Global factors not supportive of base metals rebound

By Gautam Koderi

Economic uncertainty, recovery in the US dollar and rising inflationary pressure has painted the base metals’ market red. Copper prices at LME had managed to climb above $9600 per tonne last week supported by the weakness in the dollar; however, falling risk appetite killed the momentum.

In the broader sense, Industrial metals have been on the back foot after it climbed towards fresh peaks during mid first quarter of 2010. Employment and housing market of US is yet to stabilise and European debt troubles are still at large. In the East, inflation appears to be the bigger threat. The fundamental backdrop of industrial metals is grim and any possibility for pullbacks to erstwhile peaks is slimming.

Chinese inflation treaded at 5.4 percent, above the government target, in spite of the incessant effort of the country’s central bank (PBOC) to rein prices in. China has already raised reserve requirements for commercial banks four times this year and benchmark interest rates 4 times since last October.

The weaker than expected Chinese manufacturing PMI set the market tone weak on Tuesday in spite of the comment from the PBOC official that Chinese inflation will moderate in the coming days. Chinese manufacturing PMI fell towards 52.9 from the previous 53.4.

Nevertheless, the metals found solace in the decent factory orders and vehicle sales of US. But, MCX witnessed its industrial metals end the day with gains as the depreciation in the Indian rupee offset the weakness that gripped international prices.

At the time of writing, most active MCX copper May futures traded at 416.95 per Kg, up -1.48%. Lead, Zinc and Nickel closed at -0.53%, -1.40% and -0.59% respectively on Wednesday.

The market currently has adopted a wait and watch strategy ahead of the European Central Bank rate decision and US Non-Farm payrolls that will unfold later during the week.

The stock movements, on the other hand, of base metals last week were mixed. Copper inventories fell almost 10 percent for the sixth continuous week towards the lowest since December 2011. Aluminium stocks also fell during the period, but zinc and lead stocks climbed.

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