Base metals decline after three weeks of bull run

Profit booking, uncertainty over trimming of Fed stimulus are main reasons; traders eye Wednesday's Fed unveiling of minutes

Base metals erased a part of their three weeks’ sustained gains on Monday following the uncertainty over the pace and timing of the withdrawal of the US Federal Reserves’ bond-buying programme.

While copper fell 0.68 per cent to $ 7,285.5 a tonne, aluminium and zinc followed suit to settle at $1,872.5 a tonne and $1,955.5 a tonne, a decline of 0.21 per cent and 0.28 per cent, respectively. More than the quantum of decline, it was the upward trend which reversed on Monday, following weak consumer sentiment data presented by the US on Friday.

All eyes are now on the Fed’ minutes, scheduled to be unveiled on Wednesday. With the stimulus on course, demand of base metals indicates a weakening sentiment resulting in slowing in its prices. Phasing out the stimulus package, however, would indicate that the US economy is coming back on track. A downward move in equity markets also pull base metals’ plug, albeit temporarily.

“The fall in base metals price can be attributed to two major factors. After several weeks, the US presented a weak consumer data on Friday, which threatened the upswing in their demand. Also, a correction was imminent after three weeks of sustained growth,” said Sugandha Sachdeva, in-charge (metals, energy and currency) research, Religare Securities.

Metals jumped between six and 13 per cent over the last three-weeks following positive economic data from China and the US, the world’s two largest consumers.  

Copper showed a massive rally in the last week with prices surging to a 10-week high on signals that supply in China was tighter than expected, which prompted investors to buy and on expectations that a global economic recovery would increase demand for industrial metals.

On the domestic front, base metals fairly ignored the steep 2.32 per cent fall in the rupee to set the all time low record below 63 against the dollar. After softening by around 0.5 per cent in early trade, copper recovered in the evening session on the Multi Commodity Exchange (MCX). The metal for delivery in November was traded at Rs 474, a decline of 0.14 per cent in early evening trade on the MCX. Other base metals also followed suit to trade in a very thin range with downward bias on Monday.

 

Kishore Narne, Associate Director Head - Commodity & Currency, Motilal Oswal Commodity Broker Pvt Ltd, said, ““A broad based rally has been witnessed across base metals and the momentum seems to going strong. Base metals are close to minor resistances and may witness some correction before a fresh move. Medium-to-long term bias, however, continues to be firm.”