Metal Prices Hit New Low after Italy Downgrade

SHANGHAI, Sept. 20 (SMM) -- Domestic metal prices dipped on September 19th due to lingering Euro-zone debt crisis and weak Chinese stock markets, with SHFE copper prices falling by RMB 2,480/mt, registering the largest intraday decline since August 8th. SHFE base metal prices continued to move lower after a low open on September 20th, with most active SHFE copper and aluminum contracts even hitting a new low for 2011.

The meeting among European finance ministers and central bank presidents last weekend, which bore much investor hope, finally ended without any breakthrough, with the most closely watched Greek aid scheme remaining in dark. Standard & Poor’s announced on September 19th to downgrade Italy’s long-term and short-term credit rating from "A+/A-1+” to “A/A-1” respectively with a negative outlook maintained. The credit rating agency also lowered its outlook on Italian economic growth from 1.3% to 0.7%. Last Saturday, credit rating agency Moody’s completed its 90-day observation for Italy and kept the country in negative outlook observation. Following Spain, Ireland, Portugal, Cyprus and Greece, Italy has become the sixth euro zone state that was downgraded. The downgrade on Italy, the third largest economy in the euro zone, not only added to investor worries towards the euro zone debt crisis, but also marked a severe economic recession in the country, leading to possibilities that the debt crisis may spread all over the euro zone. As for the Fed interest rate meeting to be held today, possibilities expected for QE3 is also extremely low. Therefore, the positive news may not come out as expected.

Domestic financial markets are also pessimistic, and cash flow pressures caused by expansion of stock markets become an important factor affecting short-term markets, and high inflation still affects market movements. China will likely continue the tightening monetary policy amid strong capital pressures ahead of Chinese National Day holiday and uncertain external environment, and metal prices will likely remain weak before the holiday in view of bearish investor sentiment in domestic stock and commodity markets.