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Fluctuation of Nonferrous Metal Prices to Widen as a Result of Regulation Policies 

SMM Daily Review - 2011/2/9 Base Metals Market

SHANGHAI, Feb. 10 (SMM) -- A series of policies were released after the Chinese New Year holiday to curb inflation, such as the interest rate hike for lending and deposit as well as for bills by China's central bank and the restriction of property purchases. In this context, fluctuation range of nonferrous metal prices will widen in the near term.
PBOC Raises Interest Rate by 25 Basis Points
People&rsquo;s Bank of China announced on February 8th to raise RMB deposit and lending benchmark interest rate from February 9th. The one-year deposit and lending benchmark rate were lifted by 0.25%, with deposit rate reaching 3.00% and lending rate reaching 6.06%. Other deposit and loan benchmark interest rates were adjusted as well. This was the third interest rate hike since October 2010. Recently, drought aggravates in northern areas, further driving food prices up. Commodity prices in global markets are also rising. China raised medium-to-long term deposit benchmark interest rate, in a bid to attract capitals to fixed deposits and curb investment demand. This move also indicates concerns on higher commodity prices, which is challenging China&rsquo;s economy. To ensure rational inflation is the main target of China&rsquo;s central bank.&nbsp;&nbsp;
Intensive Introduction of Inflationary Control Policy 
Premier Wen Jiaobao presided State Council executive meeting on February 9th. During the meeting, he analyzed current situation of food production, studied polices and measures to further promote food production and lent support for spring field plow in key grain producing regions. Given that food prices are weighed heavily for China&rsquo;s commodity price index, to stabilize food price is of significant importance to control inflation expectation, stabilize CPI as well as to materialize stably economic growth and society harmony. In addition, according to new Eight Measures released by the State Council before Chinese New Year holiday, municipalities, provincial capitals, and other cities whose housing prices are too high and rise too rapidly should introduce Implementation Details for Property Purchase Restriction before mid-February. Many cities, including Beijing, may introduce Implementation Details for Property Purchase Restriction in the following week. The specific purchase restriction measures include fully suspension for third-home buyers and temporarily suspension for non-local home buyers who already have a house or could not prove they had paid personal income taxes or made social security contributions in the city for at least one year. The intensive introduction of policies to control real estate price is an extension of regulating policies by government to curb rapid growth of real estate price. The frequent adoption of administrative and monetary measures by government to regulate real estate industry will inevitably exert impact on recent financial market and commodity market.
Nonferrous Metal Prices to Fluctuate More Wildly
According to data released on Feb. 1st 2011, China&rsquo;s Purchasing Managers Index (PMI) was 52.9%, down 1% from January 2011. PMI for January 2011 continued to fall, indicating a mixed economic situation. Generally speaking, China&rsquo;s economy is continuing to expand, and demand for metals will improve in the long term. But the inflation pressure will be even serious. China is making great efforts to curb inflation, with a series of policies to be released. SMM believes that fluctuation range of nonferrous metal prices will widen in the near term.
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