Base metals likely to ride on demand from China

MARKET OUTLOOK

Base metals, led by copper, are likely to recover this week on speculation that sporadic buying from China may bring a fresh lease of life ahead of the new year. At present, base metals are oversold and no fresh sales are being offered by stockists.

A greater-than-expected 0.3 per cent gain in November industrial production in the US and a strong rebound from the 0.7 per cent decline in October are likely to provide support this week.

Traders in developed countries also find the present levels attractive and analysts believe that they may also add to their existing stocks before Chrismas leave.

Chinese demand will ensure copper does not fall further as the country needs has infrastructure projects to implement. When copper touched a low of $6,500 a tonne in March, Chinese traders turned a net buyers which resulted into its price touching a fresh high above $8,000 in July.

China's imports of copper, including semi-finished products, jumped 58 per cent in the first quarter of calender 2007 to 776,576 tonnes.

"The time has come when China may start taking buying positions," said Praveen Singh, an analyst with Sharekhan.

Copper concentrate, the only raw material for making virgin copper, is expected to remain in tight supply for at least the next three years.

Therefore, Asian copper smelters are signing annual contracts with global mining giants for treatment and refining charges (TC/RC) - treatment and refining fees for copper concentrate - at about $40 a tonne and four cents a pound next year. This indicates that the red metal producers will hardly offer any sale for their existing stocks.

"Lead is oversold and, therefore, will move up. Nickel has already bottomed out below $26,000 a tonne. Zinc may follow copper's move, said Singh.

"Copper is expected to touch $7,200 by early next month but panic selling at the current level may see it slip to $5,900 by February end," said another local trader.

In contrast, a school of thought was found apprehensive on rising price in anticipation of slower global economic growth.

The Federal Reserve's decision to cut interest rate by 25 basis point on December 11 resulted into a drastic decline in stock markets followed by a slump in industrial metals.

Last week, US copper futures extended early declines on Friday following the dollar's rise when consumer inflation jumped more than the forecast. Subsequently, traders said activity died down and prices remained range bound.

Copper inventories monitored by the London Metal Exchange rose by 5,150 tonnes, or 2.73 per cent, to 193,900 tonnes, the highest since March 16. Last week, stocks had declined by 5.8 per cent to $6,420 while aluminium fell 2.40 per cent to $2362. Tin, zinc, lead and nickel also followed suit and lost 2.91 per cent, 1.73 per cent, 8 per cent and 1.89 per cent to $16,480, $2,330, $2,461 and $25,900 a tonne, respectively.

The dollar's advance against the euro, following a 0.8 per cent rise in the US consumer price index in November, pushed copper down further.

In the domestic spot market, however, base metals declined by 2 per cent across all sectors in response to the market movement in London and New York. On the Multi Commodity Exchange (MCX), too, copper for delivery on February 29, 2008 sank 9 per cent to Rs 258.25 a kg.

Tin, zinc, lead and nickel for March delivery slumped by 1.20 per cent each at Rs 656.25, Rs 93.85, Rs 97.35 and Rs 1,010.5 a kg respectively.