Prices of base metals could inch up after correction

London copper slipped back towards a four-week low on Friday after a string of China data missed expectations. China's economic activity slowed in July, with investment growing at its slowest pace in 16 years in the year-to-date period, as the world's second-largest economy grappled with the painful restructuring of its older industrial sectors.

The Philippine government has suspended operations at two more mines due to environmental violations in an ongoing audit of the country's mining sector. The move raises the number of suspended mines to 10 - eight of them are nickel ore producers -since the Southeast Asian nation launched a review of all its mines on July 8.

The closures and the threat of more mines getting hit in the world's top nickel ore supplier lifted prices of the metal to a one-year high of $11,030 a tonne. That has helped drive nickel prices up 22 per cent this year. But, most of the good news has been already factored in and further rallies looking unlikely in the wake of a resurgent dollar.

The dollar, which was stronger on Friday having softened over the course of the week, also added pressure on to metals by making the physical commodity expensive for buyers.

The big question is whether the stellar gains seen for the likes of zinc, nickel and aluminium mark the start of a new bull cycle. Each metal has its own story and does not move in a pack anymore.

Zinc is supported by supply shortfall after the closure of two large mines and production cuts by miner Glencore. Copper, traditionally seen as a barometer for the global economy, hasn't fared well compared to other metals. That is partly due to excess supply of the metal weighing on the market. Next year, more copper could come to the market from restarts of mines suspended in 2015. The global aluminium market has suffered from excess capacity, but, still, demand for aluminium looks strong, which is likely to support prices longer term. Car makers globally are also increasingly switching from steel bodies to lighter-weight aluminium.

We expect zinc, nickel and aluminium to tread cautiously with the possibility of a downward correction in the coming sessions, but despite that, it is expected to be underpinned by supply worries and prices could once again inch higher after the downward correction. Copper could also see a correction, but the subsequent up move could be muted and relatively less compared to other metals.

The author is director, Commtrendz Research