SMM Morning Review - 2011/12/16 Copper Market

SHANGHAI, Dec. 16 (SMM) –Markets overnight continued to digest the weak HSBC China Manufacturing Purchasing Managers' Index (PMI). Meanwhile, data revealed that China's foreign direct investment (FDI) during November fell YoY, the first drop in 28 months, a signal of increasing risks to China's economic growth from slowing economies in developed countries. Combined with slow progress in the euro zone area, investors kept cautious about entering the market, and only made bargain hunting at low price levels following price slumps. However, the US later announced US jobless claims this week tumbled to the lowest since May 2008, suggesting that long-running weak US jobs market is improving. Both the NY Empire State Manufacturing Index for December and the Philadelphia Fed's Manufacturing Index for December were much higher than market expectations, an indication that the US economy is rebounding, which helped US equity markets close higher. As a result, LME copper prices broke out resistance at USD 7,300/mt, but failed to gain further momentum after reaching highs owing to growing wait-and-see sentiment in the market, with prices finally ending at USD 7,219/mt.

Standard & Poor's (S&P) and Fitch cut credit ratings for 10 Spanish banks, Goldman Sachs and BNP Paribas this morning, which will, though, have a limited impact on market sentiment. Nevertheless, Greece's finance minister said European Union (EU) and International Monetary Fund (IMF) would get back to the country again in the middle or late of January 2012, comforting market expectations that the European debt crisis will worsen further, while debt problems in the US also eased some. In this context, LME copper prices will move between USD 7,150-7,300/mt during today's Asian trading hours, with a similar fluctuating band on the prior day. Chinese stock markets will remain weak, continuing to impose pressures on SHFE copper prices. SHFE 1203 copper contract prices will struggle at RMB 53,000/mt, and try to hold this price mark. Spot copper discounts are expected between negative RMB 150-50/mt versus SHFE 1201 copper contracts.