A frantic sell off seen in last week with global equity markets tumbled while commodities collapsed with industrial metals melt down heavily. A bloodbath seen in base metals as gloomy outlook for the world economy weighed on commodities with investors concerned that stuttering recovery will hammer demand for industrial metals. The recent sell off is a combination of no QE-3, low economic growth, debt concerns in Greece, Spain and now Italy, weaker production numbers from worldwide like China and Europe and fear of double dip recession. The world economy is in a danger zone and path of recovery is narrowing.

Base metals prices entered in to bear territory and came under pressure after US Federal Reserve warned of significant" dangers to the US economy even as it unveiled a $400 billion long-term debt purchase plan. Markets were disappointed after fed announced not to print money and pump in the markets as they will replace short term debt in their portfolio with longer term treasuries, this is called "Operation Twist”.

Further negative outlook of global growth by International Monetary Fund also weighed on markets. IMF cut its outlook for global growth and warning the U.S. and European economies could slip back into recession. IMF cut its global growth forecast to 4% for this year and next after earlier projection of 4.3% for 2011 and 4.5% for 2012.

Copper, the bellwether for all base metals, is called Dr Copper as it is believed to forecast the world’s economic health, is sensitive to the changes in world economic outlook. Red metal, copper remained in red zone as prices fell by more than 30 percent with LME copper fell to $6800, its lowest level in this year from its lifetime high of $10,190. Steel material nickel also followed the copper’s way, also tumbled 20 percent and reached below $17000. Battery material lead reached to $1900 levels with prices erased by more than 25 percent in this year. Zinc prices on London plunged by 25 percent with prices fell below $1900 from $2300 levels.

For the rest of the year, base metals prices are expected to remain under pressure as looking to macroeconomic scenario and crisis situations in US, Europe’s sovereign-debt crisis and the prospects for slower growth in China, it is hard for industrial metals to trade higher. Copper has only positive fundamentals however nickel, lead and zinc have lackluster demand-supply scenario. We are not extremely bullish for copper but for this year we may see some recovery and lower level buying.

 

BASE METAL COMPLEX – LME PRICES & LME STOCKS

COPPER

In 2011, copper prices have corrected by more than 25 percent with stocks also increased by nearly 20 percent. LME copper price made the lifetime high of $ 10,190/t while it made the low of $6800 in last week. Prices are down 30 percent from lifetime high. LME stocks reached above 463,000 tonnes from 377,000 tonnes which is up by 19 percent.

NICKEL

Nickel remained the top loser in the metal complex with prices down by almost 30 percent in the current year despite the drawdown of stocks. LME stocks are down by more than 28 percent, stocks reached to 97,000 tonnes from 135000 tonnes in 2011. LME nickel price made the high of $29,425/t while tumbled to low of $16800 in last week of the September.