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SMM Exclusive: Inflationary Pressure Weighs Down Metal Rebound 

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SHANGHAI, May 12 (SMM)&nbsp;-- The China&nbsp;major economic data in April released by the National Bureau of Statistics (NBS) on May 11th suggested increasing inflationary pressure in China. In this context, China's non-ferrous metal markets all declined in the afternoon session on May 11th, and it is expected that price performance will not be optimistic in the short term.
Increasing Inflationary Pressure
Major macroeconomic data in April released by the National Bureau of Statistics (NBS) on May 11th, China's CPI was up 2.8% YoY or more than 0.4 percentage points MoM, setting a new year high. Meanwhile, China's PPI was up 6.8%&nbsp;YoY or more than 0.9 percentage points MoM, which is the fifth-month-consecutive rise, and PPI shall continue to be on upward trend along with price increases of global commodities. In addition, prices of water, electricity, oil, gas and other prices have also increased, driven up by both international and domestic factors.&nbsp; PPI may grow&nbsp;at a faster pace, which will further speed up growth pace of CPI in the future. In this context, market concern over inflationary pressure strengthened, signalizing further measurers to curb inflation by the government. China's Central Bank also issued articles to show the increasing inflationary pressure, indicating that it may not avoid using interest rate hike to regulate macro economy. Meanwhile, China's Central Bank issued RMB 14 billion one-year bills though open market mechanism on May 11th, absorbing RMB 14 billion and the China's Central Bank had totally absorbed RMB 22 billion though open market mechanism last week, showing that the tight monetary policy shall continue.
Pressure on Domestic Financial Markets 
On May 10th, the European Union finance ministers agreed to a 750-billion-euro rescue package for Greece, to prevent the Greek debt crisis from spreading to other European countries. Supported by the massive financial aid plan, equities markets in the Europe soared, and stocks markets in the Asia also stopped falling and rebounded. However, surging equities markets in the EU and US will hardly serve as an impetus for China's A-shares market and base metals market in the medium term. SMM believes the round of price corrections in base metals market is due mainly to China's Central Government's tough measures in curbing property speculations. China's Central Government is expected to continue its tightening policy unless the relevant policies on the housing take significant effect, or the overheating economic growth could cool down from tightening monetary policies. The persistence of a tighter curb on the property market is predicted to negatively affect base metals market. In other news, international spot gold prices on May 11th surged to record highs above USD 1,234 per ounce, a sigh of strong risk aversion among investors. SMM believes market investors will opt to a risk aversion sentiment in the medium and long term in view of inflationary expectations and a slowing economic growth in the Europe and US, despite of preliminary progress has been made concerning debt issues in the euro zone.
Base Metals Prices Face Pressure to Rebound 
SHFE metals prices declined on May 11th, and SHFE 1008 copper contract prices closed at RMB 55,720/mt, down RMB 410/mt; SHFE 1008 aluminum contract prices closed at RMB 15,810/mt, unchanged from a day earlier; SHFE 1008 zinc contract prices closed at RMB 16,705/mt, down RMB 295/mt. LME base metals prices also closed with decline on May 11th, and LME three-month copper contract prices closed at USD 7,036/mt, down USD 84/mt; LME three-month aluminum contract prices closed at USD 2,105/mt, down USD 31/mt; LME three-month zinc contract prices closed at USD 2,070/mt, down USD 63/mt. According to SMM sources, spot copper prices remained stable on May 11th, and transactions were still lackluster, with stagnant long and short positions and stronger wait-and-see sentiment. Meanwhile, domestic demand from end-users reported no improvement, dragging down overall deliveries of goods in domestic markets.
All major technical indicators show weak momentum for SHFE 1008 copper contract prices in the short term.
To contact the writer on this report: <a href="mailto:seasonwei@smm.cn">seasonwei@smm.cn</a>
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