Mumbai metal traders shut shop on volatility

Physical metal market traders shut their shops in Mumbai on Monday following the meltdown on the London Metal Exchange (LME). Traders had an off day on Monday as base metals, led by copper, witnessed a volatility of $1,500 on the LME.

Mumbai accounts for nearly 90 per cent of the country's base metal trades and has around 4,000 traders in the city.

"The correction was due for long as metal prices had reached an all-time high without much fundamental support," said Surendra Mardia, senior vice-president, Bombay Metal Exchange, which is a forum of all physical market players in the city.

"We (traders) shut shop in order to wait and watch the international developments. Any price movement would depend on how the New York Mercantile Exchange opens," he added.

In one of the highest volatile trades on the LME, copper settled on Monday at $8,190 a tonne - a loss of $598 from Friday. Similarly, aluminium, nickel, lead, tin and zinc closed lower at $2,930, $20,600, $1,172, $8,870 and $3,475 by $208, $1,600, $98, $880 and $425 a tonne respectively. The market was very nervous with a lot of rumours resonating early in the morning from London.

Surprisingly, copper opened high in pre-market trade on the LME and slumped to $8,700 mid-day. The red metal recovered its early loss in the morning kerb and touched the $8300-mark again.

The recovery was mainly attributed to the uninterrupted buying sentiment in the Chinese market where the government has decided to build reserves for its future use.

Copper futures on the Shanghai Futures Exchange settled mostly higher on Monday, with short-covering having pushed up nearby contracts and long-position holders focusing on rolling positions into the August contract.

A gain was witnessed in Shanghai copper futures despite sharp declines on the LME, which indicated that investors are still confident of the growth in Asia irrespective of the movement elsewhere in the world.

The August contract ended sharply up owing to long buying to a new record of CNY85,550 a tonne, before paring gains on profit-taking. The August contract rose by CNY1,240 to settle at CNY83,560 a tonne, after trading between CNY81,740 a tonne and CNY85,550 a tonne.

The recovery in metal prices is primarily attributed to the Chinese government's decision to build up inventories to unexpected levels, of 20 million tonne of copper and 200 million tonne of bauxite, by 2010.

"Generally, when one trader comes out with selling purpose at this higher price, others follow suit and, thus, normal selling suddenly turns into panic selling. But, strong fundamentals picked up the positive trade again, which pulled up the prices," Mardia said.

Taking note of the sharp decline in the international markets, standard gold slumped Rs 250 to Rs 10,265 a 10 gm in Mumbai. Silver also moved in tandem and lost Rs 765 to close the day at Rs 20,785 a kg.

In London, gold dropped the most in almost four weeks and remained trading below $700 an ounce, on speculation of a rally, which drove the metal to a 26-year peak.

Gold has jumped by almost $198 an ounce in London until Friday this year. Gold for immediate delivery fell by as much as 4 per cent or $28.24 to $686.56 an ounce in London, the biggest decline since April 20. Bullion traded at $688.25 mid-day.