Base metals finished the week on a positive note despite strength in the dollar. Upbeat investor sentiment for the base metals pack helped the metals gain in the last week. Prices had mainly gained traction from waves of investment and fund interest this week. This is outweighing fundamentals as well as short-term directional influences.
Copper prices gained 4.8% on the LME last week and nearly missed touching the $7,000 psychological mark. LME inventories for the red metal gained 4.5% in the last week but failed to deter prices as buying in the base metals continued. Copper inventories on the LME have risen for 14 successive days in a row and are currently hovering at 421,875 tonnes, at a six-and-a-half-month high. Though inventories have risen sharply markets have yet not reacted to this as overall weakness in the dollar helped support prices on the upside.
But in the last week, the Dollar Index strengthened 0.4% after the US Federal Reserve said that it would monitor the dollar’s value to make sure that it did not interfere with the Fed’s mandate to shore up employment and maintain price stability. This strength in the dollar hardly managed to halt the rally in base metals.
In this week, base metal prices will take cues from the movement in the dollar and equities. The strength in the dollar could add some pressure. But downside in copper prices will be protected on the back of ongoing labour worries. Rumbles in the South American labour arena continue to offer support. Workers at Chile’s giant Chuquicamata mine are seeking a 7.5 percent wage increase, although at the Cerro Colorado mine, employees appear likely to accept an early wage deal offered by BHP Billiton and avoid a strike. BHP has evacuated the Spence mine following worker sabotage. Clearly, the threat of strikes remains a major feature of the industry, particularly in South America, and is contributing to the current pricing environment. But in the coming week, risk aversion in the financial markets could affect the price rally in base metals. Prices could face downside pressure as the dollar could strengthen and make the metals look expensive for holders of other currencies.
Though fundamentals in the case of copper remain strong, the major rise in prices in the last few months has been backed by a weaker dollar. The US is expected to keep interest rates low for an extended period and that indicates that the recovery could be slow. Also, lower interest rates would reduce the appeal of the dollar. Overall there is weakness in the dollar index but even slight strength in the dollar could put pressure on the base metals.
Copper
Copper prices are sideways with immediate support for MCX November contract seen at Rs.330.30. Further below, crucial support is seen at 318.10 levels.
Whereas resistance is seen at Rs.328.40 levels & further upwards at Rs. 331 levels.
Zinc
Zinc prices are sideways with immediate support seen at Rs.102.40 levels for MCX November contract whereas crucial support is seen at Rs.1010 level. Short-term resistance is seen at Rs.107.80 whereas major resistance is seen at Rs 108.10 levels.
