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A bearish sentiment is likely to prevail in base metals segment in near term on falling demand from consumer industries amid concerns of weak US job data and fresh economic stimulus announced by the European Central Bank (ECB).
The US Federal Reserves on Friday reported this year's slowest growth in the employment rate in August holding thereby its earlier decision to speed up withdrawal of quantitative easing (QE) and increase in interest rate. Also, the ECB's announcement of printing more money to push into the system and easing interest rate to near zero at 0.5 per cent, indicate that the western economies are still under stress.
Consequently, base metals that moves in tandem with the economic growth and slumps with the decline in the global economy, remained rangebound in the last week. While copper recovered its loss to $6927 a tonne mid-week from the level of $6966 a tonne to close the week at $6973 a tonne, other metals also moved in tandem to witness a sharp volatility and await a direction for future.
"We expect base metal prices to trade sideways taking cues from strong economic recovery in the US coupled with monetary easing by Euro Zone and expectations of additional stimulus by the biggest consumer, China which will support gains. While on the other hand, weakness in the Chinese economy along with tensions between Russia and Ukraine will act as a positive factor," said Prathamesh Mallya, Senior Research Analyst (non-agri commodities), Angel Broking.
Copper moved up by five per cent since its recent low in May this year. Other metals in this basket followed suit.
Copper prices are likely to trade lower as news of a corruption scandal in China's power grid company, State Grid Corp., will harm the metal, as half of the metal goes into its power grids. Further, supply surplus concerns will escalate owing to resumption of Newmont Copper concentrate exports, thereby putting pressure on prices.
In contrast, however, aluminium prices to trade up as Indonesia clarified that it has no plans to wind back a seven-month old ban on exports of unprocessed bauxite. This will worsen supply which is already beaten by major smelter closures globally. Further, rising aluminium demand in the automobile sector along with expectations of deficit in 2014 and 2015 will support gains.
Nickel is expected to witness a fillip on concerns of the Philippines ore export ban to heighten Asian supply woes. Also, denial by Indonesia to restart nickel ore exports will boost prices.
Meanwhile, China's MMG Ltd, owner of the world's third-biggest zinc mine, said the global deficit in the metal had increased faster than expected, spurred partly by demand growth in China to rust-proof steel for cars.
According to the Lisbon-based International Lead and Zinc Study Group (ILZSG), the global zinc market deficit expanded to 234,000 tonnes in the first six months of 2014, from a surplus of 28,000 tonnes in the same period last year.
Its demand in China had picked up as companies sought galvanizing technology, following a push by the International Zinc Association to tout the benefits of coating steel with zinc to prevent rust. However, on the supply side, smelters had produced zinc flat out over the past few years to lower their unit costs amid a price slump, which beefed up stocks of the metal and has led to some softening in demand for zinc in concentrate, analysts said.
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