Base metals set for bear phase

MARKET OUTLOOK

Base metals, barring zinc, are likely to see a slump this week on rising stockpile in China, the world's largest user of the metal, thus indicating slower demand growth.

Copper inventories monitored by the Shanghai Futures Exchange jumped 26 per cent or 17,449 tonnes, the highest weekly gain since May 2004, to 85,269 tonnes last week. China is set to ease demand after supply from Southern Copper Corporation, a strike-hit mine in Peru, has returned to normal levels.

According to data compiled by Chinese customs, the country's copper imports are expected to fall after the world's biggest consumer shipped in record amounts earlier this year. China's imports of refined copper in March rose 148 per cent that y-o-y to 202,995 tonnes, indicating the import at least for now would slow down.

Last week, copper for delivery in three months on the LME dropped 6.3 per cent, the largest decline since February 2 to $7,795, but recovered towards the end of the day to close at $7,905. The contract has increased 23 per cent this year, after advancing 44 per cent last year.

Traditionally, the demand in the second quarter remains strong as Western European countries tend to process higher volumes of metal before they embark on long summer vacations. Therefore, the demand is likely to be high this month or early next, especially from Western European countries.

Losses in other metals were limited as LME stocks of major metals, except for tin, witnessed a fall. Nickel inventories, though, saw a modest fall (12 tonnes), the stock of the metal, used mostly for stainless steel production, is so low that it would barely last for a day.

In a surprising move, China, the world's top zinc miner and consumer, is threatening to sharply reduce zinc exports during the second quarter by removing a tax rebate. China is the world's top zinc miner and consumes one-third of the world's zinc.

Following the trend on the LME, copper wire in Mumbai base metals market declined to Rs 393 a kg from Rs 410 during the week, while copper cable scrap, heavy scrap, sheet cutting and utensil scrap closed down at Rs 363 (380), Rs 353 (370), Rs 338 (358) and Rs 325 (342) a kg respectively.

Aluminium ingot, however, declined marginally by Re 1 to close the week at Rs 141 while lead ingot and nickel cathode ended the week at Rs 99 (101) a kg and Rs 2270 (2300) respectively. Tin slabs and zinc slabs closed without change at Rs 750 a kg and Rs 200 a kg respectively in Mumbai non-ferrous metals market after a steady movement during the week.