Base metals gains on strong US dollar

Base metal prices delivered a mixed performance on the LME on Monday with nickel and zinc trading in the red while copper, aluminum and lead managing to end in the green yesterday.

Strength in the US dollar coupled with choppy sentiments in the global financial markets exerted pressure on the metal prices yesterday. The US Dollar Index （DX）, tracking its performance against a basket of six major currencies, gained around 0.3 percent on Monday; touching an intra-day high of 80.72 in the Asian trade yesterday.

In addition to this, increasing levels of inventories on the LME warehouse also pulled the prices in the downside direction on Monday. On the MCX, metal prices were cushioned mainly on the back of depreciation of the Indian Rupee yesterday. Spot Rupee depreciated 0.24 percent, to close at 45.55 on Monday.

Nickel was the worst performer, both on the LME as well as on the MCX on Monday. The metal prices came under pressure mainly due to strength in the US dollar, choppy sentiments in the global financial markets and increasing levels of inventories on the LME warehouse yesterday.

Nickel inventories increased by 948 tonnes to reach 132,810 tonnes on Monday. The metal prices declined around 0.5 percent to close at $24,750/tonne on the LME. The metal prices declined more than 1 percent on the MCX, to close at `1119.10/kg yesterday.

Aluminum prices gained more than 1percent on the LME, touching an intra-day high of $2380/tonne on Monday. Despite strength in the US dollar, the metal prices gained mainly on account of falling inventory levels on the LME warehouse on Monday.

Aluminum inventories declined by 4,700 tonnes to 4,282,900 tonnes on the LME warehouse yesterday. On the MCX, prices gained almost 1.5 percent to close at `107.70/kg yesterday. Depreciation of the Indian Rupee further supported aluminum prices on the domestic bourses on Monday.

Aluminium output 68,500 tonnes in November – IAI

According to data released from the International Aluminum Institute （IAI） yesterday, the daily average primary aluminum output increased to 68,500 tonnes in the month of November 2010 as compared to the revised figure of 67,700 tonnes in October 2010.

In November 2009, the metal output stood at 63,600 tonnes. Total production in November （30 days） was 2.054 million tonnes, compared with a revised 2.100 million in October （31 days） and 1.909 million in November 2009.

Outlook

There is no major economic data to be released from the US today. We expect base metal prices to take cues from movement in the US dollar today.

The DX is expected to remain strong in the overseas markets on the back of ongoing Euro zone concerns and upcoming holiday season. This factor will be negative for the base metal prices today.

Copper prices may continue to trade in the green on the back of disruption in operations at Collahuasi mine of Chile, which accounts for around 575,000 tonnes of copper production.