SHANGHAI, Jun. 26 (SMM) -- Base metals have been in weak consolidation recently in Shanghai, with SHFE aluminum and zinc hitting new lows of the year. The pressure comes from both surging Spanish and Italian debt yields and heating expectations that the coming EU Summit won’t deliver any break through. Risk aversion remains very strong.
Cyprus officially applied for EU aid on June 25, following aid calls of four other euro zone nations, quoting the need to fend its financial sector from Greek debt exposure. The amount Cyprus needs has recently been estimated near EUR 10 billion. Fitch lowered Cyprus’s sovereign debt rating to "BB+" with a negative outlook after it downgraded Spain, saying increasing capital aid for banks in the nation will finally be partly paid by the government. The bad loan ratio in the country's banking sector increased significantly over the past year.
The EU Summit will be held June 28-29. An earlier draft shows EU leaders will seek new measures to boost economic growth and facilitate credit supply during the meeting. Investor focus has now shifted to the EU Summit, but market expectations vary on policy response from the meeting. There are also doubts on any substantive breakthrough from the summit. Germany Chancellor Angela Merkel on Monday expressed worries that markets will put too much focus on debt-sharing. She again stressed her opposition against the proposal, claiming that debt-sharing is both economically and politically wrong.
Metals markets are still moving above 5-day moving averages, where strong support exists, and risk appetite maintains neutral. The rebound from last week has been considered a correction. With the deepening of the European debt crisis, base metals prices have dropped nearly 20% from their highs this year. More losses are expected if the EU Summit fails to provide measures for containing the region's debt crisis.