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SMM Exclusive: Euro-Zone Debt Issues Deteriorates, Base Metal Price Declines to Continue
May 6,2010 11:58CST
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SHANGHAI, May 6 (SMM) -- On May 5th, the global equities remained on a downward track. What's more, the rumors that Greek debt issues may spill over to other European countries pressed all major currencies down against the US dollar. The euro hit a new one-year low versus the US dollar. Many European officials addressed to ease market concerns over the spread of debt issues in the Europe. However, market risk aversion overshadowed the positive news. 

Risk of Greek Debt Crisis Spreading to Rest of Europe 
The anti-austerity riots erupted in Athens, to protest the government's unprecedented austerity cuts needed for EU-IMF loans. Moody, the ratings agency put Portugal's credit rating on review for downgrade, warning of possible cuts by one or two notches. Market worried that the record financial aid worth of 110 billion euros for Greece will not help debt-loaded Greece get of troubles, and will not prevent the debt crisis from spreading to other European countries either. In this context, equities and commodity markets in the US and EU tumbled, and the US dollar and its bonds soared due to increasing risk aversion. The deteriorating debt issues in the euro zone helped the euro against the dollar hit a new one-year low. In addition, the BGA President Anton Boerner said the euro could fall to parity against the dollar by the end of this year, adding the euro will suffer more pressure.

US Dollar Strengthens
According to a report by payrolls processor ADP Employer Services on May 5th, the US private employers added 32,000 jobs in April, the first rise since January 2008 and higher than a rise of 25,000 jobs estimated by economists. In addition, the payrolls in March were revised to a gain of 19,000, much better than the initial figure of a drop of 23,000. The US economic data remained strong, and the US dollar index advanced further, with the index setting a new high of 84.31.

Base Metals Markets to See Sell-offs
International commodity futures prices continued to fall on May 5th. Negatively affected by continuously strengthening US dollar and growing inventories, the New York Mercantile Exchange crude oil futures closed with decline on May 5th, with NYMEX6 crude oil futures falling by USD 2.77/bbl to USD 79.97/bbl and North Sea Brent crude oil futures falling by USD 3.06/bbl to USD 82.61/bbl. As to international metals market, LME base metals prices closed with decline on May 5th, with LME copper prices closing at a record low since February 2010. LME three-month copper contract prices closed at USD 6,958/mt, down USD 65/mt; LME three-month aluminum contract prices closed at USD 2,103/mt, down USD 65/mt; LME three-month zinc contract prices closed at USD 2,118/mt, down USD 16.5/mt.

Metal Prices May Rebound after a Sharp Drop
Technically, LME three month copper prices speeded up falling paces on May 5th after slipping below February fluctuating range on May 4th, but prices slightly advanced for a short time before closing. All moving averages have already turned directions in the short term, indicating downward price movement, and weekly price chart also showed a downward trend. LME copper prices have dropped by 12.96% since the latest high recorded on April 12th. SMM predicts that the US dollar index will advance further in the medium term. And meanwhile, possibility for metal prices to fall is high given the concern that deteriorating debt crisis may dampen metal demand. However, prices will rebound slightly technically in the short term as prices have dropped below all moving averages after a sharp decline. LME copper prices will initially meet resistance around 5-day moving average at USD 7,200/mt and will meet another important resistance around 10-day moving average at USD 7,500/mt.

To contact the writer on this report: seasonwei@smm.cn


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