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G. Chandrashekhar

Mumbai, March 8 Economic data coming out of the US are far from reassuring. With the reported loss of over 6,50,000 jobs in February, unemployment has reached 8.1 per cent, the highest rate since December 1983. Since December 2007, the economy has lost 4.4 million jobs including 2.6 million in the last four months. It is truly a scary picture. Elsewhere too conditions are not satisfactory. All the seven major OECD economies and four non-OECD members currently face strong slowdown.

All these negative developments are weighing heavily on the market. Yet, there are incipient signs of some recovery selectively. Last week, crude and copper provided a modicum of hope with some firm upward movement in prices.

Whether the uptrend would sustain is difficult to say.

The outlook for the metals market is significantly uncertain. Demand side concerns and overhang of inventory weigh heavily on prices. Much depends on future data relating to economic growth which is the key determinant of the metals market.

Stainless steel production in 2009 is set to decline further. It would be the third straight year of decline in world production and this represents a significant disruption to a long period of strong growth. The demand downturn reflects a combination of a fall in consumption and de-stocking.

The key question would be whether and when Chinese demand would respond to the government’s stimulus package, and when would the de-stocking cycle end.

Currently, all the base metals are in surplus but the quantum of market surplus varies.

Given the continuing uncertainties and lack of consensus on the beneficial effects of bailout and stimulus packages, there may be need to revisit and revise the outlook for major commodity groups every quarter, if not more frequently.

Gold

The yellow metal continues to push higher despite pressures of profit taking and a firm US dollar. Investor interest continues, but at a more modest level. All precious metals gained Friday last.

The London PM Fix for gold was at $936 an ounce on Friday, up from the previous days $913/oz. Silver too gained in line with gold, with the Friday AM Fix at $13.46/oz, up from $13.15/oz the previous day.

According to technical analysts, this week if the metal closes above 944, it would be a further piece of bullish evidence implying a decisive overthrow of 1,000.

Analysts also pointed out that following a sharp breakdown in the dollar /gold inverse relationship earlier this year, the past few weeks have seen these markets trending inversely once gains. With the US dollar itself throwing short-term bearish signals, this may also be a potential catalyst for gold to remain buoyant.

The Indian market of course clearly feels the negative effect of rising gold prices. Imports have all but dried up. Household consumption demand is decelerating rapidly. There is a huge resistance at and above Rs 15,500/10 gm. With the rupee continuing to weaken, there seems no respite from high gold prices.

Except for copper, the complex continues to languish but for some occasional rallies that are short-lived. Last week, copper resumed its upward march as stocks declined again, with the majority of materials believed destined for China. A weaker US dollar also helped push the metals higher, although zinc lost some of the gains and aluminium remained weak.

The OECD composite leading indicators reached a new low in January 2009 pointing to the deep crisis the world is going through. As most base metals are in surplus and there is inventory overhang, the potential for a sustained price recovery is remote. Chinas entry as a buyer is supporting copper currently.

According to technical analysts, the close above 21-week average near 3,490 casts a bullish signal for copper. There is potential for a strong move in the weeks ahead. Previous resistance of 3,300/50 is now support. As bearish copper positions are squeezed, there could be gains to 4,260. Consolidation above 3,550 is likely to be a bullish development.

The crude market is showing increasing signs of consolidation in the low to mid $40s range. December, January and February Brent prices have averaged above $40 that is $42-43. While demand conditions continue to be poor, they are not worsening.

Demand is seen stabilising. Supply side issues, however, continue to weigh on the market. Non-OPEC output is slipping. Whether OPEC will cut production in its meeting next week remains to be seen.

For the crude market, the next significant directional change is to the upside.

More Stories on : Metals | Gold & Silver

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