Base Metals Prices Could Move Lower - TheStreet

Base Metals Prices Could Move Lower

Metals are expected to trade lower this week as prices correct further on weak U.S. economic data.
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NEW YORK (TheStreet) - Both base metals and precious metals slipped deep in the red last week after U.S. economic data releases raised fears among investors that growth in the world's biggest economy was weakening. In addition, fresh eurozone worries and slowing Chinese manufacturing activity led to heightened concerns.

Looking ahead, metals are expected to trade lower in the upcoming week with a higher correction expected in prices.

Last week, the U.S. Labor Department said nonfarm payrolls in May rose by 431,000, far below consensus estimates of 513,000 new jobs. Experts now reckon the economy is recovering at a slower pace than what was factored by analysts and investors earlier.

Economic data releases in the coming week are expected to have a significant impact on the markets in general. While U.S. consumer credit is estimated to be flat, trade balance is seen to widen marginally with minimal effect on the dollar. Also, the U.S. monthly budget statement which is seen to be rising and negative, might prove adverse for the economy. However, a few estimated positive data releases might provide some cushion.

Silver

Dragged down by profit-booking and sustained offerings by stockists, silver prices ended 6% lower at $17.30 an ounce on COMEX. Moreover, momentum indicator RSI-14 weekly is trading at 0.49 which may extend to meet the oversold phase. A declining of RSI means prices are required to trade lower.

iShares Silver Trust

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experienced an outflow of 49.59 tonnes in its holdings to 9,208.83 metric tonnes.

Looking ahead, we foresee silver prices extending losses in the coming week dented by falling China consumption. Also, as the dollar is expected to remain firm, silver prices may drop down further. We reckon price correction would have supports at $17.06-17.00 and then resistance at $16.90 levels.

Aluminum

Following the trends in other metals, aluminum, used in transport and packaging, was down 7.9% to $1,881 at the LME contracts for three-month delivery. It reached the lowest level since mid-October. Aluminum inventories on the LME fell 9,075 tonnes to 4.53 million tonnes.

A Japanese trader revealed to Platts that

BHP Billiton

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is expected to ship its first shipments from its South African smelters to Japan with the more than two-week strike ending on May 27.

The LME 3-month forward aluminum prices have support levels at $1,942 and resistance at $2,170.

Copper

Subsequent to weaker-than-forecasted May U.S. private sector jobs data and Chinese monetary tightening news, three-month LME copper contracts copper closed at a seven-month low of $6,280 per ton, declining 9.5%. LME inventory levels declined 3,725 tonnes to settle at 473,000 tonnes.

The momentum indicator RSI slide is down from 0.46 to 0.37 indicating lower potential. The market, meanwhile, holds a crucial Fibonacci retracement support at $6,047 breaks and sustain below prices may touch $5,788 then $5,430 levels. On the higher side, the resistance is at $6,810 levels.

Nickel

The LME nickel three-months forward slumped 15.5% to $17,950 per ton. The inventory outflow was 2,562 tonnes to total at 135, 942 tonnes. Technicals suggest that as the market has breached the crucial Fibonacci retracement support level of $18,280 prices are likely to sustain below the same level. Furthermore, RSI's move down from 0.49 to 0.38 implying selling pressure may continue with prices trading lower.

Although a resolution is soon to be reached for the 10-month long strike at

Vale's

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Canadian mining operations, the remaining pension disputes and a prized nickel bonus indicate that worries may stretch into summer.

Zinc

LME three-month forward zinc settled down at its 10-month low of $1,641 per tonne which is down 15.2% from the previous week. Inventories narrowed down by 1,650 tonnes to 617,350 tonnes. Meanwhile, Shanghai exchange stockpiles in warehouses stood at 295,454 tons during the last week, the highest level since 2007. Additionally, zinc as a metal is largely affected by price movements of other metals,

As per the Shanghai Metals market, Chinese zinc smelters, the world's largest producer, have idled almost 8.8% of capacity as prices decline as the government makes efforts to calm the property market by curbing demand. During the first four months of 2010, China's imports of refined zinc shipments dropped 71% as compared to the same period last year. Zinc consumption in China, which grew 18% in 2009, is expected to slow to 10% growth this year.

Technical support levels for the LME three-month forward stand at $1,430 and resistance at $1,760.