Global commodity markets last week registered mixed performance. While the crude oil market was buoyant because of continuing geopolitical tension in the Middle-East (Iran being the focus of attention), the metals markets faced downward pressure.

Re-emergence of global growth concerns exerted pressure on the base metals complex even as China, arguably the mover and shaker of the market, set a lower growth target of 7.5 per cent. All metals were down week-on-week. LME cash and 3-month moved in tandem with declines across the board.

Among base metals aluminium was down 3.9 per cent over the week while lead declined by 2.7 per cent. Precious metals too were down with silver facing the brunt of long liquidation, losing 3.8 per cent and gold losing 1.1 per cent. In agriculture, soyabean gained following reduction in South American crop outlook which in turn will boost the US export sales.

China's steel production for February, estimated at nearly 56 million tonnes (mt), is seen as a surprisingly strong number. Taken together, January and February number at 112 mt may be lower than it was in the corresponding months of 2011; yet it is said to be above the general expectation. However, steel demand is yet to return to aggressive levels.

Looking ahead, it is unclear if the serious concerns over global growth have really eased; but what's clear is the continuing geopolitical uncertainty and its effect on the oil market.

Gradual building of an inflationary environment and currency market volatility are adding to the uncertainty. In the event, it would make commercial sense to invest in energy products such as crude which have an upside price risk, while base metals lack conviction and look less-supported because of concerns over global and in particular Chinese growth.

However, metals in deficit such as copper have the potential for a positive price performance. So is the case with gold with the macro backdrop supportive of a medium term rise in price.

In agriculture, soyabean and palm oil too have some upside potential over the next quarter, but not beyond. That said, if the global growth picture keeps improving and flow of positive macro data sustains, there could be return of risk appetite.

Gold: The precious metals complex was under pressure last week with uncertainty over Greece and growth concerns over China. Firmer dollar encouraged long liquidation that meant gold fell below $1,700 an ounce level. In London on Friday, gold PM Fix was $1,688/oz, little changed from the previous day's $1,690/oz.

Silver fell to $33.87/oz (Friday AM Fix) as compared with the previous day's $34.09/oz. The yellow metal has not received the kind of physical market response usually associated with price fall, although Asia has been a buyer in bits and pieces at every price fall. ETP holdings are reported to have held well.

Silver will continue to take a cue from gold, but solid investor interest is yet to be seen.

According to technical analysts, both gold and silver are unwinding oversold conditions and if this continues, there is reason stay neutral. Gold is likely to trade between 1,641 and 1,730. A stronger dollar is likely to push silver down, capped below 35 has the potential to decline to 32.55. The medium term outlook is neutral.

Base metals: Global growth concerns and fears over Chinese slowdown have combined with softer physical markets to drag prices down.

While a hard-landing in China has been discounted, the US growth data are turning positive which bodes well for base metals.

Positive global growth signs will catalyse flow of funds into the market especially targeting deficit metals such as copper and tin which then will enjoy a large upside price potential. From the technical picture, copper and aluminium make a case for staying neutral.

For copper, from the current level of 8,500 a move towards 8,670 could be slow while aluminium is likely to face resistance in a test of 2,300.

The medium term outlook is range trading.

Crude: Given the unabated geopolitical tensions and flow of speculative funds that push the market higher, in the short term there seems no likelihood of a respite from high prices.

The market fundamentals are tight. In the medium term, the outlook is bullish.

>gchandra@thehindu.co.in

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