MARKET ANALYSIS

The base metals pack declined on the back of a strengthening in the US Dollar. The past few weeks have seen a major decline as the dollar is continuing its rally upwards and it mounted a fresh upside foray against the euro and managed to hit 8-1/2 month highs. The impact of the stronger dollar was felt across the commodity sector. The base metals market is reacting to the summer slowdown amid an overall weak macroeconomic scenario.

Copper prices declined as LME inventories jumped 1,575 tonnes and pulled the metal lower. Inventories are continuing this rising trend and are affecting prices. LME inventories have increased for the tenth day in a row, the highest since January 18th, indicating a slowdown in demand amid a gloomy macroeconomic environment. Falling Zinc inventories provided a support to prices and pushed it higher as all the other metals ended yesterday’s trade in the negative territory. Nickel prices declined and traded in the negative territory as overall demand scenario for the metal remains weak. Though inventories for the metal rose marginally, it could not provide support to prices.

On the macroeconomic front, the US data was mixed yesterday. Weekly jobless claims came in at 444,000, against an expected 422,000, although second-quarter non-farm productivity rose by 4.3 percent -- a 3.3 percent increase had been expected. The US Dollar was trading strong and hence pulled the metals lower as they looked unattractive for holders of other currencies.

OUTLOOK

The base metals pack has been reacting to the currency market movements amid a seasonal slowdown in demand. In the past six weeks we have witnessed a broad-based sell-off in commodities on the back of a stronger US Dollar and weaker US macroeconomic data in the US, Europe and Asia. Though demand has slowed down and is expected to come down further, the most important factor i.e. SUPPLY will help to hold prices higher. Supply-related issues are expected to rise especially in the case of copper, aluminum and tin. This factor could help to push metals higher. Given the power shortages in key producing regions like China and southern Africa, aluminum prices will receive support. Hence, even if demand for base metals is a concern, issues from the supply front would support prices at higher levels.

On the macroeconomic front, the US is expected to announce data on unemployment rate today. Unemployment rate is expected to remain unchanged and this may not impact the dollar strongly. However, as it is the trend in the US Dollar is upwards and this factor could keep base metals in the weak territory before the weekend.

Copper

LME copper prices are expected to trade sideways down. Prices on LME shall find strong support at $7120/7070 & resistance at $7215/7300.
MCX November contract shall find immediate support at Rs.315.05 level. Further above, resistance is seen at Rs. 313.40 levels. Whereas resistance is seen at Rs322.40 levels & further below at Rs. 325.50.

Zinc

Zinc prices are looking sideways, with prices likely to find strong support at $1760-1720 levels and resistance is seen at $1815-1850 on LME.
Immediate support is seen at Rs.78.50 levels for MCX September contract whereas crucial support is seen Rs.76.90 levels. Short-term resistance is seen at Rs.80.75 whereas major resistance is seen at Rs.82.45.

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