In an exclusive interview with Davis Index, NS Ramaswamy, Head of Commodities, Ventura Securities, highlighted several factors which would affect the prices of base metals in the next three months. The prices of base metal complex outperformed in FY 2020-2021, but prices of copper, aluminium and zinc dropped by 7pc, 2pc and 1pc, respectively in the June quarter of FY 2021-2022.
What factors are pressuring base metal price?
China has started to release copper, aluminium and zinc from state reserves, to cool the rising prices. Therefore, supply and inventories increased. A decrease in the country’s PMI in June also pressured base metal prices.
Additionally, the rising US$ index has helped subdue base metals’ prices. Technically, the dollar index has taken strong support at 89.00. In the time to come, if the strong upside resistance of 93.50 level is broken, it would head towards 95.00/ 96.00 levels over the next three to six months.
What can affect base metal prices and demand globally?
Post-COVID-19, demand recovery from US, European countries and China would boost base metal prices.
In the long run, demand from electric vehicles (EVs) and renewable energy will provide solid growth for metals. A Bloomberg study predicts over 400pc increase in copper, lithium, nickel battery demand.
Also, over the recent period, inflation remains a prominent topic in the global financial markets. We expected FED to increase its interest rate. But if inflation increases any further, it will pressurize base metals.
Recently, the People’s Bank of China slashed the total amount of cash held by banks as reserves. This could release around CNY1 trillion ($54.19bn) of liquid funds to help economic recovery. This liquidity measure would boost the base metal prices in the short term.
India’s current demand
India’s manufacturing PMI has fallen to 48.10 from 50.80 in June, pointing to the contraction in the manufacturing sector due to the resurgence of COVID-19 and stricter lockdown measures which has hampered demand. Therefore, the slide in prices and future trends depends on how COVID-19 is controlled.
Copper- Short term (Sideways) $9,000 to $9,700/mt; Medium term $8,000-10,500/mt
Lead – Short term (Upside) $2250 to $2600/mt; Medium term $2100-2750/mt
Zinc – Short term (Upside) $2800 to $3000/mt; Medium term $2600-3200/mt
Nickel – Short term (Upside) $17,800 to $20,000/mt; Medium term $16,500-22,000/mt