levels. Short-term resistance is seen at Rs95.40 whereas major resistance is seen at Rs97.


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