Base metals face uncertain future

MARKET OUTLOOK

Traders are divided over the outlook of base metals for the next week, with a section predicting a bullish market on the back of strong Chinese demand and supply disruption. The other section is forecasting a weak market as it feels China had overbought and would go slow in the week ahead.

After the seventh consecutive weekly rise, copper is likely to fall in response to the surplus demand-supply statistics. According to the International Wrought Copper Council, a London-based group representing a wide gamut of the red metal users, the surplus may rise to 2.75 lakh tonnes this year compared with its earlier projection of 1.15 lakh tonnes.

China's production of non-ferrous metals, including aluminium, copper and zinc, all rose in the first three months of the year compared with the corresponding period a year ago. Production of aluminium rose 38 per cent, while that of copper 4.2 per cent. China's imports of refined copper and alloys in the first two months more than doubled to 2.89 lakh tonnes.

The surplus supply is significant as the current stock in the LME-registered warehouses is 1.7 lakh tonnes, roughly equivalent to less than four days of global consumption. Inventories have significantly fallen in six weeks from its peak level of 2.1 lakh tonnes.

Copper consumers have already started searching for replacements, wherever possible, but as the metal cannot be replaced completely, the demand would continuously drive prices.

The red metal touched the seventh week high on Friday hitting the psychological barrier of $8,000 following the strong Chinese demand and supply concern from Grasberg, the world's second largest copper mine based in Indonesia.

The mine, which supplies about 4 per cent of the world's mined copper, is operating at only 20 per cent capacity due to workers' strike. The strike entered the third day on workers' demand for pay hike. "The company is meeting its contract commitments through its stockpiles that is likely to exhaust soon. Hence, if the strike continues for long, the sentiment may push prices up," a local trader said.

China, the largest producer and consumer of metals, is planning to meet 40 per cent of its consumption through imports this year as against 10 per cent last year.

Copper futures for July delivery rose 0.7 per cent or 2.6 cents to $3.621 a pound on Friday on the Comex division of the New York Mercantile Exchange. The current price indicates 35 per cent increase in the last seven working days.

In the domestic market, secondary copper producers have been sailing through rough waters and the high price worsened their condition further.

Tin rose 1.5 per cent to $13,675 after the sharp losses earlier in the week on Indonesia approving export permits to two more smelters including PT Koba Tin, Indonesia's second-biggest producer. Nickel rose 2.5 per cent to $48,700 while aluminium eased by $3 to $2,842 on Friday. Zinc for delivery in three months rose 1.1 per cent to $3,640 a tonne.