Falling rupee to keep base metals costlier in India despite global lull

Base metals prices are likely to remain under pressure in coming weeks due to a strengthening dollar and the negative impact on the global economy, following the ongoing trade war between the United States and China.

Barring aluminium, all industrial metals recorded a decline in their prices of up to five per cent during the past one month due to the spat between the two major global economies, which has threatened metal consumption going forward. While aluminium jumped by 3.6 per cent in August to close at $2,127 a tonne on Thursday, all other base metals traded in negative territory during the month under review.

In India, however, base metals led by aluminium were up due to depreciation in the rupee against the dollar. With the Indian currency hitting a low of 71 against the greenback, recording an over six per cent drop during the past few weeks, metal user industries have started feeling the pinch of the raw material price hike.

“Base metals have struggled to hold their recent gain and retreated from weekly highs on the benchmark London Metal Exchange. Headlines from US and China continue to weaken metal prices. Prices of base metals are likely to remain under pressure in the absence of a positive trigger. But, currency movements will play a vital role in deciding metal prices in near term. The fall in the Turkish Lira of more than nine per cent on the one hand and the depreciation of the Chinese yuan by 0.35 per cent against the dollar, combined with the 1.28 per cent decline in the Indian rupee is likely to put pressure on metals prices,” said Manoj Jain, Director (commodity and currency), IndiaNivesh Commodities, a city based broking firm.

Meanwhile, a depreciating rupee has led to the rise in base metals prices over the past one week. While aluminium reported a weekly gain of 6.2 per cent to trade at Rs 150 a kg for near month delivery on Thursday on the Multi Commodity Exchange, copper edged up by 2.3 per cent to Rs 420 a kg.

“Near term support is seen at Rs 422 a kg, below which it is expected to extend its losses and reach around Rs 417–412 a kg. On the upside, resistance is seen at Rs 435–442 a kg,” said Jain.

The upward revision in the US Fed’s interest rate has set a positive tone for base metals. However, the demand from the world’s two large economies -– US and China -– continues to pose a threat. An Icra report said that global copper prices are set to hover around $6,200-6,400 a tonne during the short to medium term period on a monthly basis.

LME Copper prices are set to remain volatile till there is some settlement between the trade/tariff wars which are prevalent in the global economy. The negotiations between the workers in the Chilean mines have been settled hence there will not be a shortage in the concentrate markets.

Copper is used as a primary raw material for cable and wire industries that are used in every household. 
Nickel is primarily used in every kitchen through is application in stainless steel production. Used primarily in forming a metal alloy, zinc also finds application in steel galvanising.

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