Base Metals Outlook: Volatility Remains

Base metal prices during the week are likely to be highly volatile on eurozone concerns and China property issues.
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NEW YORK (TheStreet) -- We expect most base metals to recover this week, from the price declines of more than 10% witnessed over the past two weeks. Selloff of base metals beyond fundamental supported levels will likely create buying opportunities. Copper will likely be a clear winner of the base metals this week, while zinc may see heavy declines.

Metal price increases will further be sustained by economic data releases from the U.S. However, base metal prices during the week are likely to be highly volatile on eurozone concerns and China property issues.

Copper

three-month LME prices initially traded lower last week and after falling to a level of $6,415 per ton, the metal closed the week at $6,845 per ton. We expect copper prices to close higher this week. Crucial trend line support at $6,415 may push the metal prices higher this week. Moreover, the prices closed above the Fibonacci retracement support at $6,815 (23.6% of $8,050- $2,817) levels meaning that copper prices will likely go up this week. On the higher side, resistances are at $7,222 then $7,423 levels. Likewise, on the lower side supports are at $6,815 then $6,543 levels.

Zinc

three-month LME prices plunged last week losing as much as 7.87% from high of $2,063 per ton, closing at $1,891 per ton. Zinc will likely witness a correction early this week before resuming the downtrend for the week. Fibonacci retracement shows a crucial support at $1,888 levels (50 % of $2,737 to $1,038) will likely be breached during the week and continue trading lower for the week. Moreover, the Momentum indicator RSI (14) weekly have descended from 0.42 to 0.37 suggesting bearish outlook. Furthermore, the volume has increased last week from 91,041 to 107,024 contracts, suggesting a bearish trend to continue. On lower side, supports are at $1,823 then $1,748 levels. On the higher side, the resistances are at $1,992 then $2,124 levels.

During the week, important data releases such as existing and new home sales, durable goods orders, personal income and spending, GDP, personal consumption, initial jobless claims, and continuing claims will likely see improvement from the prior levels thus boosting metal prices.

Recap of Last Week

Last week, metal prices suffered from the frail economic sentiments and ticked low on strong dollar index and decline in equity markets. Germany temporarily banned naked short selling and naked credit-default swaps of euro-area government bonds to curb the exceptional volatility in euro-area bonds. Meanwhile, European Union finance ministers pledged to impose tougher measures to prevent member states running large deficits. These actions further pressured the metal prices.

Last week, among the major copper producers

Freeport-McMoRan Copper & Gold

(FCX) - Get Report

,

Southern Copper

(SCCO) - Get Report

and

Teck Resources

(TCK)

declined 3.9%, 1.6%, and 6.7%, respectively.

Major aluminum producers

Alcoa

(AA) - Get Report

,

Kaiser Aluminum's

(KALU) - Get Report

,

Alumina

(AWC)

,

Aluminum Corp

(ACH) - Get Report

declined 8.2%, 3.8%, 6.9% and 6.4%, respectively, last week. FCX SCCO TCK AA KALU AWC ACH