Base metals shine

China's yuan movement boost metals

Red metal prices rose the most in a week at Comex on Monday, 21 June 2010. Prices rose today as China's step to free its currency against the dollar has been viewed as a positive for commodities.



At USA, copper futures for July delivery ended higher by 6 cents (2%) at $2.94 a pound on Monday. For the month of May copped shed 7%. In April, copper lost 6.1%. Copper gained about 6% for the first quarter, buoyed by data from the U.S. and other countries reinforced expectations that the global economic recovery was on track. On a year to date basis, in 2010, copper is lower by 11%. On a yearly basis, copper prices are higher by 31%.

On Monday, at LME, copper for delivery in three months ended higher by $169 (2.6%) at $6,604. Prices had crossed the $8,000 mark for first time since 2008 on 6 April. On 3 July, 2008, prices had touched an all time intra day high of $8,940. Copper ended FY 2009 higher by 140%.

In the currency market on Monday, the dollar index shook off initial weakness and the dollar index, which measures the strength of the dollar against a basket of six other currencies rose by 0.6%.

Though Beijing has yet to make any formal announcements related to actually un-pegging its yuan, the government there has restricted any substantial immediate movement in the currency by allowing only a 0.5% move in either direction per day. But this step has been viewed in the light that a stronger yuan will benefit the Chinese economy as it shifts to a service-based economy. Moreover, a stronger yuan will boost consumption by increasing purchasing power, while also fighting inflation. A move to a stronger yuan also benefits U.S. companies that export to China since they will receive more dollars when profits are repatriated. Conversely, Chinese exporters are hurt by a stronger yuan as the relative cost of their goods becomes more expensive for U.S. consumers and the dollar buys fewer goods that are denominated in yuan.

The U.S. buys about 13% of the 17 million metric tons of copper sold annually and China buys about 20%.

Copper ended substantially higher last year on expectations of revived global economic growth along with a decline in the dollar. The dollar index had dropped almost 4.2% last year. The metal was also pushed higher by record first-half imports to China, the world's largest user.

At the MCX, copper for June delivery closed higher by Rs 5.1 (1.7%) at Rs 299.4/Kg. Prices rose to a high of Rs 305.9/Kg and fell to a low of Rs 295.5/Kg during the day's trading.

Among other metals traded in the LME on Monday, lead ended 1.1% higher at $1,782 a ton and zinc ended 2.3% lower at $1,770 a ton. Nickel ended 1.5% higher at $19,650. Aluminum rose 0.7% to end at $1,957 a ton.