Metals face negative sentiment

MARKET OUTLOOK

Scorching prices of base metals are likely to cool down this week on low Chinese demand and the prevailing negative sentiment in the US economy despite the Fed rate cut.

A 50 basis points interest rate cut by the US Federal Reserve is unlikely to help change the sentiment in the base metals market as the loss incurred due to the US subprime market "far exceeded" even the most pessimistic estimates and can be more than $300 billion "� equivalent to the combined market capitalisation of Vietnam, the Philippines, Pakistan and New Zealand.

"The potential for further gains is limited as base metals are currently overbought. However, punters are planning to hold huge positions to cover their losses in the recent volatility," said an analyst with a leading broking firm.

In the short term, however, $7,800 looks to be the first support level for copper, while $7,600 is the second. Copper closed on Friday slightly above the aforementioned resistance level after hitting the benchmark $8,000. On the MCX, copper cathode September futures are likely to settle below the current level of Rs 314 a kg.

"Base metals futures for the near-month are expiring next week on the MCX. Hence prices may not drop in proportion to the LME or New York, but the trend is likely to replicate in the subsequent month," the analyst said. For copper and aluminium, the first support is projected at Rs 294 and Rs 93, while the second level is at Rs 282 and Rs 91 respectively.

The Fed rate cut is pushing base metals up in September, generally considered a lean period of the year. "But these hard commodities are looking firm for the next quarter as the slackening period is coming to an end," said the analyst.

Meanwhile, copper on the LME witnessed a 6.81 per cent weekly gain to close at $7,980 on the weakening dollar, firm crude oil, ongoing strike on Grupo Mexico and possibility of a strike at the Southern Copper mine in Peru.

Initially, the three-month copper on the LME hit $8,025 a tonne, its highest since July 31, on the falling ratio between inventory and cancelled warrant.

Copper inventory at LME-registered warehouses slipped to 132,575 tonnes from 135,750 tonnes a week ago, while aluminium stocks jumped to 923,400 tonnes from 901,150 tonnes. Aluminium, which slumped even in the boom time to settle the week at $2,380 from $2,404 a week ago, is likely to keep pace with copper and other metals.

Lead is currently moving in the over-bought territory. The metal closed at $3,450 compared with $3,200.5 a week ago and is likely to see a downward trend this week. Nickel shares a strong buying support level of $30,000 from the current level of $32,605, a rise of $4,605 from the previous week. Strong demand may limit the loss of zinc, but the sentiment will weaken this metal also, which closed with a marginal weekly gain of $45 at $2,906.