MARKET RECAP The base metals pack gained sharply in the last week on the back of a surge of fund interest coupled with strong housing data from the US that raised hopes that the worst of the downturn has been seen. Also, the corporate earnings season in the US has produced much brighter news than negative news and this also seems to have convinced investors that the global economy may be on its path to recovery. The weaker dollar also provided support to base metals as it made dollar-denominated commodities look cheaper for holders of other currencies. Positive economic data from China also helped give a push to base metal prices further. Aluminum prices gained a whopping 8.5% in the last week. Fund buying and a weaker dollar helped push the prices of aluminum higher. LME inventories of the metal continue to remain at record levels but prices took support from optimism that the global economic situation may be improving. China’s production of primary aluminum rose above 1 million tons for the first time this year in June, as local government encouraged smelters to bring new and idled capacity online. In the first half of this year, more than 2 million tons of idled and new capacity has been restarted. More capacity is expected to be restarted in July and August. This factor could put pressure on aluminum prices. On the macroeconomic front, US housing starts and permits jumped more than expected in June. Housing starts climbed 3.6 percent to a seasonally adjusted annual rate of 582,000 units from May's upwardly revised 562,000 units. Housing permits leaped 8.7 percent to 563,000 units, the highest since December, boosting hopes that a housing sector recovery will drag the US out of recession. OUTLOOK The global Copper market could move into an overall deficit in 2011 as declining grades and severe underinvestment in mining projects could cause huge shortfall in copper supply in the next few years. Production restarts too could fail to push enough material back into the market. This situation could lead to higher copper prices. The major reason behind a decline in production growth has been the drop in ore grades, which have fallen sharply since the mid-1990s. Global copper grades have fallen around 15% between 2002 and 2008, and the main declines have been seen in Chile. There are new projects in the African copper belt that could slightly raise the world average grade in the short-term, but the overall downward trend in ore grades in expected to continue. China’s non-ferrous industries emerged from loss-making positions by the end of the first-half of this year. In the first five months, the non-ferrous industry swung to a profit of 9.6 billion yuan, with a loss of 1.9 billion yuan in the first two months. This data indicates the improvement in the non-ferrous industry. This is bullish for the base metals sector as China dominates the base metals market and any improvement in the industrial data could prove beneficial for metals. In the coming week, base metal prices could consolidate at these levels. However, if the dollar weakens further then base metals could receive additional support to the upside. On the macroeconomic front, the US is expected to announce data on leading indicators today. Markets could come under pressure if this data is not positive. Copper Copper prices are up with immediate support for MCX August contract seen at Rs.258.10. Further below, crucial support is seen at 255.30 levels. Whereas resistance is seen at Rs.265.20 levels & further upwards at Rs. 268 levels. Zinc Zinc prices are sideways with immediate support seen at Rs.74.65 levels for MCX July contract whereas crucial support is seen at Rs.72.20 level. Short-term resistance is seen at Rs.79.20 whereas major resistance is seen at Rs 80.95 levels.

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