Base metals came under pressure on Thursday and ended in the red as a stronger dollar put pressure on prices. Prices retreated as the upside momentum faded to make room for consolidation phase. Prices had raced too far too fast and technically the correction in prices was inevitable.
Copper, which had hit a 14-month high of $6,992 on the LME on Wednesday and nearly reached the $7,000 mark traded on a subdued note yesterday. LME stocks rose for the 13th day in a row, climbing a net 6,450 tonnes overnight to a fresh six-and-a-half month high of 420,550 tonnes. Cancelled warrants, the metal booked for removal, fell 14 percent to 2,075 tonnes, just 0.5 percent of the total now.
Rumbles in the South American labour arena continued to offer support. Workers at Chile’s giant Chuquicamata mine are seeking a 7.5 percent wage increase, although at the Cerro Colorado mine, employees appear likely to accept an early wage deal offered by BHP Billiton and avoid a strike.
BHP has evacuated the Spence mine following worker sabotage. Clearly, the threat of strikes remains a major feature of the industry, particularly in South America, and is contributing to the current pricing environment.
On the macroeconomic front, the Dollar Index strengthened as risk aversion in the financial markets led to demand for the low-yielding currencies. A decline in equities led to buying in the dollar that supported the index higher.
Economic data from the US was not very positive to boost risk appetite and that led to further selling pressure in higher-yielding and riskier investment assets.
Risk aversion in the financial markets has affected the price rally in base metals. Prices faced downside pressure as the dollar strengthened and made the metals look expensive for holders of other currencies.
Though fundamentals in the case of copper remain strong, the major rise in prices in the last few months has been backed by a weaker dollar.
The US is expected to keep interest rates low for an extended period and that indicates that the recovery could be slow. Also, lower interest rates would reduce the appeal of the dollar.
Overall there is weakness in the dollar index but even slight strength in the dollar could put pressure on the base metals.
On the macroeconomic front, there is no economic data from the US today and the dollar will take cues from the movement in the equities. We expect risk appetite to remain subdued and the dollar could trade with a positive bias.
Base metal prices could continue to trade with a negative bias as stronger dollar could exert pressure on prices.
Copper
Copper prices are sideways with immediate support for MCX November contract seen at Rs.315.35. Further below, crucial support is seen at 313 levels.
Whereas resistance is seen at Rs.320.40 levels & further upwards at Rs. 321.85 levels.
Zinc
Zinc prices are sideways with immediate support seen at Rs.101.40 levels for MCX November contract whereas crucial support is seen at Rs.100.20 level. Short-term resistance is seen at Rs.104.20 whereas major resistance is seen at Rs 105.80 levels.
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