Overvalued Metals now rely on Chinese demand

By Shyamal Mehta

Base metals fell during last week on profit booking as fund houses had liquidated their long positions. However, metal prices are getting support at lower levels and speculators are coming in the market in metal complex to buy at lower levels.

Base meals are also getting support on lower levels on expected reconstruction demand from Japan, the third world’s largest economy.

However, base metals are overvalued at present levels and investors are buying on the hope of expected demand from China in second and third quarter.

LME 3 Month Copper last traded at USD 9427 a tonne. While 3 Months Lead and Nickel on LME last traded at USD 2664 per tonne and USD 26350 per tonne respectively. At LME, 3 Month Aluminium last traded at 2698 USD a tonne. Zinc 3 Month LME contract last traded at 2397 USD per tonne.

Negative news for the metals is that presently USD is trading strong against basket of currencies which may trigger further sell off in base metals.

Chinese economy is overheating and rising inflation fears in China increases the fear that the country may go for further monetary tightening measures which is a concern for base metals.

While Crude prices cooling off in last few trading sessions trading lower by approximately one percent in Asian session which can be seen as a positive sign for industrial metals. However, Crude prices are still at higher levels which may bring higher inflation in the world and consequently may trigger sell off in base metals. Crude in international markets last traded near $ 108.55 per barrel.

Metals may find its direction from global equity markets and currency movements in the short term. Presently almost all the European indices are trading in red which look bearish for metals. Among Asian indices, Nikkei has lost 0.36 percent today and settled at 9556.65 down by 34.87 points.

Traders and investors are eying on US Housing and Unemployment claims Data due this week.

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