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Bullish trend in metals to stay

Monday, September 3, 2007

A bullish trend is likely to prevail in the base metals market next week on indications of an improved US economy and Federal Reserve Chairman Ben S Bernanke’s assurance to “act as needed” to limit the economic fallout of the housing recession.

The growth in consumer spending and rising individual income indicate that the US economy is recovering from the subprime crisis. The US consumer spending grew by 0.4 per cent in July, after a 0.2 per cent increase in June, more than initially estimated, the US Commerce Department said on Friday. Incomes increased 0.5 per cent and factory orders gained 3.7 per cent.

The development in the US economy gains significance as the country is the second largest metal consumer in the world, only after China. Besides, the renewed demand from developing Asian countries, including India and China, for infrastructure development is likely to push demand higher in the weeks to come.

Experts believe that base metals will perform better now as the subprime debacle in the US could not affect them much mainly because of a rising demand. “Now, as major economies have signalled overcoming the slowdown, base metals will be the direct beneficiary,” said a local analyst.

Copper prices on the LME, which jumped 2.98 per cent last week to $7,580 a tonne, are still 4.65 per cent below the one-month level of $7,950. Copper stocks have gone up to the highest level in three months, with 12 days of increase marking the longest consecutive period of growth since January.

“Investors are still apprehensive on the full extent of fund inflow as the subprime fallout, which overshadowed the financial markets in recent weeks, will take some time to bring consumers back into action,” an analyst said. Prices in the base metals segment have tracked equities due to the dual fears of a slowdown in the wider economy, dampening demand and triggering a further selloff by funds, which were quick to exit risky but profitable commodity positions when they needed to cover losses in tumbling equities.

Aluminium gained moderately compared with other metals by $18.5 to close the week at $2500 a tonne. The inventories during the week declined by 4,075 tonnes to settle at 826,725 tonnes. Following other metals, nickel jumped to $30,250, a weekly rise of $2,860 on huge demand from the stainless steel sector. across the globe.

Stocks in the LME-registered warehouses also shot up to 24,126 tonnes at the week from 23,106 tonnes in the beginning.

Lead and zinc failed to cash in on the global potential last week. Experts believe that they would surely go up this week on strong fundamentals, the major factor to pull up prices. Analysts remain bullish on zinc and lead prices, saying the metals will remain at levels that are well above historic long-term averages. Lead and zinc closed last week $28 and $36 lower at $3,280 and $3,106.

Production of refined zinc increased by 9.8 per cent y-o-y in the first half of 2007, outstripping a 4.6 per cent increase in global usage of refined zinc metal in the same period.

The market was slightly in surplus for the period, with 5.690 million tonnes of refined metal produced, against 5.659 million tonnes used. Global lead metal production exceeded usage by 24,000 tonnes in the first half of 2007, compared with a 53,000 tonnes surplus in January-June 2006. World production of refined metal rose by 2.2 production y-o-y to 4.125 million tonnes, while global usage of refined lead metal rose 2.9 per cent to 4.101 million tonnes.

Posted by FR at 9:14 AM  

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Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.