Base metals seen firm on supply concerns

MARKET OUTLOOK

Despite high inflation in the emerging Asian economies raising doubts on consumption pattern, analysts feel that base metals prices will remain firm next week on falling stockpiles.

Copper and aluminium would drive base metals, said an analyst. Although the prospects for zinc are limited as inventories in the London Metal Exchange (LME) warehouses have gone up by 2.61 per cent, or 3100 tonnes, to 12,1525 tonnes last week, the low weightage of the white metal will hardly affect the sentiment boosted by aluminium and copper, the two market movers on LME.

Inventories monitored by LME, the Shanghai Futures Exchange (SFE) and the Comex division of the New York Mercantile Exchange (NYMEX) were at 179,244 tonnes, the lowest since October 2006.

On LME, stockpiles recorded a drop of 6 per cent, or 9,050 tonnes, to 141,600 tonnes last week, which is not sufficient for even two days of world consumption at 125,000 tonnes a day.

Copper inventories are gradually moving towards alarming level even as high inflation in Asian countries raising doubts of on sustainability of the voracious appetite for metal consumption in these countries.

The inflation in China and India have gone up dramatically to 7.1 per cent, the largest increase in almost a decade, and 4.35 per cent, a six-month high, respectively.

Meanwhile, base metals on LME witnessed a spurt last week with copper surging 4.75 per cent, or $377, to close the week at $8,322 a tonne.

Aluminium jumped 2.49 per cent, or $69.50, to $2865, while tin and nickel rose 1.97 per cent, or $335, to $17335 a tonne and 4.18 per cent, or $1145, to $28550 a tonne respectively.

Zinc and lead were the major beneficiaries of the ongoing bullish sentiment as they gained 5.60 per cent, or $130, to $2,451 a tonne and 8.74 per cent, or $264, to $3284 respectively.

In Mumbai non-ferrous metals market, copper rose between 4 and 5 per cent while other metals went up marginally on the wait-and-watch policy adopted by traders. Base metals are back in vogue amid a rally driven by investors seeking shelter from inflation and an alternative to lacklustre equity markets.

But the upswing has also been underpinned by tightening fundamentals. Some of the bearishness that existed amongst fund players at the start of the year have faded.

China's worst snowstorms in decades have hampered output at Jiangxi Copper Co and Tongling Nonferrous Metal Group, the country's two largest copper refiners. The prices have soared fivefold in the last five years as consumption surged in the country, the world's fastest-growing economy.

Aluminium market is most affected by the disruptions of energy supplies in the countries such as South Africa and China resulting into a combined total of almost 3 million tonnes a year of capacity at risk.

On MCX, copper for the near month delivery jumped to Rs 334.50 a kg from Rs 306.85. Following copper, aluminium and zinc shot up to Rs 115.45 a kg and Rs 99.5 a kg from Rs 112.60 and Rs 92.45 respectively.