Base metals decline on dollar recovery

Global commodities declined on Thursday due to a bounce-back in the dollar against the euro, even as disappointing US data and the unfolding of the Greek debt crisis weighed on prices. The greenback held at three-week highs against a basket of major global currencies, witnessing its biggest rally in 10 months on Wednesday due to a wave of short covering as worries about the impact of the Greek debt crisis hit the euro.

Copper contracted $135.5 or 1.48 per cent on the benchmark London Metal Exchange (LME) while aluminium plunged $63 or 2.44 per cent. Moving in, other base metals also slumped up to 3 per cent. Crude oil on Nymex initially plunged but recovered marginally to trade at $95.19 a barrel on Thursday as against $94.81 a barrel the previous day. The commodity, however, recorded a steep decline from Tuesday’s quote at $99.13 a barrel.

Surprisingly, gold considered a hedge against economic crises and global inflation, also traded with a decline at $1525.5 an oz early on Thursday, a marginal decline of $5.38 from the level of $1,530.88 an oz a day ago. Silver recorded a fall from $35.79 an oz to $35.58 an oz.
 

GLOBAL SLIDE Commodities’ scale ($/tonne)
Name	15-Jun	16-Jun
Copper	9,147	9,011.50
Aluminium	2,578.50	2,515.50
Nickel	22,275	21,715
Zinc	2,254	2,194
Lead	2,542	2,472
Tin	25,550	24,745
Gold~	1,530.88	1,525.60
Silver~	35.79	35.58
Crude oil ^	94.81	95.19
US $*	44.77	44.92
US $#	1.4181	1.4108
~ Price per oz, ^ Price per barrel,  * Against Indian rupee, # Against euro

“More than the US data, the global recovery in the US dollar was the reason for the price decline in base metals and the energy segment. The sentiment was also supported by global inflation worries and the rate hike by the Reserve Bank of India (RBI) which gave a sentimental boost to financial investors,” said Gnanasekar Thiagarajan, Director of Commtrendz Research, a Mumbai-based commodity broking firm.

The dollar rose sharply on Thursday against the most traded global currency — the euro — to quote at 1.4097 as against 1.4413 on the previous day.

Data on Wednesday indicated the US economy was facing a troubling mix of higher prices and weak growth. Underlying US inflation rose to its highest level in nearly three years in May, while a regional factory gauge posted a surprise contraction this month. The world’s economic prospects showed new signs of a slowdown in the US, which also indicated poor fiscal health of Western economies.

China has shown, in contrast, some positive data. But, the country had already built enough inventory when the prices of base metals were ruling low. Hence, there is no possibility of Chinese players entering the market at the current high prices. Rather, they would wait for a correction to book afresh, said Thiagarajan.

Another rate hike is round the corner by the Chinese central bank, which would result in lower availability of funds for base metals, an economist said.

A slight recovery in the form of bargain hunting was witnessed in crude oil after prices saw the second biggest drop in two years yesterday. Buying was also prompted as the International Energy Agency released its forecast of declining spare capacity of Opec member countries and expectations of higher demand in the third quarter by the refiners. But the near-term sentiments for the oil market still remain fragile on the resurfacing of the Greek sovereign debt crisis and strengthening dollar prices against the basket of other currencies.

If the weakness in the euro continues, then oil prices may extend losses made during the previous session. Technically, the next major support is seen around $92.50, which is not expected to be broken in the near future, said Basant Vaid, senior research analyst at Bonanza Portfolio Ltd.

Thiagarajan forecasts the losses in the commodities market will be extended further in the coming days.