Base metals likely to remain bullish

Non-ferrous metals jumped by up to 12.39% in the past one month, on hopes of a pick-up in global industrial activity

Base metals are likely to remain bullish in short- to medium-term on expectations of a revival in their demand from user industries and consumption to outpace supply until next year due to production cut by major global producers.

After a sharp decline, non-ferrous metals led by lead jumped by up to 12.39 per cent in the past month following hopes for a pick-up in industrial activities the world over. Delay in the interest rate upward revision by the US Federal Reserves has also supported base metals by a large extent. Copper, meanwhile, remained resilient.

“Copper price is likely to remain range-bound in the short term ranging between $4,800 and $5,000 a tonne on the London Metal Exchange (LME) with an upward bias for medium- to long-term to $5,500 a tonne,” said P Ramnath, chief executive officer of Sterlite Copper, a Vedanta Group company.

Analysts, however, believe that the supply deficit forecast by the International Copper Study Group (ICSG) for 2016 and 2017 on production cut announced by major global producers would support copper price to move upwards. In its latest monthly release, ICSG forecast the refined copper production deficit of around 306,000 tonnes for the first half of 2016 compared to a deficit of 227,000 tonnes for the comparative period last year. This means, the deficit is widening with expectations of aggravating further in future.

  Copper prices are trading higher as US employment growth unexpectedly slowed for the third straight month with a rise of 156,000, compared to expectations of 171,000, indicating the Federal Reserve could be more cautious about raising interest rates. Also, a decline in LME stocks is acting as a positive factor. However, sharp upside is capped as government data showed China’s foreign exchange reserves dropped $19 billion in September to a five-year low, with the central bank spending heavily to defend the yuan against capital outflows.

“Copper prices are likely trade higher as US employment growth eased for the third straight month in September. Also, investors will be cautious ahead of FOMC (Federal Open Market Committee) meeting minutes due to be released on Wednesday,” said Prathamesh Mallya chief manager (commodities & currency) at Angel Commodities Broking.

In the past month, however, inventories in the LME-registered warehouses declined sharply due to lower supply from smelters.  Not only copper, but zinc is also likely to witness a supply deficit in future. As forecast by the Lisbon-based International Lead and Zinc Study Group, the global market for refined zinc metal was in deficit by 174,000 tonnes from January to July 2016 with total reported inventories falling by 17,000 tonnes over the same period. A decrease in global zinc mine production of 6.1 per cent was primarily due to significant reductions in Australia, India, Ireland and Peru. Supply is likely to remain subdued for nickel and aluminium as well.

Meanwhile, Indian smelters including Hindalco industries are hoping for a flat treatment and refining charges for converting copper concentrate into refined metal for 2017.