SMM Interview: Three Major Events to Influence Recent Metals Market

SHANGHAI, Jan. 11 (SMM) – The US companies are expected to release their financial reports for 4Q, and major economic data in China are also expected, combined with the approach of Chinese New Year holiday, how will base metals market perform under the influence of these three factors? SMM interviewed several experts:

Feng Xiao’an (Feng): Chief Analyst at CITIC Securities Futures.
Q1: Will metals markets be greatly affected by the release of the US companies’ financial statement? If yes, will it be positive influence?
Feng: Generally, the financial reports will exert direct influence to equity markets, but commodities markets will be indirectly affected as the reports reflect spending power. The releases this time are expected to be favorable to base metals given the stable US recovery at present, but the influence will be limited since base metals are of stronger financial attributive following the financial crisis and are increasingly dominated by monetary policies.

Q2: Market players are optimistic towards the series of China’s economic figures to be released, whether the positive expectation will give a boost to metals market, or the upbeat sentiment will soon be damped as metals market lacks impetus to rise and as the positive data are within prediction?
Feng: China’s economy bottomed out last September and has remained an upward trend since then. Meanwhile, economic data also indicated positive sign recently, benefitting base metals market. Although the favorable impact is somewhat limited, these economic data will continue to drive up domestic stock markets, and thus help improve base metals.

Q3: Will market players remain cautious with low buying interest before Chinese New Year holiday? Will metals prices keep hovering within a narrow band prior to the holiday?
Feng: A decline in trading at the beginning of the year is understandable with financial pressures eased. However, high consumption season often come along with the Chinese New Year, lending support to commodities market, coupled with stronger anticipation on national economy, I think transactions are expected to pick up ahead of the holiday with prices still moving narrowly.

Peng Jian (Peng): Head of Futures Research at BOC International
Q1: Do you think metals market will be quiet with transactions weakening and price movements limited before Chinese New Year holiday?
Peng: Not necessarily so. Trading may shrink as retail investors will liquidate positions. Most institutional investors will keep holding positions. However, limited trading may still possibly upset the market, which is not uncommon in foreign markets during Christmas holiday. As such, there is still a chance that metals prices may show volatility.

Q2: What’s your opinion on metals price movements before Chinese New Year holiday?
Peng: I expect LME copper to rise and move between USD 7,500-8,800/mt, while SHFE copper prices should be between RMB 53,000-62,300/mt. SHEF copper may increase initially but a strong rally is not expected.

Q3: Will base metals be affected by the release of financial reports of the US companies?
Peng: Yes. The above-expected employment and manufacturing data signified a US economic recovery, and this fact will be further confirmed if the financial reports turned out to be optimistic. That will definitely give a boost to base metals. Besides, the emphasis on urbanization by Chinese government is favorable to metals market. Thus, there is a high possibility that metals prices will likely rise in the short term.
In domestic base metals market, trading will be muted with investors booking profits, but the limited cash flows may lead to sharp movements in the market, that’s why we recommend investors to remain bullish but with a wait-and-see attitude, and mainly focus on risk management.

Liu Tianyu (Liu): Tianyu Futures
Q1: How do you think the financial reports to be released by the US companies will influence base metals?
Liu: The financial reports will often influence the US equities, but metals market is less affected by equities now. With conditions in major economies, including the US, eurozone, and China, turning around in 2H 2012, metals market started corrections so as to regain the financial attributive of metals, especially copper. We expect moderate performances of the US companies, while metals prices are expected to keep hovering narrowly given the current economic situation but should move up gradually.

Q2: What about the influence of China’s economic data?
Liu: I still hold a cautious attitude with respect to this question. China’s economic growth started to slow down in 1H 2012 due to the slackening economy in the US and Europe, and did not begin the recovery until last August. Besides, China’s stock markets remain depressed throughout the past year. Most listed companies reported little profits or losses through 2012. In this context, any positive economic data should be driven only by agricultural sector and visual products in financial markets, and thus will unlikely result in significant improvements in metals markets. In addition, the limited movements in futures market should be regarded as a correction of market indicators

Q3: Do you think metals prices will keep moving narrowly with trading quiet before Chinese New Year holiday? And what’s your view on metals price trends before the holiday?
Liu: Light trading is commonly seen before the holiday. We believe metals prices will unlikely decline noticeably before the holiday with liquidity eased early in the year and with investors’ confidence restored given the generally accepted viewpoint that China’s economy has bottomed out.
Technical indicators show that metals prices may fall slightly, but the decline in LME copper should be limited as prices have not yet slip below USD 8,000-7,900/mt. That being said, LME copper prices should move around this level and prepare for a rebound following the release of any favorable news. The most active SHFE copper contract is likely to rise above RMB 60,000/mt.

Xie Jike (Xie): Ruida Futures
Q1: Will the US companies’ financial reports to be released impact metals markets? And how will China’s economic figures influence the market?
Xie: Market expectations are that the 4Q GDP should grow 7.8% YoY. Meanwhile, the accelerated CPI growth will unlikely trigger strong market concerns, but the dented buying interest and low operating rates across China’s nonferrous metals industry will constrain any positive influence from China’s economic data. With respect to the US companies’ financial reports, many investors believe the results will unlikely be bright given the impact of European debt crisis and US fiscal cliff issue. This may fail to push up high-risk currencies, which is reflected in a rebound of the US dollar index above the 5-day moving average. In general, any risk threatening metals should come from foreign markets, and metals prices will stand little chance of rallying in the short term if the US dollar index keeps rising.

Fang Junfeng (Fang): Metals Analyst at Shanghai CIFCO Futures
Q1: Do you think the US companies’ financial reports will significantly affect metals markets?
Fang: I am afraid these financial reports may be difficult to lift market confidence given the US fiscal cliff talk which worried investors through 4Q last year. Housing and related market may present some improvements, but the overall performance will be disappointing, hampering any increase in prices for risky assets.

Q2: How about China’s economic data?
Fang: China’s economic data are expected to be positive, which will help support metals prices. However, the rebound in metals prices should be curbed by the excess inventories in nonferrous metals industry.

Q3: How do you think about metals market before Chinese New Year holiday?
Fang: On one hand, as global manufacturing sector remained weak, nonferrous metals prices still lack impetus to rise sharply. On the other, prices will unlikely fall noticeably with market players less focused on the European debt issue.

Xu Feng (Xu): Senior Researcher at Nanzheng Futures
Q1: Will metals market be directly affected by the financial reports released by the US companies?
Xu: The US economy is still experiencing mild recovery, since developed countries see slower growth in copper consumption, the financial reports are not expected to exert significant influence to metals market.

Q2: How will metals prices be influenced by China’s economic data?
Xu: China’s economy has been improving since 4Q 2012, but downstream consumption for metals failed to pick up. As such, although economic data are expected to be optimistic, the influence on metals prices will be limited.

Q3: What do you think about metals market prior to Chinese New Year holiday?
Xu: We believe metals market should remain flat at the levels seen in 4Q 2012 before the holiday, which are well below a year earlier. Copper price trends may be influence by the performance of the US dollar index.