Base metals to see bearish sentiment in the near term

Concerns about weak US job data, fresh stimulus by European Central Bank trip demand from consuming industries

In the near term, the sentiment in the base metals segment is likely to be bearish, owing to falling demand from consumer industries, amid concern about weak US job data and fresh economic stimulus announced by the European Central Bank (ECB).

On Friday, the US Federal Reserves reported the growth in employment rate in August was the slowest this year. It stuck to its earlier decision to hasten withdrawal of the quantitative easing (QE) programme and increase interest rate. Also, the ECB’s announcement of printing more money to push into the system and ease the interest rate to 0.5 per cent indicates the region is still under stress.

Consequently, base metals, which move in tandem with the economic conditions, remained range-bound during the week. While copper recovered to $6,927 a tonne mid-week, before closing the week at $6,973 a tonne, other metals also moved in tandem, witnessing sharp volatility.

“We expect base metal prices to trade sideways, taking cues from a strong economic recovery in the US, monetary easing by the Euro Zone and expectations of additional stimulus by the biggest consumer, China, which will support gains. On the other hand, weakness in the Chinese economy, along with tensions between Russia and Ukraine, will act as a positive factor,” said Prathamesh Mallya, senior research analyst (non-agri commodities), Angel Broking.

Copper rose five per cent from its recent low in May this year. Other metals in this segment followed suit. Copper prices are likely to trade lower, as news of corruption in China’s power grid company, State Grid Corp, will hit the metal. Further, concern about surplus supply is set to escalate, owing to resumption of Newmont Copper concentrate exports, putting pressure on prices.

By contrast, aluminium prices are to trade higher, as Indonesia clarified it had no plans to roll back a seven-month-old ban on export of unprocessed bauxite. This will take a toll on supply, already hit by major smelter closures globally. Further, rising aluminium demand in the automobile sector will support gains.

Nickel is expected to see a fillip on concern the Philippines’ ore export ban will heighten Asian supply woes. Also, Indonesia’s statement denying it will restart nickel ore exports will boost prices.

China’s MMG, owner of the world’s third-largest zinc mine, said the global deficit in the metal had increased faster than expected, partly due to growth in demand for rust-proof steel for cars in China.

According to the Lisbon-based International Lead and Zinc Study Group, the deficit in the global zinc market widened to 234,000 tonnes in the first six months of this year, against a surplus of 28,000 tonnes in the corresponding period last year.

In China, its demand had risen, as companies sought galvanising technology, following a push by the International Zinc Association to tout the benefits of coating steel with zinc to prevent rust. However, on the supply side, smelters produced zinc at a rapid pace through the past few years to cut unit costs, amid a price slump. This increased stocks of the metal and led to a fall in demand for zinc in concentrate, analysts said.