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What Worries Base Metal Prices?

Author: Vinod Jayakumar/Wednesday, October 17, 2018/Categories: Commodities

What Worries Base Metal Prices?

Base metals can witness a drop in prices if global demand outlook is arrested.

Opening after a week-long holiday, Chinese markets extended demand for metals, while traders at the London Metal Exchange (LME) remained cautious, awaiting announcements from the meeting of the world’s top metal companies. At the opening of LME week, the base metal segment took a steady position, giving investors a belief that trading in metals would be risky considering their price volatility.

Nickel, copper and aluminium got voted as top metals due to their use in electric vehicles and decreasing mine output.

Aluminium, which touched a record high of $2,262 in the previous week, slumped by more than 10 per cent to $2023.25 by the end of week. Copper slumped 1.09 per cent after touching a high of $6,391.5 in the previous week.

Metals lost support mid week amid a global gloom arising out of concerns for demand growth. However, by the end of the week, prices regained their support as the dollar index became weak and investors found metals less costly to invest in. Chinese trade balance also supported price rise.

Zinc and lead took their support of prices from the ILZSG report which indicated raised demand for refined metals. Meanwhile, zinc prices crumbled a little, tracking increased stock piles of steel rebar in Shanghai markets.

Annual premium in copper metal is likely to increase with rise in demand for the refined metal. Copper’s demand from China, which is expected to increase by 1.6 million tonnes in 2019, lends a strong support to prices.

Demand for lead and zinc is set to rise as per the ILZSG report, which allows investors to take up long positions. Separately, aluminium also attracts investors by its seasonal growth. However, increase in raw material supply may cap the profits as is seen in the case of the Alunorte refinery, which reinstated its operations after receiving orders from Brazilian courts.

Overall markets can expect a pull back in the prices but only if the global demand outlook is apprehended.

The author is a research analyst at Karvy Comtrade Limited.

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