Base Metals: Copper under pressure, further consolidation on cards

Last week, copper and other base metals remained under pressure as the US dollar rose following the US bond yields, mainly because the hawkish remarks of the US Fed weakened market expectations of a suspension of rate hikes.

Prices also started the new week on a weaker note as fresh COVID-19 curbs in the top consumer, China, clouded demand outlook, while a stronger dollar added to the downbeat mood.

Prices also took cues from the equity markets, especially the Asian equities which turned hesitant, as investors fretted about the economic fallout from fresh COVID-19 restrictions in China.

From the inventory side of things, copper stocks in the LME registered warehouses at 91,250 tonnes are up more than 15% since November 10, 2022, and eased supply concerns, weighing on prices.

However, after the fall in the early part of the week, copper prices rose, helped by a weaker US dollar after the Federal Reserve’s November meeting minutes showed interest rate hikes may slow soon.

The dollar slipped to a one-week low against its rivals while three of China’s biggest commercial banks have agreed to provide fundraising support to property developers in a coordinated effort to support the country’s embattled property sector and aided prices.

Looking ahead, prices could remain range-bound, and price action could depend on data and the movement of the dollar.

The US dollar could continue to weaken next week as the prospect of the Federal Reserve’s slowing monetary policy tightening as soon as December will weigh on the greenback.

On the data front, PMI numbers from China, jobs and inflation numbers from the US could have an impact on the markets. However, the recent spike in Covid-19 cases will be a worrisome factor and investors will be hoping that China could reopen soon, but till that time, prices could face headwinds. Positive steps taken by China will aid sentiments.

Technically, the consolidation trend remains in copper as the 680 mark becomes central to future direction. The 683 mark coincides with the 0.382% Fib Retracement of the recent move. It can go up if the commodity breaches the 710 mark which is working as a hurdle mark for copper. On the downside, the 650-660 zone is a clear strong support.

( The author is Senior Research Analyst-Commodities & Currencies at

Securities.)

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