Base metals to remain range bound

Base metals prices are likely to remain range bound this week, owing to concerns that slowing economic growth prospects in the West would trigger an unrelenting wave of risk aversion.

Copper recorded its worst weekly performance in over a month, declining around three per cent last week due to the lack of direction from consumption-led economies, including the US, EU and China. The US, the world’s largest economy, continued to struggle amid the threat of a second slowdown in just three years.

Faced with unprecedented pressure on unemployment, US President Barack Obama laid out a $447-billion jobs package of tax cuts and government spending. He said the 9.1 per cent unemployment rate in the US was a national crisis, and called for urgent action on sweeping proposals to revive the stagnant economy and avoid another recession.
 

THE WEST EFFECT Base metals price movement (LME, $/tonne)
	1-Aug	9-Sep	Change (%)
Aluminium	2,605.00	2,343.00	-10.07
Copper	9,827.00	8,904.50	-9.39
Lead	2,627.50	2,455.00	-6.57
Nickel	25,080.00	21,480.00	-14.35
Tin	28,560.00	24,095.00	-15.63
Zinc	2,478.50	2,185.50	-11.82

Base metals, led by copper, generally follow the global economic growth trajectory, owing to their dependence on sectors like infrastructure, electronics and electrical goods. Sound economic growth stimulates the demand for base metals, which translates into higher prices.

“Economists have started whispering about a possible Greek default, which would create a tremor in the debt-ridden European economies. Therefore, we feel base metals would remain range bound-to-bearish this week,” said Naveen Mathur, associate director (commodities and currencies), Angel Broking.

On the benchmark London Metal Exchange, base metals recorded a steady decline since August 1 in the absence of supportive fundamentals. Copper declined over nine per cent, while other metals like aluminium, nickel, tin and zinc plunged 10 per cent, 14.35 per cent, 15.63 per cent and 11.82 per cent, respectively.

Losses piled up across the base metals complex, with aluminum futures shedding more than two per cent and tin and nickel erasing about four per cent of their value, as investors reduced their exposure in the economically-sensitive industrials and turned to safer havens like gold and the dollar.

Herbert Wirth, chief executive of KGHM, Europe’s second-largest copper producer, said, “Looking at the turbulence in the international financial and commodity markets, copper prices should remain stable, trading in the range of $8,500-9,500 a tonne during the next six months.”

Base metals, however, would continue to get temporary support from China’s return to the market. China’s import of the refined metal, copper alloy and products rose 11 per cent to 340,398 tonne in August, a significant rise from 306,626 tonne in July. Imports in August were the highest since January, and 10 per cent less than 379,527 tonne a year earlier.

Developments like strikes at some mines in Peru and Indonesia; coupled with rising imports from China, are unlikely to help the base metals market much, said Atul Shah, chief operating officer, Emkay Commtrade, a Mumbai-based commodity trading firm.

Aluminum would remain oversupplied in 2012 for a fifth year, as smelters add more production capacity. The surplus may total 1.545 million tonne this year, compared with 1.275 million tonne last year.