Base metal prices ended lower on the back of weak equity markets and stronger dollar index. In the absence of any economic data releases, base metal prices continued their downward movement.
On Friday, US equity markets closed lower by half a percentage point. Asian equity markets are trading mixed with Nikkei losing close to one percent as strengthening Yen continues to add to woes while Sensex and Shanghai are trading modestly higher. In the morning session on LME, base metal prices are trading slightly on the higher side.
On the economic data front, both German and Euro-Zone PMI figures for the month of August are expected moderate after hitting near to 2010 high in the prior month. Dollar index is trading slightly on the higher side.
Elections in Australia threw up no single majority and increased the chances of hung parliament. This has led to uncertainty regarding the proposed mining tax and weak Australian Dollar. Overall, we at KCTL, expect the base metal prices to pull back from the previous days losses.
However the gains are expected to be limited as economic weakness continues to loom.
ALUMINIUM
LME inventory for Aluminium witnessed build-up of 150 tonnes. In Shanghai warehouse also there was a build-up of modest 763 tonnes, on weekly basis
The cancelled ratio on LME continues to decline indicating that there might be increase in inventory in the near term
The basis on LME continue to remain at lower levels and backwardation situation in cash/Tom contracts is also bringing in more materials into the war
COPPER
LME inventory witnessed draw-downs of 1,800 tonnes. The cancelled warrants ratio surged by 53% in the week gone by, indicating that the draw-downs from warehouse may accelerate in the days to come
In Shanghai, warehouses has seen decline of inventory by 3,499 tonnes
The open interest declined along with fall in price indicating long-unwinding at higher levels
LEAD
Lead was the top loser among the base metal pack along with the Zinc
LME inventory for Lead witnessed a modest build-up of 25 tonnes, fourth consecutive build-up
The cancelled ratio which has fallen from close to 7% to less than 2% has bounced back strongly indicating that the build-up might end soon (see accompanying chart)
NICKEL
LME inventory for Nickel increased by 720 tonnes, ending the declining trend of three days
The cancelled warrant ratio on LME is seeing sharp fluctuations, indicating no clear trend for increase or decrease
The open interest rose along with the fall in price indicating build-up of short positions
ZINC
LME inventory witnessed draw-down of modest 150 tonnes. In the week gone by, warehouses in Shanghai saw inventory declining by a huge 12,901 tonnes
On MCX, the open interest continues to rise along with the fall in price indicating build-up of short positions
On the fundamental front, two Chinese Zinc producers halted operations after disruption of power supplies. Both together have around 100,000 tonnes of capacity
