Aluminium may move up

Market Outlook

A mixed trend is likely to prevail in the base metals market next week. While copper, lead and zinc are likely to slump further, nickel and aluminium may move up.

"Nickel has already hit the bottom and is unlikely to go down further as demand for the metal from stainless steel makers is rising. Aluminium has reacted the least so far to the US economic fallout, and, therefore, may witness an upward movement," said an industry expert.

Lead has already seen 25 per cent decline but could fall by another 50 per cent.

Most of the base metals witnessed a fall last week, though recovered marginally on Friday. Copper, the traditional market leader, fell by 2.83 per cent to $6,632, while aluminium came down 2.24 per cent to $2,439 and tin by 3.90 per cent to $16,625. Zinc and nickel declined sharply by 10.79 per cent and 8.88 per cent, rspectively, to $2,235.5 and $2,8475 during the week.

According to an analyst, the recent decline cannot be termed as a slowdown as the market has rebounded on the last day of the week.

On Friday, the dollar's record drop against a basket of currencies, including the euro, the yen and the rupee, also boosted metals, as it increased the purchasing power of these currencies. A 10 per cent move in the dollar against the euro contributes to a change from 1 per cent to 3 per cent in industrial metal prices, said an estimate by Goldman Sachs.

Sending a cautious note on the future movement of prices, however, a commodities analyst at a leading bank said that a US recession might still haunt other economies.

Meanwhile, copper inventories at Shanghai Futures Exchange dropped 21 per cent to 44,855 tonnes last week, marking the biggest decline since the week ended January 25. This indicates that Chinese demand for metals continues.

The red metal, used in pipes and wires, has more than trebled in the past four years as demand grew in China, the world's fastest-growing major economy.

In the domestic market, however, traders have opted to stay away from the market due to volatile prices. The unorganised secondary metals traders, who constitute about 50 per cent of the country's base metals market, have shown reluctance in reducing their prices in tune with the London Metal Exchange (LME).

"Those who bought virgin metals at high prices cannot reduce the rates to sell their product at a loss. Customers wishing to buy may have to wait another 35 days for import consignments with reduced prices to land on Indian shores," said Rohit Shah, president, Bombay Metal Exchange.

On the LME, base metals have crashed dramatically so far in the month with copper declining by 15 per cent, zinc 18 per cent, nickel 6.5 per cent and aluminium 1.32 per cent.

About 90 per cent of approximately 10,000 active traders spread across the country do not hedge directly on the LME, and depend on local importers. According to Shah, their survival has become very difficult on both the appreciating rupee and the falling LME prices.