SMM Morning Review - 2011/12/1 Copper Market

SHANGHAI, Dec. 1 (SMM) –A set of positive news piled up overnight. The People's Bank of China (PBOC) announced to cut the Reserve Requirement Ratio (RRR) of its financial institutions by 0.5% to expand liquidity and support the country's economic growth. Besides, the Federal Reserve (Fed), the European Central Banks (ECB) and four central banks in other countries agreed to lower the price on existing dollar swaps by 50 basis points, in order to increase the US dollar liquidity, propelling investors to believe these actions could ease tight credit conditions and thus boost market demand for assets. In response, stock and commodity markets rebounded significantly, with US equity markets closing more than 4% higher. Later, the US announced upbeat manufacturing index in Chicago and ADP non-farm payrolls, which boosted market sentiment and helped LME copper prices surge twice. However, LME copper prices met resistance and fell back after hitting USD 8,000/mt, and narrowed previous gains to close at USD 7,868/mt, still up significantly by 5%.

Asian markets will continue to absorb last night's positive news. Asian stock markets will move higher, and LME copper prices will move at high levels. However, China Federation of Logistics and Purchasing (CFLP) will announce China PMI data today, the data will continue to weigh on copper price gains unless it comes in above the 50-point mark. Hence, LME copper prices are expected to move between USD 7,700-8,000/mt during today's Asian trading hours. Chinese stock markets will move upward due to an impact from positive news. SHFE copper prices will likely increase by their daily limit, while SHFE 1202 copper contract prices will fluctuate in the RMB 57,000-58,200/mt range. Spot copper premiums are estimated at positive RMB 300-500/mt versus SHFE 1112 copper contracts.