Metal prices have rebounded after a slump last week, caused by concerns over cooling global demand and fears of a quicker withdrawal of monetary stimulus. On MCX, aluminium, copper, zinc and nickel futures were last seen trading higher late on Monday, up 0.63-2.35 percent each.
Last week's slump came as the dollar hit a nine-month peak after the US central bank hinted at an earlier-than-expected withdrawal of its stimulus for the world's largest economy. A surge in greenback makes material prices heavier in commodity-heavy markets.
Fears of falling demand from top consumer China were triggered by data showing slower-than-expected growth in industrial production and slowing construction activity in that country. Analysts say latest data added to signs whether the country's economic recovery is losing momentum.
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"Flooding and a fresh outbreak of the new variant of COVID-19 adversely hit China's factory activity and retail sales numbers in July. Likewise, export growth and investment data were also slowed further in August... Besides, a strong US dollar and higher mining activity also dampened the sentient of base metals," Hareesh V, head of commodity research at Geojit Financial Services, told CNBCTV18,com.
"Looking ahead, if the China’s economy grows further, there are chances of a healthy recovery in base metals. Otherwise, expect choppy trade in the near future," he cautioned traders.
Base metals have been consolidating this year after logging strong gains last year, when optimism over a recovery from pandemic lows was boosting prices.
Among the analysts seeing an opportunity in the latest swing in metal prices is Manoj Kumar Jain, director-head of commodity research at Prithvi Finmart.
"We expect global demand for base metals to remain firm due to picking up manufacturing activities, ample liquidity and huge spending on infrastructure by developed countries. Any decline in the base metals would be a buying opportunity at lower levels," he told CNBCTV18.com.
"We expect base metals to show some price retracement this week after a sharp decline last week," he said. The journey of base metals has been good so far this year but concerns over Chinese demand amid rising COVID cases are impacting the prices to some extent, he said.
Are there any trading opportunities?
Jain is bullish on copper. Copper holds its key support at $8,850 per tonne on London Metal Exchange, and its long-term support of Rs 670 per kilogram on a weekly closing basis in the domestic market. MCX copper futures could test Rs 722-730 levels again while Rs 692 acts as major support. Nickel has also shown a strong rebound from its lows, and is expected to test its resistance levels of Rs 1,458-1,472 again while 1398 acts as major support, he said.
Industrial metals like iron, copper and aluminium may have more potential in such a situation, according to the Geojit analyst.
Ajay Kedia, founder and director, Kedia Advisory, likes aluminium, zinc and nickel in the metal basket.
He recommends buying MCX aluminium futures at Rs 206 per kilogram for a target price of Rs 216 with a stop loss at Rs 200. He also suggests going long on zinc at Rs 245 for a target of Rs 252-256 with a stop loss at Rs 240, and nickel at Rs 1,425 for a target of Rs 1,480 with a stop loss at Rs 1,400.
