Metals find their base, will shape to the mould

Tags: Commodities
Metals find their base, will shape to the mould
base metals are going to end 2012 with impressive gains, as the Chinese economy has shown strong signs of recovery. In this regard, Chinese macroeconomic numbers have been on the positive side. This can be explained by the fact that the country’s industrial output, electricity production, retail sales, residential sales, fixed asset investment and consumer prices have been higher on a year-on-year Basis during the last months of 2012. In spite of the looming US fiscal cliff, the non-ferrous complex has exhibited impressive resilience.

The vagaries of the fiscal cliff negotiations have not impacted the non-ferrous complex adversely in spite of the initial apprehensions among the market participants. This indicates that there has been a change of sentiment, wherein investors are strongly anticipating a successful resolution of the US budget cliffhanger. Base metals have been largely resistant to the fiscal cliff drama and have been moving higher, reacting to improved sentiments over the Chinese economic growth prospects.

The bulls have also found a cushion in the reports that China is expected to soon resume stockpiling of base metals. In addition, it is widely anticipated that the newly elected Chinese political regime will announce a series of fresh stimulus measures, including a likely lowering of banks’ reserve requirements and interest rates.

On the US macroeconomic front, the country’s GDP expanded by 2.8 per cent during the third quarter, as decent growth was witnessed in labour markets, construction activities and the housing industry. The truth that the housing market has entered a resurgence mode can prove highly encouraging for the bulls, considering that this sector is a vital contributor to the US economy.

In the short term, base metal prices will continue to be driven largely by sentiments about the euro zone crisis, economic prospects in China, the US fiscal cliff and the shape of fresh quantitative easing measures in the US and the associated movement in the US dollar.

Fundamentally, we expect base metal prices to trade firm in calendar 2013, as the odds favour a successful agreement on the US fiscal cliff. However, if the US legislators remain mired in a deadlock over the fiscal cliff, we could see a substantial setback in the complex. Although we remain optimistic about the prospects of non-ferrous metals, as there are early indications about the bottoming out of the Chinese and the US economies and their resumption in the upward trajectory. In addition, the fact that the housing industry in the US is showing signs of revival could provide strength to the bulls, which are all signals for a near-term upside in metal prices.

Technically, all base metals are trading at their long-term resistance levels. If they sustain above these levels, an 8-10 per cent rally could be seen in 2013. Important resistance levels to watch for at LME is $8300 for copper, $18000 for nickel, $2350 for lead, $2150 for zinc and $2150 for aluminium. zz

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