MARKET RECAP The base metals pack gained sharply yesterday but closed below their highs as profit-booking was witnessed as traders wanted to book profits. Since the last few weeks base metals have been trading downwards and this sudden spurt in prices called for an opportunity to make money. Also the impact of this Chinese stimulus package could be seen from the 1QFY2009 onwards, with the current trend still remaining down.
Copper inventories gained sharply by 6,050 tonnes on Monday but prices did not end in the red as the Chinese stimulus package came in as a bullish factor for all metals. Copper touched a high of $4,155 on Monday but could not sustain at this level and finally closed at $3,870. Yesterday’s trade was similar for all base metals as markets took this rise as an opportunity to make money. LME Aluminum inventories jumped a whopping 11,125 tonnes but prices ended in the green.
On the macroeconomic front, the US Dollar strengthened and this factor also could have pulled base metal prices off from their highs yesterday. Since dollar denominated currencies look expensive when the dollar strengthens, prices could not sustain at their highs achieved yesterday.
OUTLOOK China has announced a $586bn stimulus package that aims at expenditure on infrastructure and social projects. These projects will include construction of airports, subways, railroads and the most important being the re-development of earthquake affected areas of Sichuan. We expect a boost in base metals demand from China in the coming quarter and continue till the next year because most of the spending is earmarked for two years. China has been the main driver of base metals demand and this upcoming stimulus package could help revive demand in times of a slowdown in global growth.
On the back of huge re-development activities in China, we expect base metals demand to rise. Currently, metals are trading at their multi-year lows but the coming year could see a revival in prices which could be backed by rise in demand coupled with production cutbacks by miners. We maintain a bullish view on Copper, Aluminum and Tin as fundamentally these metals are strong, while we remain bearish on Zinc, Lead and Nickel from the long-term perspective.
On the macroeconomic front, the movement of the US Dollar will remain very crucial as prices are facing the pressure because of a gain in the dollar. Since base metals market is taking cues from the currency and global equity markets, they both remain important to identify the trend.
Copper
Immediate support is seen at Rs.184.05 levels for MCX November contract. Further below, support is seen at 179.20 levels. Copper is expected to trade sideways down.
Whereas resistance is seen at Rs.191.90 levels & further upwards at Rs. 195.95.
Zinc
Immediate support is seen at Rs.51.80 levels for MCX November contract whereas crucial support is seen at Rs.50.70 levels. Zinc is expected to trade sideways for the day.
Short-term resistance is seen at Rs 54.85 whereas major resistance is seen at Rs 56.85.
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
