SMM Morning Review - 2012/4/24 Copper Market

SHANGHAI, Apr. 24 (SMM)–The market news front in the US was relatively quiet on Monday, while the US and European markets continued to digest China's weak manufacturing data. Besides, after the Asian financial market trading session ended, German's PMI was reported to experience the fastest drop in April in recent 3 years, and the euro zone's preliminary PMI for the service sector fell to a five-month low of 47.9 in April, down from the final reading of 49.2 in March, also well below market expectations. Moreover, Germany Prime Minister Mark Rutte announced to resign owing to the European debt crisis, while Socialist challenger Francois Hollande in France won the first round of presidential election, heightening market worries over increasing uncertainties in the euro zone. Risk aversion thus grew and led the euro to plunge from a two-week high. Stock markets in Europe and the US also plummeted along with the slumping risky assets, including crude oil and gold. As a consequence, LME copper prices slid below USD 8,000/mt to as low as USD 7,980/mt before finally ending at USD 8,043/mt, failing to recoup the 5- and 10-day moving averages. Nevertheless, it was worth noticing that the volume of cancelled warrants on the LME increased by 44,425 mt on Monday and accounted for as high as 40% of total LME copper inventories, the highest level in the past eight years. Spot copper premiums in London also rose to USD 82/mt, implying strong resilience in copper from the fundamentals side.

Bearish sentiment will continue to dominate markets following significant copper price declines on Monday, which will pressure LME copper prices down below their recently two daily moving averages. The US dollar, though, will suffer technical resistance and keep posting weak performance ahead of the US Federal Reserve meeting, which can cap downside room for LME copper. As such, SMM believes LME copper prices will move between USD 7,980-8,080/mt during Tuesday's Asian trading session. Chinese stock markets will test support at the 5-day moving average and come under pressure at 2,400. SHFE copper prices will move feebly after a low open, while SHFE 1207 copper contract prices will lurch in the RMB 57,000 -57,700/mt range. Spot copper discounts are estimated between negative RMB 80-0/mt versus SHFE 1205 copper contract.