Shanghai Base Metals to Extend Weak Fluctuations on Negative News

Although there is no severely negative news reported on Shanghai base metals market recently, weak performance in overseas related markets gravely influenced Shanghai base metals market. The Shanghai Composite Index hit a new low to 2,290 points, and commodity market also fell below previous levels with the dropping stock markets. As a result, market sentiment is depressed, leaving market transactions light. As such, SMM believes Shanghai base metals market will likely continue to fluctuate weakly in the short term.

Despite the unexpected drop in China's November CPI, and the Central Economic Working Conference signaling a policy fine-tuning, Shanghai base metals market maintains trending down after fluctuating in narrow band for a long period with trading volumes falling. A round of rebounds triggered by loosening monetary policy will fall short of market expectations, as the signal of policy fine-tuning revealed in the Central Economic Working Conference is not strong enough to reverse markets' short-term trends.

On international markets, market optimism from a deal reached during European Union's (EU) summit held on December 9th is waning. Euro zone nations in last week's EU summit agreed to tighten budget discipline in the euro zone and to voluntarily impose sanctions against countries opposing to the discipline. However, market players began to worry that EU moves haven't gone enough to solve the rising bond yields in the euro zone countries disturbed by financial problems. Moody's warned that the EU policymakers didn't propose new measures after the summit to ease pressures on a possible downgrade of credit ratings for the region's countries in 1Q 2012 as well as pressures on its pessimism towards EU state members. As a result, international financial markets were pushed down. The Dow Jones Industrial Average closed down by 162.87 or 1.34% to 12,021.39, surrendering most of gains registered very soon after last Friday's EU summit. The Standard & Poor's 500 Index retreated by 18.72 or 1.49% to close at 1,236.47, while the Nasdaq Composite Index slid by 34.59 or 1.31% to close at 2,612.26. Stoxx Europe 600 Index dropped by 1.9% to close at 236.05. 

Overall, domestic markets are relatively bearish and risks on overseas markets are escalating. Against this backdrop, Shanghai base metals are expected to extend weak fluctuations for the near term.