Base metals dip on global trend

Base metals are cooling off intermittently after overheating around three weeks ago, perhaps owing to consolidation in the entire commodities segment.

In the Mumbai non-ferrous metals market, copper wire bar and zinc slab both depreciated about 5 per cent, to settle at Rs 403 a kg and Rs 184 a kg respectively.

Keeping pace with the downturn, prices of tin and lead slumped 11 per cent and 9 per cent to Rs 478 a kg and Rs 65 a kg respectively. Impact was a bit less on prices of nickel cathode and aluminium slab, which declined 4 per cent and 3 per cent to Rs 1,100 a kg and Rs 105 a kg respectively.

Attributing the domestic market price fall to the current southward movement in the international market, a trader said "base metals were overbought overseas".

The current decline could be for a short time, as the fundamentals for these metals are still strong, a local trader said. Ongoing declines in the LME (London Metal Exchange) stocks and the bullish demand-supply trend look set to continue supporting metal prices going forward.

On the LME, metals have witnessed a mixed trend for the same period (i.e. since May 12-13). The copper price and the inventory levels dwindled. While copper was down by $445 to $7445, stocks shrank by 6,550 tonne to 1,07,525 tonne.

In fact, copper has remained a hot market, with production struggling to catch up with demand and a rise in cancelled warrants suggesting a further drawdown in already low LME stocks.

In case of aluminium, a marginal rise of 975 tonne in the LME inventory levels, knocked the price down by $314 a tonne in the last three weeks. Lead met a similar fate as its price went down by $84.5 to $1,087.5 a tonne, with inventory increasing by 10,375 tonne at 1,11,750 tonne.

The price decline in aluminium "� the market mover "� is partly attributed to the announcement of restarting the idle US aluminium smelters with combined capacity of over 8,00,000 tonne. The project is expected to be resumed in October, if proposals for fresh energy contracts with the Bonneville Power Administration are accepted, and this will lead to further availability in the market.

Traders are under the impression that US-based hedge funds and speculative sellers were behind the downside pressure, bringing the market to "extremely illiquid conditions".

Barclays Capital is pessimistic about the return of normalcy in the metal market anytime soon. Major technical price support is positioned at $7,245 a tonne, with upside resistance at $7,940 a tonne and then $8,170 a tonne, a Barclays Capital source said.

The bearish sentiment in zinc prices was evident with the announcement of availability of surplus zinc "� to the tune of 59,000 tonne "� in the first quarter of the current calendar year.

Zinc mine production rose 4.5 per cent to 2.29 million tonne in Q1 compared with the same period a year earlier, with gains in China adding 1,00,000 tonne to the global output. Refined production too increased 3.7 per cent to 2.61 million tonne with China and India jointly contributing an additional 1,27,000 tonne to the world's output.

In March, the world production was 9,01,000 tonne, while demand was for 8,76,000 tonne.