Bargain hunt may fuel metals

MARKET OUTLOOK

Base metals are likely to rebound this week amid high volatility as traders are expected to go on a buying spree to take the advantage of lower prices. Speculators have already started booking new positions since late Friday evening on the Comex division of the New York Mercantile Exchange (Nymex) following a 3.4 per cent second quarterly growth rate in the US economy.

"All base metals have bottomed out and are now likely to bounce back," said an analyst.

Last Friday, the September contracts on the Nymex rebounded marginally across the board on fresh buying from hedge funds over the weekend.

Base metals led by nickel and lead sharply declined last week on speculators betting more towards crude oil in the wake of the third straight weekly decline in the US oil inventories. Traders are of the opinion that hedge funds have temporarily shifted to crude oil, leaving the base metals high and dry.

Crude oil for September delivery rose $2.32 cents on Friday to $75.88 a barrel on the Nymex and indications are that the commodity would advance further to hit the psychological barrier of $78 very soon.

Crude oil supplies fell 1.1 million barrels to 351 million barrels last week, the US Energy Department report showed. Inventories in Cushing, Oklahoma, the main US supply hub, fell 1.38 million barrels to 212.4 million barrels, the lowest level since February 2006.

On the LME, lead headed for its biggest weekly drop in eight months to $3,128 a tonne on Friday, witnessing a decline of 8.40 per cent. Lead surged more than 15 per cent last week after an explosion cut output at Doe Run Resources Corp's Herculaneum smelter on July 13. The smelter will resume full production next month and the lost supply is probably small.

Nickel at $31,515 a tonne slumped by 9.41 per cent on rising inventories on the LME. The metal, mostly used as an alloy in stainless steel, also fell after steelmakers said they were slowing purchases after prices reached a record $51,800 a tonne on May 9.

Meanwhile, other industrial metals such as copper, aluminium, zinc and tin followed suit and witnessed a fall between 1.5 and 4 per cent during the week on a slowdown in home building that hurt demand in the United States, the largest consumer of metals after China. Home resales in the United States fell for a fourth straight month in June, a sign that housing remained mired in its worst slump in 16 years.

Copper, currently at $7,905 a tonne, has fallen 12 per cent since reaching a record high in May 2006 as a decline in US home construction curbs use of the metal in pipes and wiring. Analysts believe that copper would rebound next week following supply disruptions from Codelco's El Teniente, the world's largest underground copper mine in Chile, as employees struck work.