Base metals on positive territory

A moderate price rise possible on a recovery in US economic numbers, but may not sustain long

Base metals prices are likely to witness a moderate upsurge this week amid expectations of a revival in their demand on indications of recovery in the US economy. But, the upsurge may be capped with the deterioration of business conditions faced by Chinese manufacturers.

Non ferrous metals remain resilient last week awaiting a clear signal from global economies. Copper turned just positive with a marginal gain of 1.64%. Barring nickel which touched upon the negative sign, all other metals in the entire basket remained positive, albeit negligible.

'Amid weak long term price trend, base metals are set to remain cautiously strong on positive data from developed economies. With the planned tapering of quantitative easing (QE3) get prolong extension, slight upward recovery in price cannot be ruled out. For the long term, however, the trend remains bearish,' said Naveen Mathur, Associate Director (commodities and currencies), Angel Broking.

Mathur sets the first and second resistance in copper at $7150 a tonne and $7300 a tonne respectively.

The United States has given differing signals on its economy on various occasions leading thereby, an unsustainable direction in base metals prices. With the recent moderate recovery signal, however, the dollar is set to push downwards resulting into an expected strength to base metals.

The Federal Reserve, on Wednesday, however, said the U.S. economy continues to recover but is still in need of support, offering no indication that it is planning to reduce its bond-buying stimulus at its next meeting in September.

Base metals move proportionately to the global economy amid expectations that the systemic economic strength may push investment on infrastructure and, in turn, rising demand for base metals.

On Friday, China reported slightly strong factory activity in July than expected. Also US manufacturing grew at the fastest clip in two years and European factories snapped a run of declining output, offering some support for metals demand. But, an independent survey by HSBC showed that Chinese manufacturers face a 'marked deterioration of business condition.' This means, business environment in China is not as favourable as has been painted by the government.

'The base metals market has squeezed between positive economic pictures shown by the US and Euro zone combined versus weakening sentiment in China,' said Prerana Desai, Vice President (Research), Kotak Commodity Services Ltd.

Fundamentals remain weak due to high inventory across all base metals complex, she said.

Meanwhile, a report by the Commodity Futures Trading Commission (CFTC) showed that hedge funds and money managers nearly doubled their net shorts in copper futures and options in the week ending July 30, the biggest increase in bearish bets since late February. Speculators, also called managed money, added net short copper positions by 13,951 lots to 26,924, their first increase in five weeks, CFTC data showed.