Continuous unwinding left base metals vulnerable to further downside pressure this week, as traders stayed away from active buying on nervousness about a long-awaited bailout deal for Greece, slackening physical demand from China and bearish technical signals.
After rallying to its highest levels in five months, near $8,800 a tonne on the London Metal Exchange (LME) over a week ago, copper started rewinding to close at $8,143 in late evening trade on Friday, recording a decline of 5.42 per cent from the level of $8,610 on January 27.
“The overall outlook is negative. While broader market optimism toward a final Greek debt deal, now expected on Monday, helped boost world stocks to a 6-1/2 month peak and bolstered the euro versus the dollar, copper failed to tag along. Hence, the move of base metals largely depends upon the resolution of the Greek issue,” said Naveen Mathur, associate director, Angel Broking.
Another indication of the weak sentiment is the gradual increase in Chinese inventory. Copper inventories in warehouses monitored by the Shanghai Futures Exchange rose 9.6 per cent to 217,142 tonnes this week, the highest since mid-2002. Copper prices remained depressed most of the day as near-term demand prospects, particularly from China, worsened.
On Friday, optimism grew that Greece has finally done enough to secure a second bailout after it set out extra budget savings. Hopes of financial assistance for Greece are helping the market move up. Traders were quite optimistic, but the recovery was fragile and we should be prepared to see lower prices, said Commerzbank analyst Daniel Briesemann in a report.
However, there is evidence of sustained recovery momentum in the US economy. US data released on Thursday showed jobless claims fall to a near four-year low, solid growth in factory activity in the Mid-Atlantic area and a faster-than-expected rise in housing starts. Also, underpinning copper, the euro climbed against the dollar on hopes of a rescue package for Greece, but gains were capped before a key meeting on Monday that could nail down an agreement, said an analyst.
A weak US currency makes dollar-denominated commodities, such as copper more affordable for holders of other currencies.
Falling copper inventories in LME-monitored warehouses, however, were pointing to stronger demand, especially in the US. Stocks fell by 4,750 tonnes to a fresh 2-1/2 year low of 306,375 tonnes.
Meanwhile, battery material lead remained the worst performer since the base metal hit recent highs of $2,288 on January 27, recording an overall decline of 12.50 per cent. The metal closed at $2,002 a tonne on Friday.
A report by Angel Broking said copper contracts for delivery in February at the Multi Commodity Exchange moved marginally higher, but found strong resistance at Rs 425.65 a kg level. Later, prices fell sharply towards Rs 403.55 a kg and finally, closed sharply lower.
For the next week, however, we expect copper prices to find resistance between Rs 411-413 levels. Trading consistently above Rs 413 a kg can lead to strong resistance at Rs 419 a kg. Multiple closings above Rs 419 a kg would indicate a short-term bottom has been posted in the market and thereby, a new leg-up can be expected initially towards Rs 427 a kg, then Rs 433 a kg and finally towards Rs 439 a kg, the report said.
Strong support is observed at Rs 398-396 a kg. Trading consistently below Rs 395 a kg would further extend the last week’s fall, initially towards 389 a kg, and finally to major support at the level of Rs 378 a kg.
On the LME, zinc, aluminium, nickel and tin closed the week sharply down from their recent peaks.
