MARKET ANALYSIS
The base metals pack declined to new multi-year lows on Tuesday on the back of expectations that the recession in the West could eat into global demand. Overall sentiments in the markets are low as worries over demand are weighing on prices. Copper and Aluminum prices fell to a new low. With the decline in China’s third quarter GDP to 9%, fundamentals for base metals have become weak from the short-term perspective, until the financial uncertainty eases. Decline in China’s GDP could also be a reason of slowdown in industrial activity during the time of Olympics. Hence, the situation could improve in the coming quarters, giving relief to base metals.
Copper prices declined sharply reversing gains made after a 3% decline in LME inventories. The red metal is currently trading above its marginal cost of production and hence is more volatile. Aluminum prices touched a low of $2070 yesterday as crude oil prices slumped. Since aluminum is energy intensive metal, a decline in oil prices is easing concerns over the production of the metal. Overall trend in the markets was bearish.
On the macroeconomic front, the Federal Reserve on Tuesday introduced a new programme in order to finance the purchases of assets from money market mutual funds to ease tightness in short term debt markets as banks have struggled to satisfy redemption requests.
OUTLOOK
Fresh concerns over demand from the slowing economy of China are weighing on base metal prices. Since industrial activity witnessed a slowdown during the Olympics, a revival in Chinese growth could be seen in the coming quarters. We feel that this could be too early to point out that the Chinese market has deteriorated. We recommend a wait-and-watch policy to investors as the short-term trend is bearish but could see a revival in prices on the back of production cutbacks or bargain buying.
Since the trend in base metals is bearish we feel that markets could remain volatile today and trade lower. The currency market movement will play a major role as a stronger US Dollar is hurting prices. Talks of another stimulus package could boost the dollar and make metals unattractive from the trading perspective.
On the macroeconomic front, a gloomy global economic environment is expected to make markets trade on a negative note. A revival in the global financial health is expected to take time and hence this will keep sentiments lower.
Copper
Copper prices continue to display weakness with prices breaching key support levels. Prices on LME shall find strong support at $4200 levels & resistance at $4540 levels.
Immediate support is seen at Rs.217 levels for MCX Nov contract. Further below, support is seen at 214 levels. Whereas resistance is seen at Rs.225 levels & further upwards at 229.
Zinc
Zinc prices are also in a downtrend with prices finding strong support at $1070 - $1100 levels on LME.
Immediate support is seen at Rs 53.50 levels for MCX Oct contract whereas crucial support is seen 52 levels. Short-term resistance is seen at Rs56.2 whereas major resistance is seen at Rs58.80.
Zinc prices are currently trading around 93 levels. Immediate support is seen at Rs 92.30 levels for MCX Feb contract whereas crucial support is seen 90.60 levels.
Short-term resistance is seen at Rs95.40 whereas major resistance is seen at Rs97.
Courtesy: Angel Commodities
