MARKET ANALYSIS
The base metals pack ended in the negative territory on Friday on the back of a decline in crude oil prices and profit-booking at higher levels. In the last week, the base metals pack has been affected mainly by the US Dollar Index. Despite of a rise in LME inventories, metals like Copper, Aluminum and Nickel jumped sharply during the week. The weakening of the US Dollar Index by 0.5% in the last week made base metals look attractive for holders of other currencies. However, base metals lost momentum on Friday on the back of a holiday ahead on Monday on the LME which triggered profit-booking.
Copper prices touched a high of $7,875 on Friday but eventually weakened and closed 2.3% lower against Thursday’s close. LME inventories for copper jumped a whopping 7,275 tonnes and pulled the metal lower. Aluminum prices also declined as crude oil prices fell, easing concerns over production of primary aluminum. Lead prices fell despite of a tremendous decline in LME inventories by 3,325 tonnes. This factor could not provide support as the overall momentum in base metals became weak.
On the macroeconomic front, concerns over economic uncertainty raised by the Federal Reserve Chairman Ben Bernanke led to weakening in prices. Ben Bernanke said that inflationary pressures could slow down due to a decline in commodity prices and weak economic growth, which would mean lower demand. Markets reacted to this statement and pulled base metals lower. Another statement by investment guru Warren Buffet raised worries over the financial health of the US economy as he said that the US was still in a recession and the situation was unlikely to improve before 2009.
OUTLOOK
Copper prices could trade higher as we expect physical buying and industrial activity in China to pick up post the completion of Olympics held in Beijing. Copper prices are looking attractive at these levels for physical buying. Since industrial activities in China will resume operations, we expect re-stocking in metals to take place. This factor will provide support to prices and pull copper back from the weak territory. However, copper faces major pressure around $8,100 levels on the LME and Rs. 355 levels on the MCX. Since copper inventories are on the rise this uptrend in copper prices could be followed by a bout of profit-booking. Aluminum prices are expected to face pressure on the downside as crude oil prices remain volatile.
LME markets are closed on Monday as it is a UK holiday. LME operations will resume on Tuesday. In the coming week, we expect base metal prices to trade on a volatile note. Currency movement will play a crucial role in price determination. Markets await a host of US economic data in the coming week and this will impact the dollar movement to a large extent. Renewed physical buying interest from China is expected to boost base metal prices and provide a cushion to the downside. However, since the recent rally in metals was not on the back of fundamental factors, we foresee profit-booking at higher levels.
On the macroeconomic front, the US is expected to announce data on existing home sales today. This data is expected to improve slightly to 4.90M for the month of July from the prior 4.86M. This positive data could boost the US Dollar and pull the base metals lower as a stronger dollar makes base metals look expensive for holders of other currencies.
Copper
Copper prices displayed strength last week with LME last trading at $7660. Prices on LME shall find strong support at $7300/7100 & resistance at $7880.
MCX Aug contract shall find immediate support at Rs.329 level. Further below, support is seen at 323 levels. Whereas resistance is seen at Rs.335.6 levels & further upwards at 337.8.
Zinc
Zinc prices are also witnessing a down-trend with prices likely to find strong support at $1730/$1600 levels on LME whereas resistance is seen at $1875/$1980 levels.
Immediate support is seen at 77.90 levels for MCX Aug contract whereas crucial support is seen 76.50 levels. Short-term resistance is seen at 80.35 whereas major resistance is seen at 81.75.
