Base metals seen down tracking global cues

MARKET OUTLOOK

Base metals, led by copper, are likely to decline this week on weakening global demand and a slowdown in the US economy.

The housing sector in the US, the second-largest metal user, is struggling to overcome the sub-prime crisis, which, according to experts, may take several years to recover.

Additionally, China, the largest consumer, is currently staying away from active trading as the country is banking on domestic stocks until prices stabilise.

As a result, the base metals market was likely to remain at the hands of speculators, who are not actual users, said Surendra Mardia, president, Bombay Metal Exchange.

"As a user, you consider various aspects including the cost of production, demand and supply, before making a final decision. But, as a trader you always look at profitability," he added.

The consumption of copper in the US is likely to slip further as the country's economic growth prospects for 2008 are below that of last year. Housing stocks in the world's largest economy dropped 25 per cent in 2007, the biggest decline since 1980.

"Looking at these developments, the long-term outlook for copper looks gloomy with prices likely to slump to $6000 by the third quarter of the current calendar year," Mardia said. In India, traders have started hedging to counter price fluctuations.

The housing sector uses about 20 per cent of copper produced globally. Last week, benchmark copper for delivery in three months dropped 3.2 per cent on the London Metal Exchange (LME), while other metals closed rangebound after bouncing back on Monday.

However, the metal showed signs of recovery on Friday in the US as traders booked usable stocks before the weekend holiday. Almost all base metals ended the week rangebound. Copper's recovery was largely attributed to the inventory fall to the lowest for the ninth straight session in almost two months to 183,225 tonnes.

An analyst with one of the largest research house feels that the current declines in inventories may result in an increase in demand from China and, therefore, traders may return to the market sooner than later.

A mixed trend prevailed in the domestic spot market with copper wire bar closing at Rs 370 a kg, a gain of Rs 2 per kg, while copper heavy scrap ended the week with a loss of Rs 2 at Rs 337 a kg. Nickel gained Rs 30 to close at Rs 1,380 a kg, while zinc ended the weekly loss of Rs 3 at Rs 125 per kg. Aluminium ingots and lead ingots closed unchanged at Rs 120 a kg and Rs 115 a kg, respectively.