Base Metals May Stabilize Wednesday, But Investors Should Be Wary of Fed Meeting Minutes

SHANGHAI, Feb. 20 (SMM) – Market worries are growing again as the US automatic spending cut is set to take place in March. In this context, base metals neglected positive economic data on Tuesday and extended losses. However, China's base metals are likely to post relatively stable performance on Wednesday following continuous price declines.

Data showed that German and the euro zone's ZEW economic sentiment both soared in February, up from 31.5 and 31.2 to 48.2 and 42.4, respectively, considered comparatively high levels since the European debt crisis broke out. Favorable economic figures in Europe lifted European stock and bond markets but at the same time weakened the impact on risk assets including base metals, since investors are more willing to enter markets that can make more money.

The US Federal Reserve will release the minutes of policy meeting held on January 29-30 on Thursday, which will be interpreted carefully by investors. This may become the turning point for base metals movement this week. 

Besides, property prices in China's first-tier cities are rising recently and ignited market speculation that the government may introduce new curbs on the housing market. This overshadowed base metals demand outlook.

In China's spot markets, a large number of downstream producers have yet to resume normal production according to SMM sources, so spot market activity was less active than anticipated. Discount quotes for SMM#1 refined copper were between RMB 100-200/mt following the Chinese New Year holiday. These downstream producers are expected to return to markets following the Lantern Festival.

Nevertheless, current domestic copper price levels below RMB 59,000/mt are still expensive for downstream consumers. The support in copper prices can be only sustained as long as substantive demand improves.

LME copper stocks continue to climb, up to as high as 410,000 mt. SHFE copper stocks are less than 200,000 mt, while copper stocks in domestic bonded areas are around 1 million mt, but with the increase slowing down. China's imports of unwrought copper and copper semis during January were roughly 350,000 mt, with refined copper imports expected at around 240,000 mt.