Hungary Fears Send Base Metals Into Bear Market

SHANGHAI, June 7 (SMM) --

Hungary Close to Greece
A leader of the ruling party in Hungary said on June 3rd that the country could be facing a sovereign debt crisis similar to Greece, rekindling market concerns about the spread of debt issues in Europe, and casting a shadow over EU economic outlook. In this context, the US dollar index surged to a new yearly high of 88.68, and the euro tumble to a new 4-year low of 1.1880 versus the US dollar. However, The National Bank of Hungary (MNB) stated on the same day that economic conditions in the country have improved significantly, and with government deficit expected at 4.5% of GDP in 2010. Moreover, Hungary's State Secretary spoke during a news conference that Hungary's economic condition is stable, and aimed to meet a deficit target of 3.8% of GDP in 2010.

At present, economic recovery in Europe lacks of upward momentum after experiencing rebounds in 2H 2009. SMM believes uncertainties towards economic recovery and lingering debt issues in Europe have significantly weighed down market sentiment, and any negative news will result in a panic sentiment across the market.

Disappointing US Employment Data Dampens Financial Markets
The US Department of Labor announced on June 4th that US nonfarm payrolls grew at their fastest pace in 10 years in May by 431,000, lower than an expected rise of 536,000, with 390,000 more workers hired by the government. However, sources report the growth in US nonfarm payrolls was mainly attributed to the government's temporary recruitment, which can not help reduce the unemployment rate sharply. SMM believes the employment data shows the US labor markets remain sluggish, and investors are still concerned over the recovery in the US economy under the pressure of fears that the European debt crisis may spread further, and the US stocks and commodity markets both plunged as a result.
 
Dow Jones Industrial Average closed at 9931.97, down 323.31, or down 3.15%, setting a new low since February 8th, 2010, with all shares composing this index tumbling. The Reuters/Jefferies CRB Index of 19 raw materials closed at 248.94, down 5.95, or down 2.33%. The New York Mercantile Exchange crude oil futures slumped on June 4th, with NYMEX7 crude oil futures falling by USD 3.1/bbl or 4.15% to USD 71.51/bbl and North Sea Brent crude oil futures falling by USD 3.32/bbl to USD 72.09/bbl. International spot gold prices rose by USD 3.75 per ounce to USD 1,217.00 per ounce supported by safe-haven buying.  

Base Metals Enter into Bear Market 
With regard to base metal markets, LME base metal prices all fell sharply on June 4th. LME copper for delivery in three months closed at USD 6,330/mt, down USD 195/mt from a day earlier, touching the lowest level since October 2009; LME aluminum for delivery in three months closed at USD 1,881/mt, falling to a eight-month low; LME zinc for delivery in three months ended at USD 1,641/mt, down USD 99/mt from a day earlier, slipping to a ten-month low; LME lead for delivery in three months were down USD 69/mt to a yearly low; and LME nickel and tin both hit a four-month low. 
 
SMM believes that the lower-than-expected employment data and the revitalized concern over expanding of the EU debt crisis cast doubt on the recovery of the EU economy, pushing up the US dollar as a tool to hedge against financial risks and weighing on base metal prices as a result. Market sentiment is bearish, resulting in expectation that base metal markets will extend its weak performance in the short-term. In addition, base metal prices are negatively affected by weaker market demand for metals, given that global manufacture economic growth becomes slower. Besides that, base metal markets are further weighed down by the fact that metal markets have already stepped in the seasonal low-consumption period. In this context, base metal prices will remain weak for the foreseeable future.

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