Thursday, July 10, 2008

Metals Market Perspective

Base metal prices have behaved in a very volatile fashion. Copper prices declined nearly $800 from record highs. On domestic MCX exchange copper prices have followed an important Elliott wave pattern which is in a nascent stage. If it doesn't break Rs. 346.20 on MCX and moves past its previous high of Rs. 387 we may well begin an upward journey towards Rs. 480/Kg copper. Have a look at the copper Elliott wave.

Copper prices from a charting point of view looks set to rise to Rs. 372 in the near term. Important resistance stands at Rs. 360 and pivot support at Rs. 346. Important medium term pivot is Rs. 330 below which the bull picture can get seriously damaged. Copper may test $10000 by the end of the year if it holds $7900 for a month or so.

Copper prices looks set to conquer new highs as supply disruptions gain strength. The only hindering factor in copper prices is the inventory picture. There is little outward movement from the LME warehouses and copper prices are highly correlated to the LME inventory data.

There is an expectation of a strike in Peru in next few days. Though the wave pattern is looking strong and is signalling an uptrend, we can know whether I am right or not. At current copper price of Rs. 353 on MCX and $8200 on LME we know if copper breaks Rs. 346.2 the count would come in low probability zone and below Rs. 330.80 it would be invalidated. So we would know the precise points for exit if this trade doesn't work out. However I feel copper prices are headed to new highs in the next few weeks.

Aluminium prices have behaved in perfect Elliott wave patterns. Prices made new highs twice this week and are looking set to rise further. My previous levels of $3250 has been met and prices are now approaching the $3450 mark. The Elliott wave count on aluminium looks like this. Below is the MCX aluminium near month continues chart.

The prices are expected to target Rs. 145 and Rs. 153 in the near term. Medium to long term targets are placed to Rs. 159 and Rs. 175 for aluminium traded on local exchanges.

There was an important development where Chinese smelters have agreed to cut nearly 10% of their output. China produced 1.16mn tonnes of aluminium in May which leads to a loss of 83,000 tonnes of aluminium a month. This would create a shortfall of 1 million tonnes per annum. Though this is not a huge figure for aluminium's mammoth market size, there is another important announcement. These Chinese smelters have indicated further cuts as loss making smelters are closing down altogether. There is large amount of rationing in Chinese energy sector which would lead to further cuts in the future.

This is just the beginning of the aluminium bull story and would eventually lead to $4000 aluminium by the end of this fiscal year.

Whatever be the reason for prices to move up, wave pattern indicate the expectation early.

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