Volatility in base metals to continue

Volatility in base metals is likely to continue this week on concerns of poor US economic data.

These metals were hit by weak demand from the manufacturing sector. Copper recovered an initial loss to close the week range-bound at $7,241 a tonne. Nickel and tin ended the week with a marginal decline. In contrast, lead, aluminium and zinc closed with strong gains of 6.7 per cent, 3.4 per cent and 3.2 per cent, respectively.

Precious metals, however, were hit largely by strong recovery in the dollar. After surpassing the benchmark $1,400 an ounce, the gold price in London fell, to close with a marginal gain last week. Spot gold closed at $1,387.90 an oz on Friday against the opening level of $1,386.65 an oz on Monday.

"With a strong volatility, base metals are likely to close range-bound next week," said Naveen Mathur, associate director of Angel Broking.

Copper prices demonstrated a solid rebound last month as economic stimulus moves by central banks earlier during the month elevated investor confidence in the growth of industrial metals' demand. Also, the European Central Bank (ECB) cut interest rates for the first time in 10 months, a day after the US Federal Reserve committed to continuing its $85 billion monthly bond-buying programme to bolster growth. To spur lending, the ECB said it was also "technically ready" to cut its deposit rate from the current zero per cent into negative territory, meaning it would start charging banks for holding their money overnight.

Also, the recovery was supported with an outflow of the metal from London Metal Exchange-registered warehouses in the past two weeks after a six-month rise, which could signal an improvement in demand from consumers of the metal. Later, prices were somewhat dented by a firmer dollar and indications that demand from top consumer China might not pick up strongly, as Beijing shunned stimulus measures. The US economy expanded less than previously estimated in the first quarter, as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010, commerce department data showed.

Zinc prices ended up by almost four per cent in May as short covering was seen in the second half. Going ahead, prices might take fresh cues from US macroeconomic data.