Base metals prices reacted positively after the truce between US and China trade agreement but later the rally muted on uncertainty over the US-China trade deal.
Base metal complex last week started on a positive note. However, the prices failed to sustain and copper, aluminum and nickel remained negative by 0.5 percent on demand worries while sister metals zinc and lead both traded higher by 3 percent on supply tightness.
Base metals prices reacted positively after the truce between US and China trade agreement but later the rally muted on uncertainty over the US-China trade deal as no agreement within 90 days will mean US continuing with 25 percent tax on additional $200 billion of Chinese goods.
Copper prices are stuck in a tight range on signs of weakness in demand and macro related growth worries. China, the world’s largest copper consumer is slowing due to the ongoing trade conflict with US. This has led to a reduction in China’s growth outlook and furthermore, the country’s GDP is expected to slow towards 6.2 percent in 2019 from 6.5 percent this year.
Premiums of the metal have fallen towards 18 month low, indicating import demand weakness ahead. LME Copper cash-to-three-month spread eased last week from a backwardation of $29 a tonne last week to a contango of only $0 this week.
On the macro front, the month of December is packed with major economic events like Brexit and Fed meeting. Brexit agreement, if failed, would depress the investor’s confidence towards growth and if US Federal Reserve Chairman remains on course towards raising interest rates will further weigh on the prices of industrial metals.
As present, the only supporting factor is the lower inventory levels, which may help stabilize the prices. The downside pressure on MCX Copper prices will increase if the Fed raises its interest rate for the fourth time this year in its upcoming policy meeting.
MCX Copper prices are currently trading at Rs 437 per kg and prices are likely to test Rs 420-415 per kg in the near term. Though a change in policy stance by US Fed will require change in this cautious view.
The author is Commodity Analyst at Narnolia Financial Advisors.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.