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,
, 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.
dropped 2.5%, while
lost 1.2%. On the positive side,
Aluminum Corporation of China
accumulated 1.7% and
was up 1.1%
Copper prices reached their one-month high on Friday on the back of U.S. consumer sentiment in reaching the highest level since January 2008, narrower job losses and expanding gross domestic product. The three-month LME copper contracts copper closed 5.2% higher to settle at $6,770 last week. LME inventory levels narrowed by 3,175 tonnes to close at 454,250 tonnes.
Daily refined copper consumption in China increased 5% in May as compared to April. According to the Japan Copper and Brass Association, the country's output of rolled copper products rose 50.4% to 72,627 tonnes in May on a seasonally adjusted basis.
During the last week, copper producers like
declined 2.4% each. On the other hand,
Freeport-McMoRan Copper & Gold
edged up 1.01%.
The LME nickel three-month forward increased marginally by 0.8% to $19,750 per tonne, as strong demand from alloy makers at physical markets supported the upside in prices. The inventory recorded an outflow of 3,486 tonnes to total at 126,312 tonnes.
Meanwhile, talks to end a 11-month old strike between
and the United Steelworkers union at Vale's nickel operations in Canada has now stretched into the seventh day. According to Credit Suisse, Russian mining giant
is planning to offload some of its Australian assets to
in order to focus on its African operations. In separate news, the Russian giant revealed that it is seeking to maintain overall stable production until 2015 when it expects new projects to drive growth.
On high speculation that the
will keep interest rates near zero levels, the LME 3-month forward zinc soared 8.3% to close at $1,873 from $1,770 in the previous week. Inventories narrowed down by 1,475 tonnes to 616,550 tonnes. At the Shanghai exchange, zinc gained the most from the prior week while inventories were down 1%.
As per Fibonacci principles, market has broken the retracement at 1,807.64 and is likely to sustain above the same level and trade with a positive bias during this week. RSI, the momentum indicator, has moved up to 0.51 from 0.25 suggesting prices may move northward for the week. Moreover, after seven weeks. prices have sustained above the 13, 22 EMA (daily) indicating an upward bounce.