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China May Continue Tight Monetary Policy on High 3Q Economic Growth
Oct 18,2011 11:42CST
smm insight
SMM predicts Shanghai metals prices will continue to fluctuate in the near term.

SHANGHAI, Oct. 18 (SMM) -- China’s National Bureau of Statistics (NBS) said today the China economy grew 9.1% during the third quarter, indicating that the economy stayed on a high-speed track. The hard-landing worrying many did not happen.

According to the NBS data, the China economy grew at a high speed during the third quarter despite slow recovery paces in other economies and tight domestic money supply. The data also showed that fixed asset investments grew a nominal 24.9% YoY to RMB 21,227.4 billion during the first night months of 2011, the retail sales was up a nominal 17% YoY to RMB 13,081.1 billion and industrial value-added up 13.8% YoY and 1.2% MoM at large enterprises. The hard-landing that has been worrying many did not happen. 

Conclusion could also be drawn that China’s annual economic growth can stay above 9% this year. This will significantly boost market confidence. Meanwhile, China’s September CPI released on October 14th also slipped slightly, confirming with investors that the index is surely on a downward track. However, as China’s inflation pressure remains strong, its macro economic policies will not loosen in the short term. China’s money supply may not further tighten either as the country endeavors to solve financing difficulties currently faced by medium-to-small businesses as well as affordable housing projects.

In the international market, Germany's Finance Minister said the upcoming European Union summit would not definitively solve the region's debt crisis, depressing market sentiment. In addition, the index of manufacturing activity in October published by the Federal Reserve Bank of New York was weaker than expected. As a result, US stocks closed down on Monday, with Dow Jones Industrial Average closing at 11,397.00 points, down 247.49 points. The euro also declined sharply, while the US dollar index climbed significantly to above 77 in response. These negative factors caused LME base metals prices to close down yesterday.

In summary, a structural easing of fiscal and monetary policies created some opportunities for metal price rallies, but China will continue the tightening monetary policy, since such policy has not hurt the real economy. As the slight easing of monetary policy concerning SMEs will not likely trigger significant price increases, and European debt crisis will continue to cast a shadow over markets, SMM predicts Shanghai metals prices will continue to fluctuate in the near term. 


Shanghai metals price
monetary policy

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