SHANGHAI, Feb. 4 (SMM) - Shanghai base metals prices outperformed on January 31st. SHFE 1305 zinc contract prices rose by 1.54%. LME base metals prices also gained ground during Asian trading hours. The US Federal Reserve announced it will maintain QE overnight, but economic growth has been stagnant as its 4Q GDP shrank. A 6.7-magnitude earthquake struck central and north Chile. Standard & Poor's pointed out China has invested excessively; most of Chinese listing nonferrous metals enterprises are expected to go into severe losses……
US Economy Shrinks 0.1% in 4Q.
US GDP in 4Q 2012 was down 0.1% YoY.
SMM Comments: US Economy Slides, Outlook Unclear
US Commerce Department pointed output decreasing defense expenditure, enterprises depleting inventories and falling exports offset the growth of personal spending and fixed asset investment growth, which is the major factor leading to negative economic growth in 4Q. SMM believes it is hard to know if US economy is tentatively sluggish or lack potential. But what is certain is US is using tightening policies. It cuts government spending and manages to expand fiscal income by levying tax. Enterprises contract spending due to sliding profits, while consumers also cut spending due to concerns over job market and that taxes will be raised.
US Fed Maintains Interest Rates and Easing Policy Unchanged
The FOMC announced they will maintain ultra-low interest rates at 0-0.25% since the unemployment rate stood above 6.5%, and continue the easing policy to purchase USD 85 billion of government bonds and mortgage-backed security (MBS) each month.
SMM Comments: Market Focuses on US Non-farm Data and China PMI
The US Federal Reserve's decision was in compliance with expectations. Although US GDP for 4Q was disappointing, outlook towards US economy is still optimistic. US non-farm data and China's official PMI due last Friday is the focus of markets. Besides, the result of US debt ceiling plan from the US Senate will also affect the market.
European Banking Sector Reinforces Loan Standard
Euro zone banks enhanced loans requirements in 4Q 2012 to reduce the availability of capital for enterprises and consumers, and will further tighten the requirements for loans lending in the following months. Besides, demand for loans will also weaken, and negatively affect economy.
SMM Comments: Euro Zone Tightens Monetary Policy
Euro zone banking sector began to repay LTRO loans from European central bank in advance. Meanwhile, increasing deposits were flowing to southern European countries. The market was concerned on news that the banking sector will further raised loan requirements.
Since large amounts of liquidity failed to stimulate economic growth, some officials with European central bank plan to halt non-regular measures.
Iran Crude Oil Exports Hit Record High after EU Sanction
Iran's crude oil exports hit a record high in December 2012 since the sanction by EU took effect. Market players believe that is because of strong demand from China.
SMM Comments: China Relies Heavily on Crude Oil Imports
China imported 285 million mt of crude oil in 2012, with a reliance rate of 58.7%. China has become global second largest petroleum consumer. Once a country's reliance rate for petroleum exceeds 50%, it has entered an early warning stage for energy.
6.7 Magnitude Earthquake Strikes Chile
A 6.7 magnitude earthquake struck Atacama Region of Chile on January 31st 2013, where copper ore are concentrated.