Metals may shine on global cues

MARKET OUTLOOK

Bullish fundamentals and expectations of an interest rate cut by the US Federal Reserve are likely to continue supporting base metals next week.

"Lately, base metals have been discovered as another alternative investment avenue, where large investors have parked their funds immensely and earned profits," said an analyst. Interestingly, investors have increased their bets that the Fed will lower its target rate at its meeting on September 18.

The use of copper in the US, the world's second-largest consumer after China, fell 3 per cent in the year to May, the Lisbon-based International Copper Study Group said on August 23. Copper on Friday dropped $26 in London to $7,512 a tonne, paring its weekly gain to 4.7 per cent. Inventories, too, declined meagrely by 1 per cent to 135,750 tonnes, the level not seen since August 28.

However, the quantum of gain could be limited next week on high output in China, the largest consumer of the red metal. The country produced 311,600 tonnes of copper in August, a rise of 26 per cent from the same month last year. Indications are that the demand from China may be subdued because of the country's additional output. The overall production recorded an increase of 16 per cent in the first eight months of 2007.

Other metals, including nickel, zinc, lead, tin and aluminium, are expected to follow copper as a 25 per cent rise in cancelled warrants (supply orders to LME-registered warehouses) of zinc to 12,275 tonnes would attract buyers to book their positions to their maximum capacity.

Zinc on Friday dropped $25 to $2,845 a tonne despite the highest withdrawal of stockpiles from LME warehouses in almost five months. The zinc inventories were reduced to 72,750 tonnes.

On Friday, nickel rose for a fourth consecutive day in London on improved demand from stainless steel producers. As the sector consumes approximately 67 per cent of the total nickel produced globally, it helps influence the market to a great extent.

"As the metal has fallen massively in the past from the peak of $51,800 a tonne on May 9, it is estimated that the stainless steel industry would book the metal at the current level of $28,300 a tonne. At this level, the lustrous metal recorded a 4.8 per cent gain for the week, but still 45 per cent below the highest-ever peak level," the analyst said.

Nickel stockpiles rose 2.8 per cent to 29,190 tonnes, recording a more than five-fold gain since the metal climbed to a record.

Aluminium lost $6 to $2,474 a tonne on Friday on unabated addition in inventories, which mounted by 8 per cent or 70,000 tonnes to 901,200 tonnes since the end of August.

Lead added $7 to $3,177 on supply side constraints, the biggest positive factor to drive the metal further next week. Analysts believe that China's inability to match its growth in demand with its ability to produce means the market is vulnerable to tightness in the concentrates market. Supplies of lead concentrate have been constrained for most of the year following the suspension of exports from the Magellan mine in western Australia due to lead contamination in the port of Esperance.