Base metals settle higher on supply concerns

Entire base metal complex ended higher. Except Nickel, all other base metals ended on a positive note for the third consecutive trading session. Primarily, declining US dollar had prompted dollar denominated assets to trade higher.

Meanwhile, the supply concern on few base metals had also pushed the metal complex to trade on a positive note. However, equity markets across the globe had meager impact on this sector. US equity ended on a negative note.

It is observed that complete base metal complex is trading down by more than 1% at LME. The similar impact is also seen at SHFE. This has reversed the trend of previous gain and the reasons can be attributed to strengthening US dollar along with declining Asian stocks.

The MSCI Asian pacific index is seen trading down by more than 0.5 per content and meanwhile other major currencies like Euro and GBP are seen depreciating against the US dollar. The Japan’s trade balance data for the month of April has further worsened, despite Yen is trading higher against the greenback which is restricting base metals to crash further.

The declining Asian stocks may linger through European session which might keep LME to trade lower. The data expected from euro zone are less impressive, the euro zone industrial production data is expected to decline by 0.20% from the prior figure of 0.7%.

The similar impact could be seen during the US session as well. Therefore we may see entire base metal sector to trade lower for the day. The only restraining factor could be ongoing strike in copper mine might restrict from heavy losses on metal prices.

Aluminum

Aluminum prices ended higher on LME by 0.86% where as gained 1.01% at MCX despite Indian spot rupee appreciated by 0.19%. This could happen as the price rise was mostly supported by higher volume and the open interest at MCX. Aluminum stocks have been declining for the ninth consecutive session. On yesterday stocks declined by 5600 tonnes along with rise in cancelled warrant ratio continuously rising above 11% to total stocks indicating more stocks earmarked for delivery and thereby inventory might continue to witness draw downs in the near term.

Copper

Copper prices at LME and MCX traded marginally higher by 0.05% and 0.22% respectively. The domestic currency impact was hardly seen on Indian copper price. Cancelled warrant ratio continues to witness moderation though at a slower pace and is accompanied by build-up in stocks thereby indicating limited upside for prices. On the fundamental front, reports indicated that operations at Codelco’s El Teniente, one of the largest copper producers have slowed down due to strike by subcontractors.

Lead

Lead continued to be the top gainer among the base metal pack as it ended with gains of 1.84% and 2.67% on LME and MCX respectively. Lead stocks on London Metal Exchange witnessed marginal rise by 350 tonnes but had not seen any impact on prices. Lead market is slowly headed back towards contango i.e., the cash prices trading at a discount to the forwards thereby indicating waning demand for the metal.

Nickel

The only base metal which ended lower. At MCX Nickel prices ended by 0.34% where as on LME Nickel ended at -0.02%. Nickel stocks declined by 276 tonnes though a meager figure along with higher cancelled ratio. The volumes have increased with a marginal improvement on price suggesting a phase where in the fall shall be limited. However, the OI situation is very different for the two contracts. The OI for June is 4.33% and 7.89% respectively might keep an indecisive phase for this commodity.

Zinc

On London Metal Exchange, zinc stocks witnessed net build up of 12,850 tonnes as against net drawdowns of total 675 tonnes in the complete week. London Metal Exchange has reduced the margin in zinc to USD 5,250 as against current requirement of USD 6,000. Basis currently stands at close to USD 20 per tonne which largely the average levels is thereby giving no clear indication about prices direction.