Base metals rise on dollar, MCX Nov copper steady

Base metal prices gained sharply on Monday as a weakness in the dollar coupled with a rise in risk appetite on the back of positive US retail sales data pushed prices higher. Most metals ended with gains between 3.5 – 5% yesterday. The dollar index touched a low of 74.68 and led base metals higher as it made them look attractive for holders of other currencies.

The base metals complex was boosted by dollar-induced fund buying and worries that severe snowstorms in China may disrupt shipments. Snowstorms in China could impact deliveries and smelter operations, and this factor coupled with a weaker dollar boosted base metal prices.

Beijing’s heaviest snowfall in at least 54 years brought down more than 7,000 buildings nationwide, paralysed highways and airports and cost around 3.5 billion yuan ($512 million) in economic losses. The snowstorms could continue for another two days in northern China and the snow could cause delivery problems to smelters but production is currently running at normal basis right now.

Copper prices gained a whopping 4.8% despite a rise in LME inventories by 2,825 tonnes on Monday. Nickel prices revived on Monday and gained almost 4% despite a 132-tonne stock increase to 131,880 tonnes, a fresh high since March 1995.

Base metal prices could come under pressure today as Federal Reserve Chairman Ben Bernanke’s statement indicated that significant challenges remain to revive the world’s largest economy. He also added that the US economic recovery will be restrained by headwinds of reduced bank lending and a weak labor market and future setbacks were possible.

This also means that interest rates could remain low for a considerably long time period and would translate into a weaker dollar for the short-term. This could be positive for base metal prices which have raced too far too fast. Weakness in the dollar has been the key to the sharp rise in base metal prices. Once the interest rates are increased in the US we could witness consolidation in base metal prices as the dollar could strengthen and make base metals look unattractive for holders of other currencies. But in the short-term base metals are expected to trade with a positive bias.

On the macroeconomic front, the US is expected to announce a host of economic data today – PPI, Core PPI, Long-Term Purchases, capacity utilization rate, industrial production and NAHB Housing Market Index. The data is expected to come on the mixed side and may have a negative impact on prices. We expect the dollar index to bounce back today as technical support may lead to a bounce back in today’s session.

Copper
Copper prices are sideways with immediate support for MCX November contract seen at Rs.309.70. Further below, crucial support is seen at 305.50 levels.

Whereas resistance is seen at Rs.318.15 levels & further upwards at Rs. 321.80 levels.

Zinc
Zinc prices are sideways with immediate support seen at Rs.101.70 levels for MCX November contract whereas crucial support is seen at Rs.99.85 level. Short-term resistance is seen 8at Rs.104.70 whereas major resistance is seen at Rs 105.75 levels.

Courtesy: Angel Commodities

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