SMM Morning Review - 2012/1/20 Copper Market

SHANGHAI, Jan. 20 (SMM) -- A slew of positive news came from market overnight. It was reported that China’s central bank allow five major banks to increase new loans in Q1 2012 by 5% YoY, which means that China’s bank requirement reserve ratio may be cut further, boosting prospect for copper demand. In addition, Spanish government bond auction was better than market expectation. Meanwhile, France raised EUR 9.5 through debt auction after Standard & Poor cut its credit rating last Friday, improving market sentient to great extent. In response, the euro was pushed higher and the US dollar fell to test 80. Later, the US announced that its initial jobless claim fell to four year low, and home starts for December fell to 4.1%, but operating rate at single home up 4.4%, an indication that the US housing market is bottoming out, boosting the US equity market to close with gains.  Inspired by a slew of positive news, LME copper contract prices remained upward momentum during the Asian trading hours to hit a high of USD 8,410/mt, and finally closed at USD 8,387/mt, the eight consecutive days closing with gains. Cancelled warrants of LME copper hit new high, with proportion around 20%, which will lend fundamental support for LME copper prices.

It is expected that market will absorb positive economic data, but technical pressure will cap LME copper price increase. Therefore, SMM expects that LME copper prices will move in the USD 8,350-8,450/mt on Friday. In SHFE copper market, SHFE copper prices advanced along with China’s stock market increase, but will face downward risk after Chinese New Year holiday. SMM expects that SHFE copper price will move in the RMB 60,100-61,100/mt range on Friday. In spot market, supply of spot copper will further reduce, but demand will also wane at the last pre-holiday trading day, so discount of spot cooper price against SHFE 1202 copper contract price will be between negative RMB 500-400/mt on Friday.