Base metals, gold in for tough times; crude oil all set to rally
Chinese is steering more money towards consumption rather than heavy industrial sectors.
Metals, especially base metals seem to have a tough road ahead, having to deal with contradictory trends in consumption and economic data emerging out of global economy and its major consumer, China.
Prices remained mixed this week with zinc, copper and nickel edging lower, while aluminium and lead ended with modest gains.
Data emerging out of China remained upbeat this week, which was positive for the metal prices. The country’s economy grew at a pace of 6.4 per cent in the first quarter of 2019, higher from a year earlier, as industrial production jumped sharply and consumer demand showed signs of improvement.
A Chinese slowdown is slowly starting to reverse after Beijing’s latest stimulus package. But it is believed that Chinese policymakers are steering more money towards consumption rather than heavy industrial sectors. Similarly the OECD said China's stimulus may undermine the country's drive to control debt and worsen structural distortions over the medium term. So, the current stimulus may not have a sustained positive impact on the metals.
Despite the upbeat readings emerging from the Sino economy, the market seems to be concerned about the uncertainty in the global market due to global growth concerns and trade conflict among major economies. Weakness in the automotive sector and accumulating evidence of a manufacturing slowdown in Europe after the recent weak PMI from Germany and Eurozone will weigh on the demand for the metals.
Metals also remained under pressure after the dollar made a comeback this week. The greenback remained firm against other currencies such as euro and pound. The currencies remained weak due to weak data from Europe and uncertainties surrounding Brexit, respectively. Investors were seen squaring off positions ahead of the long Easter weekend holiday.
Going ahead we expect metals to remain under pressure amid more news flows confirming global slowdown and expectation of escalation of trade frictions amongst the largest economies, after news indicating that the Donald Trump administration is preparing to turn its trade anger on the European Union.
Strategy for the week
Copper: Strategy for MCX Copper April contract for next week is to sell in the range of 450-452 with a stop loss of 457 and target of 435.
Zinc: Strategy for MCX Zinc April contract for next week is to sell in the range of 199-200 with a stop loss 205 and target of 189.
Gold: Strategy for MCX Gold June contract for next week is Sell in the range of 31,500-31,550 with the Stop loss 31,700 & Target 31,200.
Natural Gas: Strategy for Natural Gas May contract for next week is Sell in the range of 180-181 with the Stop loss 186 & Target 170.
Crude Oil: Strategy for Crude May contract for next week is buy in the range of 4,430-4,420 with 4,370 as stop loss and target of 4,600 can be expected.
RM Seed: Strategy for RM Seed May contract for next week is Sell in the range of 3,740-3,750 with 3,810 as stop loss and target of 3,650 levels.
(Pritam Kumar Patnaik is Head of Commodities at Reliance Commodities)