Base Metals Under Pressure On Weak Manufacturing Data

Base metals prices retreated by nearly more than 1.5 percent at LME after European PMI manufacturing numbers declined more than expectation along with weak equities. Chinese PMI has also declined day before yesterday resulting in weak apparent demand for base metals resulting in price fall. Though the US economic releases continued to showcase strong economic recovery but still the metals pack has remained resilient to price gains.

Today morning, base metals are trading up by 0.2 to 0.8 percent at LME electronic platform after yesterday’s fall. The Asian equities are trading down by more than half a percent after Chinese banks reported decline in profits indicating World’s second largest economy is going through dull-phase.

However, the government plans to spend more than $ 27 billion building low costs housing projects and raised housing related welfare expenditure by 23 percent compared to last year.

This may provide slight respite to the dwindling metals pack for the day due to higher demand. “Para,” the Brazilian state where Vale SA has a third of its iron-ore output, will introduce a mining tax next month as governments worldwide seek to increase revenue from the exploitation of natural resources.

This may also have slight positive impact on base metals prices over the medium term. From the Euro-zone, the largest economy Germany is struggling with weak manufacturing and industrial activity resulting in slight weak Euro as the same is trading slightly down by 0.02 percent in early morning trading.

Even there are no major economic releases from the Euro-area and we expect the single currency to remain mostly down for the day and may restrict gains in metals. From the US, recent releases have mostly been sparkling and has showcased better economic picture. Even today, the new home sales are expected to add four thousand new homes and may support slight pullback in metal prices.

Hence, we may see metals to open at a higher level at our domestic markets and may gain slightly due to increased spending in housing from China. But thereafter, base metals may continue to weaken due to weak Euro-zone and also weak global equities performance.

Metals pack has been struggling to add gains as investor’s are growing cautious due to declining manufacturing activity and lower apparent demand, even the governments worldwide are planning to increase mining tax to ensure full resource utilization and all these has resulted in fall in prices and may continue the trend for the day.

Aluminium

Aluminum prices continued to decline and came down by 1.90 percent at LME, while at MCX prices came down by 0.32 percent.

Slowdown in global manufacturing and weak Chinese and European PMI numbers have continued to weigh on packaging metal prices

Supply constrains may limit further downside and better US new home sales may also provide slight respite to the dwindling prices for today’s session

Copper

Copper prices came down by 1.95 percent at LME and at MCX it came down slightly by 0.26 percent as European manufacturing PMI numbers declined along with dwindling equities.

Copper correlation with US equity Dow index has been improving from past few months and is presently maintaining at 0.92 indicating better price outlook as US economy is presently robust for the day.

Prices are expected to remain downside during the Asian hours due to weak equities, however slight recovery might be witnessed during US hours due to anticipation over increased new home sales.

Lead

Lead was the top loser and prices came down by 2.98 percent at LME after yesterday’s gains, while at MCX platform prices declined 0.63 percent.

Fundamentally, lead metal demand has witness contraction as cancelled warrants continue to decline, followed by increasing inventories and declining PMI numbers indicates lower apparent demand for the battery metal.

Prices are expected to mostly remain weak due to concerns over China slowdown, but better US housing release may provide respite to the dwindling dull metal.

Nickel

Nickel prices continued to decline and came down by 1.86 percent at LME while at MCX prices witnessed contraction of 0.74 percent due to weak equities and manufacturing.

Demand for the metal has remained weak, but prices may gain in today’s session after China plans to invest more than $27 billion building low-cost housing.

The calendar spread has been improving and the contango is also indicating slight better future demand, however prices may closely follow economic developments for the day.

Zinc

Zinc prices followed other base metals and prices came down by 1.73 percent at LME, while at MCX prices came down to 0.15 percent.

Fundamentally, Zinc inventories are maintaining higher levels and the cancelled warrants have also reduced in past few sessions as manufacturing and industrial activity continues to slow down.

Better housing figures and increased social housing spending from China may contribute slight gains in today’s session.