The Hindu Business Line : ‘Nickel could drop further, copper may rise’

Outlook
Consumption by Chinese construction and infrastructure sector are expected to support copper prices.
With some of the major producers pledging to cut production by 20 per cent, further demand side weakness is perceived for nickel.

M.R. Subramani

Chennai, July 16 Copper prices are expected to go up this month, further drop is likely in nickel prices, while a sharp increase in zinc prices is unlikely.

“Expect (copper) prices to move up substantially, although there can be weaker move in the coming trading sessions. Prices have moved up with lower volumes. $8,000 is a strong resistance with crucial support at $7,620 levels,” said Kotak Commodities Services Ltd in its Metal Outlook for the current month.

Market Sentiment

Copper on LME was quoted at $7,820 a tonne on Monday. Copper prices have seen a lot of bearishness building up due to market sentiment that Chinese markets, which have been the key metal consumer, are over-flooded with copper. “This sentiment might have more ramifications than apparent as the annual change in imports to China is very strong,” the firm said.

Consumption by Chinese construction and infrastructure sector is strong and this is expected to support the prices in the coming months. A rebound in US manufacturing sector is also expected to help western demand, while strikes and protests at various production facilities in Chile, Peru, Mexico and Zambia are driving the prices up.

Prices could be under pressure if there is a resolution to the strikes and a new low is possible but overall, Kotak Commodities said, prices have broken their resistance and are accelerating in a bullish fashion.

Aluminium

Aluminium prices have broken their channel and are approaching higher levels. Prices could turn bullish after $2,945, which is the inflexion point. Prices are expected to be range-bound unless this level is breached and upside will be limited unless volumes pick up.

On Monday, aluminium was quoted at $2,796 a tonne. According to Kotak Commodities, aluminium prices have seen some action but there has not been much significant trend in the prices. Markets are likely to be range-bound unless there is a strong supply deficit.

Zinc

Large upside movement in zinc has been ruled out, though current prices could remain supported. The prices have not rallied strongly in recent times and the rise has come with lower volumes, which could impact any rise. With resistance pegged at $3,557, its crucial support stands at $3,200.

On LME, zinc was quoted at $3,520 a tonne on Monday. On price prospects, Kotak said demand is likely for the metal since the prices have declined. A fall in galvanised steel production in the European Union, US and East Asia has affected the prices substantially. Moves by the Chinese Government to curb overheating of the market have also had an effect.

But zinc demand is strong currently and deficits are being witnessed in the market in the last few quarters. Major users may not look out for substation of galvanised steel as it could have serious impact on quality. Kotak expects warehouse stocks of zinc to fall and impetus for the price could come from a turnaround in galvanised steel production.

Nickel

Nickel prices are likely to drop further as it is in a tight range. Further weakness has crept in the metal since the prices have fallen below $35,000. The metal was quoted $31,800 on Monday. This is even below the third support level of $33,125.

The nickel market has built huge pressure from production cuts in the stainless steel industry, while Chinese mills have also cut production.

With some of the major producers pledging to cut production by 20 per cent, further demand side weakness is perceived. The demand could tumble more than 10 per cent before August-end and that could lead to further fall in the prices.

Prices are seen continuing to rule week and only a rebound in US economic activity could support the price, Kotak Commodities Services Ltd said.