MARKET ANALYSIS

The base metals complex witnessed selling pressure on Monday on the back of a stronger US Dollar, weak oil and lower precious metal prices. All the base metals ended in the negative territory with Tin prices losing the most by 5% yesterday. Nickel prices also declined sharply by 4.4% on the LME and touched a low of $19,200. Overall weakness in base metals in purely due to dollar strengthening as a stronger dollar makes base metals look expensive for holders of other currencies. Lack of liquidity at times was witnessed due to the US Labor Day holiday on Monday. This also led to wide swings in prices and technical selling came in.

Copper prices decline almost 2% on the LME as inventories continued to rise. LME inventories for copper gained slightly by 350 tonnes to 173,735 tonnes. From a year-to-date perspective, copper inventories are lower by 25,200 tonnes. But this gap is reducing and concern over a further rise in inventory levels is pulling the metal lower. With a decline in crude oil prices by 4%, Aluminum faced tremendous pressure and touched a low of $2,680 on the LME yesterday. The metal is expected to face pressure on the downside on the back of falling oil prices.

On the macroeconomic front, the US Dollar Index strengthened and touched a high of 77.69 and finally closed at 77.64 yesterday. The dollar has been witnessing strength since the past few days due to falling crude oil prices. As the dollar gained, the Euro posted the sharpest monthly decline ever.

OUTLOOK

Copper prices closed at $7,351 on the LME yesterday, a decline which was led by the stronger dollar. In the coming days, we expect copper prices to remain volatile as the metal will face pressure due to the tremendous rise in inventories coupled with the currency factor. Overall sentiments are also weak because of the fall in crude oil prices. Aluminum prices would remain volatile and track the movement in crude oil prices. Zinc, Lead and Tin prices are expected to witness further downside in this week as sentiments are negative due to dollar strengthening. Since, these metals already have weak fundamentals current technical movement will pull them even lower.

On the macroeconomic front, the US is expected to announce data on construction spending and ISM Index today. Manufacturing in the US is expected to stagnate in August for a second month due to weakening domestic demand. The ISM Index could decline below 50 for the month of August. Construction spending could decline 0.4% in July for a second month. This data could impact the US Dollar and the dollar could weaken slightly. But since the data is not expected to show much variation, the reaction to this factor may be short-lived. However, if the dollar weakens then base metal prices could revive today.

Copper

LME copper prices are expected to trade down. Prices on LME shall find strong support at $7190/7120 & resistance at $7290/7365.
MCX November contract shall find immediate support at Rs.317.80 level. Further above, resistance is seen at 313.90 levels. Whereas resistance is seen at Rs322.05. levels & further below at 325.10.

Zinc

Zinc prices are looking sideways down, with prices likely to find strong support at $1710-1675 levels and resistance is seen at $1760-1785 on LME.
Immediate support is seen at Rs.76.90 levels for MCX September contract whereas crucial support is seen Rs.75.80 levels. Short-term resistance is seen at Rs.78.50 whereas major resistance is seen at Rs.79.45.

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