News Feature: Will Pre-adjustment and Fine Tuning Boost Metal Prices?
Editor's note: Premier Wen Jiabao pointed out at the symposium held during February 6th to 10th the pre-adjustment and fine tuning will start in 1Q.
Pre-adjustment and fine tuning was finally announced by Premier Wen to commence in 1Q this year after put forward for the first time last October. China’s central bank released that newly increased RMB loans failed to breakthrough RMB 1 trillion for the first time in three years in January, and were much lower than expected. As such, domestic credit situation was still tight in January, and the pre-adjustment and fine tuning is expected to commence in February. Will it give support to domestic metal prices? SMM will give an analysis based on China’s recent economic data.
Macro Economic Data in January
Finance Data in January
M2 rose 12.4% YoY in January, 1.2% lower than the year end of 2011.
M1 was up 3.1% YoY in January, 4.8% lower than the year end of 2011.
Newly increased loans were RMB 738.1 billion in January, failing to breakthrough RMB 1 trillion for the first time in three years.
Import & Export Data in January
Exports posted first negative growth in two years, falling 0.5% YoY in January.
Imports fell 15.3% YoY in January.
Total import and export value fell 7.8% YoY in January.
According to official PMI, the new export order index fell below 50% as of October last year, leaving domestic exportation in great challenges. As the new order index is postponed reflecting in import and export data, exports in February should be pessimistic given the new order index in the past three months.
Consumer Price Index in January
CPI rose 4.5% YoY in January, while PPI was up 0.7% YoY.
China’s CPI data was higher than the expected 4.0%-4.1% in January, and also higher than last November and December. The time expected in which the deposit reserve ratio will be cut will be postponed.
SMM finds on the website of the NBS that the growth of nonferrous metal purchasing prices began to fall since last August, plunging to 50% or even 7% last October, down from 14.7%. The growth continued to dip to 0.6% in last December.
The CPI in January presented improving inflation, while import and export data showed Chinese economy was falling more rapidly. Monetary policies will continue to loosen in the short term, with analysts mixed. But Premier Wen stated the pre-adjustment and fine tuning will commence in 1Q. Is this a positive signal that monetary policy will loosen?
That being said European central bank will likely start a second Long-Term Refinancing Operation (LTRO) in March, and cut interest rates by 25 basis points. Those factors are expected to positively affect metal prices.