Base Metals Plunge on Economic Worries and Greek Debt

SHANGHAI, Mar. 7 (SMM) –Major base metals plunged Tuesday on market worries over global economic growth and Greek debt swap deal. LME three-month copper contract slumped by USD 241/mt or 2.84% to close at USD 8,244.5/mt Tuesday, the largest one-day loss since November 14th, 2011.

Rumors spread March 6th that Greece may delay the deadline for debt swap deal to private creditors. The euro thus slid and helped the US dollar increase, while other financial markets also fell rapidly. The deadline for Greek debt swap is due on March 8th, and if the proportion of creditors participating in the debt swap deal is lower than 67%, Greece will likely suffer a massive default this month. Once this happens, market sentiment will be hurt, even if Greek government starts collective action clauses to force the execution of the swap deal. According to media reports, an Institute of International Finance (IIF) document warned that a disorderly Greek default could incur more than EUR 1 trillion losses to the euro zone, including EUR 160 billion in bank recapitalization costs. The possibility of a disorderly Greek default greatly dented market confidence over the global economic recovery.

China set its projected economic growth for 2012 at 7.5%, below 8% for the first time over the past seven years. Meanwhile, the euro zone 4Q GDP growth fell by 0.3% quarter on quarter according to revised data. Euro zone economic data has been disappointing recently, with output in 4Q 2011 showed a decrease from the previous quarter. Thus, investors began to lower their expectations on global economy growth.

Affected by the above factors, the US and European stock markets plunged generally. The Dow Jones Industrial Average fell 203.66 to 12,759.15, down 1.57%, the first decline of more than 200 points in just one day since November 23rd, 2011. The Stoxx Europe 600 index dropped 2.67%, the biggest one-day loss in more than three months. In commodity markets, both NYMEX crude oil prices and COMEX gold prices suffered sharp declines. As for base metals, LME aluminum prices fell by USD 52/mt to close at USD 2,232/mt, LME lead prices were down USD 90.5/mt to USD 2,065/mt, and LME zinc prices closed down USD 76.75/mt at USD 2,013.25/mt. The possible default risk for Greek debt and China's economic growth cut depressed market confidence in global economic recovery. As such, SMM anticipates that base metal prices will remain weak with strong resistance for the near future.