Xue Xiyong: Non-ferrous metal prices to remain polarization trend in H2 2014

Asian Metal: Recently issued economic data show sluggish performance in Europe and strengthening figures in America. What do you think about the interest rate reduction and ABS policy just rolled out by the European Central Bank (ECB)? And will the monetary policy of the ECB influence the process of the U.S. quitting QE?

Xue: It is undoubtedly true that the loose policy in Europe is targeting the deflationary situation. The meager inflation level in Europe has been regarded as the most severe risk for economic recovery since the European Debt Crisis or during the post-debt crisis era. It is rather typical for the ECB to be lowering interest rates continuously, including purchasing new ABS and asset backed securities, aiming to solve the economic woes from the top down. Such behavior is typical in terms of economic common sense and is in line with market expectations, although the actual effect is still to be tested by the market. Furthermore, the conditions may have worsened if the ECB had not made a response. There are obvious discrepancies in terms of the monetary policy cycle in major economic entities and such discrepancies are widening gradually. The ECB can not virtually change the current market pattern of “strong America, weak Europe” through loosening its policies. In light of the comprehensive indicators for economic conditions issued by the FRB, the U.S. adjusted its monetary policies instead of being impacted by the loose conditions in Europe. However, as for the long term trend, the economic development in Europe will gradually influence the economy in the U.S., so an imbalanced relationship, characterized as indirect, nonlinear and slow, exists between Europe and the U.S.

Asian Metal: Li Keqiang, Premier of the State Council, expressed his confidence in the strong growth of the Chinese economy and achieving the growth target of 7.5% in 2014, when he visited Europe at the beginning of the year. However, Premier Li changed the 7.5% target when he spoke in China. Premier Li has made a few statements in terms of the growth target over the past few months. New bank loans have been low over the past two months and it seems that the government is less interested in issuing policies to stimulate the economy. What do you think about such changes and could you please share with us your opinions on the monetary policy and macro-economic development trend in China in H2 2014?

Xue: Micro-stimulation was previously implemented on the market. Some in the media wondered if the stimulus was appropriate to the market moving forward, and speculated over whether medium-stimulation or heavy-stimulation measures might be put forward. I am not sure about that, but in my opinion there will be no such stimulus. We are used to measuring economic growth by a series of indexes and data, and these indicators don’t give an exact reflection of the truth. Therefore, it makes little sense to argue about whether the growth rate of GDP will be 7.5, 7.6 or 7.4. The new government pursues policies in practice rather than engaging in empty talk, which is good. Economic development, after all, is a market issue, and market participants and the market discipline are playing the lead role. Overall, I believe that the government will regulate and control the monetary policy subject to market discipline, and we are always confident about the macro economy.

Asian Metal: Reportedly, mineral exports will also be banned in the Philippines, and the nickel futures market is becoming active. What impact do you think the ban will have on the nickel market if this is true?

Xue: Indonesia is the largest exporter of nickel in the world with around 18% of global output, and the percentage is about 9% in the Philippines. The ban is just a rumor, but nickel supply may be tightened, and expectations around an appreciation in nickel will also be enhanced. Nickel prices on the LME may exceed the previous high of 21,625. The Philippines possesses a large quantity of minerals with most undeveloped, and it has been considering the contribution of mining to the economy. However, insiders in the mining industry have indicated that enterprises will not invest in mineral processing plants until the government solves the issues of high electricity costs, lack of infrastructure and social security.

Asian Metal: The aluminum and zinc futures markets have been active recently, while the copper and lead markets have been rather sluggish, especially the lead market. The growth rate of lead ingot output has been lower than that for demand since 2013. The market has seen destocking for the past year and a half, but it has been in a downtrend, with some fluctuations, since August and has performed far worse than the zinc market. The price trends of base metals are more mixed, so do you think the trend will continue? What is your forecast for the price trends of copper, aluminum, lead and zinc over the next four months?

Xue: Although copper, aluminum, lead and zinc are base metals and possess some similarities, they are different metals with varying supply-demand contradictions and applications. Different price trends for these four metals are normal and have existed for a long time. I am still bullish about the strong aluminum and zinc markets, and am cautious about the copper and lead markets, which are limited by the nature of financing and inventory cycle time. However, cautiousness does not mean pessimism, and more mixed price trends will continue.