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Base Metals Could Correct This Week

Stocks in this article: AA VALE FCX

NEW YORK ( TheStreet) -- Base metals are expected to see a correction during the week after last week's rally. Lower-than-expected economic data releases may also drag the prices lower. In addition, technical analysis suggests there is more room for correction.

Last week, base metals prices were cheered on account of the Chinese currency revaluation which led to positivity through the economy. Investors were driven by the fact that the move could boost purchasing power and consumer demand in China's domestic economy and thereby cushion demand for base metals like steel, aluminum and zinc.

Metal prices this week could also be affected by the scheduled economic data releases in the U.S. Factory orders in May are estimated to be standing at negative 0.5% as compared to the earlier recorded positive 1.2%. Also, consumer confidence is likely to be down to 62.5 from the earlier 63.3.


Last week, as traders maximized their positions on the back of rising demand from consuming industries in spot markets, aluminum prices increased by 2.7% to close at $1,997 at the London Metal Exchange contracts for three-month delivery. The LME three-month forward aluminum prices stood at support levels of $1,902 while resistance levels changed to $2,085. Meanwhile, aluminum inventories on the LME declined by 27,775 tonnes to settle at 4.45 million tonnes.

Positive news such as a 19.6% year-over-year increase in Japan's May aluminum shipments also supported the price rise. As Chinese demand for primary aluminum is estimated to triple to 43.6 million tonnes in 2020 from 15.5 million tonnes in 2010, Japan's aluminum product shipments are likely to cushion from this demand.

Besides, aluminum smelters in China's Henan province plan have planned to idle 700,000 tonnes of their annual production capacity by early July due to low prices and high costs leading to accumulated losses for the smelters.

The world's biggest aluminum producer, Alcoa (AA), said that inventories would continue to increase as it was seeking new investment opportunities in thermal and hydropower-rich Iceland.

Last week, the major aluminum producers had mixed reactions to the metals price increase. Kaiser Aluminum (KALU) dropped 2.5%, while Alumina (AWC) lost 1.2%. On the positive side, Aluminum Corporation of China (ACH) accumulated 1.7% and Alcoa (AA) was up 1.1%

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