Base metals fall on demand worry

Slide follows broad fall in equity markets; bullion gains

Base metals continued a declining trend to trade near an eight–year low on Wednesday, after another rout in the global equity markets, led by China. Prices of gold and silver rose, albeit marginally, on brisk buying.

On the benchmark London Metal Exchange, zinc fell the most on Wednesday with a decline of 2.3 per cent to $1,488 a tonne. Followed by copper, lead and zinc with 1.7 per cent, 1.6 per cent and 1.56 per cent, respectively.

The fall in base metals indicates a slowing in global economic growth. Asian indices hit a four-year low on Wednesday, prompting traders to book profit in other assets, including in commodities, to pay margins and square off their positions in these equity markets.

“All sentimental indicators, including crude oil, Asian equity markets and metals on the Shanghai and London exchanges supported base metals’ downward move. The slowing in global economy has a direct impact on metals’ demand. So, the broad-based rout in the equity market can be attributed to the current fall in commodity prices,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

Almost all metals fell in the opening trade on the LME, to trade at an arms length of their respective lows of 2008. Copper slumped to $4,367 a tonne, 1.5 per cent away from the lowest price since 2008.

“Base metals fell owing to risk aversion in the global markets after the persistent rout in crude oil prices and after the International Energy Association warned the market could ‘drown in oversupply’ in 2016. Also, the International Monetary Fund (IMF), in a quarterly update to its World Economic Outlook, said the global economy would expand 3.4 per cent this year, down from a projected 3.6 per cent in October. However, sharp losses were cushioned as additional stimulus hopes resurfaced after China's economy grew 6.9 per cent in 2015, its slowest growth in 24 years,” said Naveen Mathur, associate director, Angel Broking.

WTI oil hit a new low in the spot market, down 3.3 per cent at $28.46 a barrel. Crude oil on the Multi Commodity Exchange here was trading lower by 3.7 per cent at Rs 1,977 a barrel. Brent crude was down 3.1 per cent to its lowest after September 2003 and trading at $26.54 a barrel. Fear on prices prevailed after America and the European Union on Saturday revoked sanctions that had cut Iran's oil exports by about two million barrels a day (bpd) since their pre-sanctions 2011 peak to a little more than a million bpd.

Both gold and silver, however, gained from the rout in equity markets on haven buying from traders and stockists. Spot gold touched Rs 26,540 per 10g and silver at Rs 34,700 a kg. Gains in bullion markets were also supported by depreciation in the rupee against the dollar.

In London, spot gold prices on Wednesday were trading lower by $7.5 at $1,094.18 an ounce. MCX gold prices were higher by 0.7 per cent at Rs 26,237 per 10g. Gold edged higher on Wednesday as a further fall in equities and oil burnished its haven draw, although slow physical demand from Asia kept the metal well under this month's peak. The IMF has cut its global growth forecast for the third time in less than a year, after China's economy was found to have grown at its slowest rate in a quarter of a century in 2015. This acted as a positive factor for the yellow metal.