[Mar 22, 2010]China Restricts Money Supply, Base Metals Lack Upward Momentum - Highlight from China Base Metal Briefing

The US Federal Reserve's decision to leave interest rates unchanged helped base metal prices rebound slightly over the past week.  At present, China is reducing domestic money supply through open market operations. Although those moves have reduced market expectations of any interest rate increase, cash flow and credit for industry has been restricted, depressing gains in base metal markets.  CBI believes base metal prices will continue to fluctuate in the short term.   

Copper:  Recently, China Customs strengthened inspections for imports of scrap materials, including scrap copper.  (Page 3)

Aluminum: This year's drought in southwest China has been severe, especially in Yunnan province, but according to CBI sources, the impact on aluminum production was limited.  However, the increasing use of coal to produce power has caused electricity prices to rise significantly.  (Page 6)

Zinc: The drought in southwest China has had only a limited negative impact on electricity  availability at local zinc smelters. (Page 8)

Lead: Last week, LME lead prices fluctuated in the USD 2,200-2,288/mt range following mixed economic news.  Trading sentiment in domestic lead markets remain quiet, with prices moving between RMB 15,500-15,750/mt.  Domestic lead producers set prices at RMB 15,500/mt based on no significant changes in market fundamentals. (Page 10)

Nickel: Nickel inventories at producers and traders gradually entered markets, weighing on spot market prices, but transactions in the Shanghai nickel market were still sluggish. (Page 13)