Base Metals Expected to Move Sideways

Anticipated improvements in capacity utilization likely will hold base metals at their current prices.
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NEW YORK (TheStreet) -- Base metals are expected to trade sideways this week after rebounding last week on the back of a few positive macroeconomic factors.

Lifting prices last week was

Federal Reserve

Chairman Ben Bernanke's positive view of European leaders chalking out an effective bailout plan to cover the debt obligations of Greece, Spain and Portugal. Additionally, a marginal fall in the dollar index cushioned the prices.

This week, industrial production is estimated to remain at the same levels as that of prior month, while capacity utilization is expected to widen to 74.5% from 73.7%.

Aluminum

Bouncing back from its previous week lows, aluminum was up 3.4% to close at $1,945 at the London Metal Exchange contracts for three-month delivery, which have support levels at $1,858 and resistance at $2,034. Moreover, aluminum inventories on the LME declined by a marginal 0.8% to 4.50 million tons.

An official from the Japan Aluminum Association said that global demand of aluminum is forecast to rise to 74 million tons by 2020 from 35.6 million tons in 2009. He added that during the same period, China, the largest aluminum producing nation, would also experience increases in primary aluminum demand to 43.6 million tons from 14.4 million tons in 2009.

Meanwhile,

RUSAL

-- the world's largest aluminum producer -- is seeking to launch an aluminum exchange-traded fund next year to drain out the excess supply in market.

All major aluminum producers gained last week led by 11% increase in

Kaiser Aluminum

(KALU) - Get Report

, followed by 7%, 5% and 4% gains in

Alumina

(AWC)

,

Alcoa

(AA) - Get Report

, and

Aluminum Corp. of China

(ACH) - Get Report

, respectively.

Copper

As risk appetite returned to the market, three-month LME copper contracts closed 3.2% higher to settle at $6,479 last week. The LME three-month forward support levels are at $6,035 while resistance is at $6,802. LME inventory levels declined 8,000 tons to settle at 465,000 tons.

In order to meet rising global demand,

Codelco

, the world's largest copper producer, is planning to expand production to 2.1 million tons from current levels of 1.7 million tons over the next five to six years. China's National Bureau of Statistics revealed that in May 2010 copper output in the country increased 18% month over month while imports declined 9.1%.

Following the metal price movements, major copper producers

Southern Copper

(SCCO) - Get Report

,

Teck Resources

(TCK)

and

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

gained 12%, 9% and 3%, respectively

Nickel

The LME nickel three-months forward soared 8.9% to $19,545 a ton last week. The inventory outflow was 2,148 tons to total of 133,794 tons.

On weekly charts, prices are trading below 13, 22 & 45 EMA suggesting a bearish view for the week. However, momentum indicator RSI has further fallen to 0.45 from 0.38 suggesting that the metal may trade higher. As per Fibonacci principles, there is resistance level at $19,464 levels suggesting that the metal will trade higher for the upcoming sessions.

Chinese geochemical surveyors are seeking to map out nickel rich areas which may boost investments in the industry. The favorable prices of nickel along with declining inventories encourage investors to mine and develop more areas. However, concerns related to demand remain.

Zinc

LME three-month forward zinc reversed its losses and accumulated 6% to close at $1,740 from $1,642 a week earlier. Inventories narrowed down by a meager 225 tons to 617,125 tons. At the Shanghai exchange, zinc gained (25.1%) the most from the prior week while inventories were down 1.5%.

However

zinc prices will likely will remain under pressure this week

on concerns related to growing metal surplus.