Zinc, copper rally on hopes of US-China trade deal

Satya Sontanam | Updated on November 04, 2019

Ever since the US-China trade talks began on October 10, the LME prices of zinc and copper have been moving upwards amongst most traded metals.

Zinc was trading at $2,581 a tonne and copper $5,827 a tonne on last Friday on LME, up by 10.9 per cent and 3.1 per cent respectively since October 9. The gains were on the back of US and China getting closer to a trade deal and on expectations that the US was considering extending tariff exclusions for some Chinese imports. It was in addition to the supportive fundamentals of these metals.

While prices are still lower than they were a year ago, the northward movement has given a relief to investors. The LME Metal index is still down 18 per cent since initial tariff talks that began in February 2018.

Strong fundamentals

Ravindra Rao, Head of Commodity Research at Kotak Securities, said the backwardation in zinc futures (current difference between the LME zinc’s spot and three months forward contract is about $42 per tonne) indicates that the demand for the metal is high.

A favourable supply-demand scenario in zinc and copper is also a reason for the rally in metal prices. According to ILZSG (International Lead and Zinc Study Group) and ICSG (International Copper Study Group), the consumption of zinc during January- August outpaced supply by 1,19,000 tonnes, while copper witnessed a supply deficit of 2,33,000 tonnes during January- July.

Weaker dollar

Further, a weak dollar could have aided the prices. The dollar index fell from about 99 on October 9 to 97.23 on November 01.

However, a growth in domestic prices was not equally impressive, which could be due to strengthening of the rupee. The exchange rate of rupee against the US dollar came down from about ₹71.1 to ₹70.8 during the said period. The MCX prices of zinc and copper were trading at ₹194 and ₹441 per kg, up by 5 per cent and 0.3 per cent respectively, during the said period.

Going ahead, Rao said, zinc prices are expected to rise on robust fundamentals, while copper prices are seen moving sideways on strong fundamentals. However, copper prices are said to rise faster than any other metal if the trade deal between the US and China concludes favourably.

Published on November 03, 2019

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