Base metals knocked down by inflation fears

Fears of rise in inflation prompted investors to pull some money from commodities which forced base metals to tumble again in the dometic as well as international markets.

Copper wire bar slumped by Rs 6 to Rs 419 per kg in Mumbai while similar loss was witnessed in copper scrap section also.

Aluminium slab comparatively remained calm with a marginal loss of Re 1 to Rs 152 per kg. Generally, base metals market move in tandem with the London Metal Exchange (LME) where prices of all metals declined dramatically. Copper in London declined by $332 from the Friday's close at $7,952. Copper stocks on Monday slumped by 500 tonnes to 106,825 tonnes.

Similarly, aluminium on the LME fell by $26.5 to $2716.5 and zinc slipped by $61 to settle on Monday at 3,325.

Copper led the metal liquidation which was imminent as no price can sustain beyond a limited period without continued fundamental support, a local trader said. "Given the current volatility, the next resistance is set at $7,000".

The present decline in base metals is mainly attributed to investors shifting money into US assets out of commodities, including gold and oil, on worries that rising inflation could raise interest rates and dent economic growth.

The decline copper witnessed on last Friday was the largest percentage drop since January 4, 2005, sending futures markets in Shanghai and New Yorkv sharply lower.

Base metals demand is growing in developing countries like India and China who have lined up a number of infrastructure projects for development.

Demand is also seen rising in OECD countries. Persistent shortage of physical supply currently characterises the base metals market and will continue to support strong prices regardless of the ebb and flow of speculative investor money, a trader said.

Copper price reached an all-time high of $8 800 on May 11, having jumped more than six-fold from late 2001 on strong demand in China and India, supply disruptions and relentless fund buying.

Since then copper prices have declined 17 per cent but have still gained more than 60 per cent since the end of last year.

On the supply front, Grupo Mexico is expected to meet 95 per cent of its June contracts for copper due to two-month-long strike at its La Caridad mine.

Aluminum and other metals are supporting the copper move and decling in line with red metal despite strong fundamentals like rising consumption from all corners of the indutries.

Recent data of International Aluminum Institute (AIA) which show that aluminum output in April fell by 64,000 tonnes to 1.960 million tonnes, from 2.024 million tonnes in March will have little bearing on the international prices.