SHANGHAI, Mar. 6 (SMM) – Premier Wen said in his government work report that China’s GDP growth target for 2013 has been set at 7.5%. The Chinese government has also projected a fiscal deficit of RMB 1.2 trillion for 2013, RMB 400 billion more than the budgeted figure last year.

Expanding fiscal deficit means the government spending will increase considerably this year. The deficit consists of RMB 850 billion in central government deficit and RMB 350 billion in bonds to be issued on behalf of local governments. Increasing government spending will not only provide ample liquidity for large batches of local infrastructure projects, but also spur demand for base metals.

LME copper closed 0.26% higher at USD 7,740/mt on Monday. Following several days of losing streak in copper prices, short selling eased somewhat, but it’s still uncertain whether copper prices will fall again. Stricter control over property sector in China will weigh heavily on domestic base metals prices.

Five new measures to rein in domestic housing markets announced last Friday caused the Shanghai Composite Index to plunge on Monday and hit domestic capital markets as well. This indicates that most investors are bearish and markets will turn even more bearish in the future.

A strong US dollar index also contributes to falling base metals prices. Although the US dollar index lost 0.19% to close at 82.13 on Monday, there is still room for it to rise in the short term.

In spot markets, supplies of spot copper were ample. Plunging SHFE copper prices pushed up premiums of #1 copper, but speculative middlemen were wary of buying. Downstream producers also refrained from bargain-hunting out of cash concerns.

To sum up, base metals prices, led by copper, are still under downward pressure, despite some favorable policies. The mild rally in LME copper prices will be short-lived.