BASE METALS GUEST COMMENT - Fighting spirit

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Sandeep Dagasandeep.daga@fastmarkets.com+91 99300 41205

London 01/03/2016 - Base metals have been showing amazing fighting spirit. They have held up quite well despite a rout in Chinese equities, a sell-off in risky assets, a strengthening dollar and poor macro data.

A positive Chinese arbitrage and consistent technical buying have been supporting the complex. But this support seems to be waning while upside momentum fades around important technical resistance levels.

SHFE-LME arbitrage opportunities have been weakening. There is a growing chance that metals will provide a good dip-buying opportunity to consumers in the coming weeks when machines (algos) give up - a healthy change.

Tight spreads for most metals in the final month of the first quarter could invite new warranting into LME warehouses, we think. Aluminium, zinc and lead could see inflows as traders try to reduce inventories from their balance sheets and raise cash. As well, typical quarter-end unwinding of financing deals may also help rewarranting. 

The next few weeks could provide a reality check. The pace of inflow of new inventories will decide the fate of metal prices in the first half of the new month. We would not be surprised by a controlled sell-off; it would be healthy for the overall primary upward trend.

At the same time we notice that oil is preparing to pop its head above the downtrend line. Brent crude moving into $40s may not be as distant a possibility as many imagine. A recovery in oil prices could be supportive for the whole commodities complex.

In a nutshell, if metals prices drop (as we approach 'Third Wednesday'), a dip-buying opportunity might emerge.

 

About this report:

This Base Metals Comment reflects the author's opinion about an event, economic data, a macroeconomic development, policy action or similar price-driving incidents. These reports are directed towards providing a general analysis, with a price outlook of base metals in the medium-to-long term.

About the author: 

Sandeep Daga has been engaged in the nonferrous metals market for nearly two decades. Through his company, Regsus, he provides services relating to risk management in base metals.

sandeep.daga@regsus.com
+91 99300 41205



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