10/11/2010 08:40:00 PM
Your Advisor
Consumption of copper products, widely used in construction, power and automotive industries, rose about 20 percent in the first six months of this year in Europe after a 25-30 percent drop in crisis-hit 2009. With expected growth of 18-20 percent this year and 5-7 percent in 2011, Europe’s copper product demand will still lag behind pre-crisis levels. Typically, copper tends to correct after resumption of trade in China after a long holiday. So prices might face a correction in the next week when China market will re-open after national
holiday. Dollar/copper co-relation is subject to benefit the metals. But at the same time, it would trigger new concern of economic slowdown and that might also prompt traders to sell assets across the board. The U.S. Dollar Index, a six-currency gauge of the greenback’s strength, fell to the lowest level since January as it headed for a fourth weekly loss. In Chile, the world’s largest producer of copper, workers at Anglo American Plc and Xstrata Plc’s Collahuasi mine rejected a wage offer and will enter talks over new contracts ahead of an Oct. 31 deadline.
Prices accelerated last week as strong manufacturing data from China and the weak dollar kept oil lifted. The U.S.National Hurricane Center said last week that the area of disturbed weather associated with two tropical waves in the Atlantic Ocean still had a 40% chance of strengthening into a depression. The International Energy Agency said it sees upward pressure on oil prices in the second half of 2011 due to a projected decline in oil stockpiles. Crude oil maintained its upside move, also supported by a strike at France’s top oil port and disruptions to Houston petrochemical shipping, while a dollar bounce and Wall Street weakness kept gains in check. The encouraging Chinese GDP forecast, a French port strike and a shut down in Houston Ship Channel have further supported the rally. The dollar slipped on Bank of Japan announcement of rate cut, which also supported the prices. We expect the prices to be range bound in the coming week as mixed economic data coming out globally.
Futures moved higher sharply in the early trading sessions of the last week as the metal is trading strong on LME counter due to non-availability of Chinese players but heavy selling pressure seen in the second half of the week as traders took some profits at higher levels. Global zinc demand in 2011 is likely to grow by 1 million tonnes from an estimated 11 million tonnes for 2010, said a senior official with the International Zinc Association. Demand may further expand to 13 million tonnes in the year 2012, with growth mainly from emerging markets. Global demand for hot-dipped galvanised sheet, the major consumer of the zinc metal, will grow 15 percent a year in coming years, mainly from the auto sector. Strong global zinc prices threaten to keep the market in surplus for longer as producers see no reason to cut output even as stocks rise. The surplus is likely to grow by 250,000 to 300,000 tonnes a quarter but at some point zinc prices will react to the market’s worsening fundamentals. Zinc prices at the end of September were still almost 15 percent below, the levels at the end of 2009. Zinc smelting capacity in China will grow by 400,000 tonnes per year over the next five years, from more than 6 million tonnes per year now. China’s zinc output this year may grow 15 percent to 5 million tones.
Crude oil slipped in the electronic trading today, giving up after a break under $83 per barrel levels in the afternoon trades pulled the commodity lower amid mostly steady to bullish cues from the world equities. The prices moved in a very tight range today after a bounce back post non-farm payrolls on Friday. Asian markets mostly ended higher as the strength in the Chinese stocks and a continue wave of risk appetite as a surprisingly weak US jobs report on Friday strengthened the case for more monetary stimulus from the Federal Reserve. The Dow Jones Industrial Average closed above the 11,000 mark for the first time in five months on Friday and supported the upward bias for the Asian equities. However, the Japanese markets were closed and the movements were mostly thin in the first session of the week.
