Base metals may rise next week on optimism that stimulus packages announced by China and the US, the world’s two largest base metal consumers, may revive demand of metallurgical commodities.
Analysts anticipate that the Chinese traders may build positions before proceeding on a week-long Lunar New Year holiday that starts on January 26. Apparently, local demand in China has also started rising, evident from the inventory position of the Shanghai Futures Exchange (SHFC).
Copper inventories in the warehouses monitored by SHFC declined by 6,865 tonnes, or 30 per cent, to 125,871 tonnes last week, while the metal on warrant jumped 4,353 tonnes to 15,871 tonnes. This indicates that industrial demand of the red metal has started picking up.
China had earlier announced about buying 1 lakh tonnes each of aluminium and zinc, of which only half of the purchase has been done so far. Though aluminium inventory increased by 21,555 tonnes to 187,588 tonnes last week, yet fresh buying potential gets a boost with the metal on warrant declining by 4,044 tonnes to 30,465 tonnes.
“Traders are expecting a price rise in the weeks ahead. Therefore, they are holding their stocks,” said Navneet Damani, a base metals analyst with Anand Rathi.
China had announced a $586-billion (4 trillion yuan) stimulus package in November, of which a major portion is directly linked with the country’s infrastructure. US President George Bush has been pressing upon a temporary bailout package of $145 billion in the form of tax rebates. Most importantly, Bank of America got a $138-billion lifeline, and the US Senate voted in favour of $350 billion in financial rescue funds.
In another instance, Bank of America Corp, the biggest US bank by assets, may receive an aid package that may include $15-20 billion capital infusion.
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The National Development & Reform Commission and the Ministry of Industry & Information Technology of China have hinted a review of the stimulus package to help machine manufacturers.
Demand for copper is likely to be a loadstone for other metals too. Meanwhile, base metals slumped last week on the London Metal Exchange (LME) as traders extended their profit booking which started during the week ended January 9.