All eyes on Greece for base metals' movement

Monday's emergency meeting with creditors crucial; slowing Chinese demand a concern

Base metals are likely to remain sideways in the coming weeks due the fear of a default by Greece and weakening demand from China, the world’s largest consumer.

Euro zone leaders have convened an emergency meeting on Monday to try to avert a Greek default and achieve a resolution with creditors. Meanwhile, bank withdrawals accelerated resulting into falling government’s revenue as Athens and other international creditors remained deadlocked over the debt deal. Also, weakness in Chinese demand has created a pressure on base metals.

Consequently, copper prices fell by 3.83 per cent last week to settle on Friday at $5,663 a tonne. Nickel and aluminium also moved down by 3.56 per cent and three per cent to end the week at $12,600 a tonne and $1,650.5 a tonne, respectively. Other metals also followed suit.

“The fear of a Greek default is a major concern for base metals. Even if Greek defaults, it would continue to be a part of the Euro Zone. Also, the Federal Open Market Committee recently spelt out again the interest rate hike is unlikely to happen anytime soon. So, the fall would again to be sentimental rather than fundamental,” said Gnanasekar Thiagarajan, director, Commtrendz Research.

Meanwhile, China reported a massive 16 per cent decline in copper imports in May due to unfavourable arbitrage and slowing demand from end users. Import of unwrought copper and copper-fabricated products totaled 360,000 tonnes for May, down 16.3 per cent from April and 5.3 per cent lower than May 2014. Import scenario for all other base metals remained weak. After a resilient trend in the beginning, base metals slumped towards the end of last week. There has been a dearth of physical demand as traders and stockists stayed away from fresh booking awaiting direction from the European Union.

Also, copper was quoted lower by 1.4 per cent on Friday as China’s central bank — The People's Bank of China — stimulus measures are failing to boost slowing growth, thereby hurting demand in the biggest consumer.

Also, risk-off sentiment after Greece has edged closer to an exit from the bloc after another crucial meeting between creditors ended in stalemate is acting as a negative factor. However, sharp losses were cushioned owing to weakness in the dollar index along with decline of 0.4 per cent in London Metal Exchange copper stocks.

“We expect copper prices to trade sideways as Euro zone leaders will hold an emergency summit on Monday to try to avert a Greek default after bank withdrawals accelerated and government revenue slumped as Athens and its international creditors remain deadlocked over a debt deal. Also, weakness in Chinese demand will exert pressure on prices,” said Prathamesh Mallya, senior research analyst at Angel Broking.

Meanwhile, for the first time, weekly jobless claims in the US fell by 12,000 claims to a seasonally adjusted 267,000, the Labor department said. The data were much stronger than economists' expectations, which, according to consensus forecasts, were for claims to drop slightly to 278,000. Last week's claims were left unrevised at 279,000.

Analysts are eyeing development in Greece since the country’s payment deadline is approaching fast. With 112 tonnes (valued at €3 billion) of gold holding, which comprises one per cent of total debt and 66 per cent of forex reserves, Greece’s payment settlement would set the trend for base metals in the coming weeks.