Commodity Call. Lead in bear’s grip

Lead prices have tumbled in the last few months. The metal’s futures contract traded on the Multi Commodity Exchange recorded a high of ₹140.75 per kg in August 2014 and has since tanked 19 per cent to ₹113.8 now. Weak demand due to a slowdown in global growth has dragged the price lower. Adding to the pressure is the drop in demand from China, the world’s largest consumer of lead. Reports suggest that slowdown in the construction sector and the Government’s move to control pollution could be dragging China’s demand lower.

On charts there seem to be no sign of an immediate reversal in the lead price. The outlook continues to be bearish. There is high probability for the metal to correct further in the coming months.

Long-term view : Lead prices on the London Metal Exchange (LME) cash segment tanked below the psychological $2,000 per tonne mark in December 2014. The fall brought an end to the prolonged sideways consolidation movement between $1,950 and $2,270 that was in place since April 2013. The metal is currently trading at $1,842. Now, $2,000 will be a resistance for the metal. As long as the price remains below this level, the long-term outlook will remain bearish for the metal and the price can fall further.

LME lead could fall to $1,550 in the coming months. The outlook will turn positive only if the contract breaks above $2,000 which can then take it higher again to $2,200. But such a rally looks unlikely. The bearish outlook for global LME lead price could keep the domestic MCX lead futures contract price also under pressure. The MCX lead futures contract moves in tandem with the LME lead.

The long-term view for MCX lead futures contract has turned bearish. The contract was in a strong uptrend and was moving inside a bull channel since 2009. During this rally it made a top at ₹155.4 per kg in August 2013.

The reversal from this high has decisively broken the multi-year uptrend in December 2014. Also, the fall last month has broken the bull channel intensifying the downside pressure for the contract. The key long-term resistance to watch will be the 21-month moving average at ₹128. The contract will need a strong break above this level in order to turn the outlook positive.

As long as the contract trades below ₹128, the long-term view will remain bearish.

A fall to ₹98 — the 50 per cent Fibonacci retracement support level — looks likely in the coming months. If the contract breaks below ₹98, then the fall can extend further towards ₹84 — the 61.8 per cent Fibonacci retracement support level or even ₹75 thereafter.

Medium-term view : This is bearish for the MCX lead futures contract. The contract was trading inside a bear channel since August last year.

A bearish breakout of this channel was seen last week. This has increased the downside pressure for the contract.

Also, a head and shoulder continuation pattern, which occurs very rarely, is visible on the charts. Both these negative patterns on the charts could keep the price lower in the coming months. A fall to ₹102, the head and shoulder target pattern, and ₹99, the target of the breakout of the bear channel, looks likely.

Key resistance is at ₹122, the neckline resistance level of the head and shoulder pattern.

The outlook will turn bullish only on a strong break above ₹122. Such a break will open doors for a rally to ₹130 and ₹135 thereafter.

Short-term view : The short-term trend is also down for the MCX-lead futures contract.

The sharp reversal last week from the low of ₹108 could be just a corrective bounce. Immediate resistance is at ₹116 – the 21-day moving average and then the 200-week moving average at ₹118 is the key short-term resistance for the contract.

The corrective bounce can halt at these levels and a reversal from here is more likely. Immediate support is at ₹106 — the 100-month moving average.

Declines below this level can drag the contract lower to the next target of ₹102.

COMMENT NOW