SMM Morning Review - 2012/5/22 Copper Market

SHANGHAI, May 22 (SMM) – Lifted by Chinese Premier Wen Jiabao's statements of giving more priority to maintaining growth, investors continued to increase long positions in the US and European trading session Monday. Besides, the number of voters supporting for the Conservative Party in Greece rose, while the Left-wing Party leaders were seeking ways to re-negotiate the bailout pact, which cooled market risk aversion. In response, the euro rallied above 1.28 and helped commodity markets extend strong gains. The US in the evening announced that the Chicago Fed National Activity Index increased by 0.11 in April, well higher than the previous reading. There were also rumors that the US Finance Department already granted the People's Bank of China the power to directly purchase US bonds. This caused US equity markets to close significantly up, with the Dow Jones Industrial Average posting the best performance in the past two months and the Nasdaq Composite Index soaring by 2.5%, boosting LME copper prices. However, LME copper prices registered cautious movements in the evening, mainly stabilizing and reaching to a high at USD 7,799/mt before finally ending USD 97/mt higher at USD 7,755/mt. Nevertheless, it was worth noting that LME copper stocks continued to increase sharply Monday, up by 3,200 mt. Moreover, according to CFTC reports, copper net longs among money managers fell by the largest amount since earlier April, meaning that copper prices may retreat again following corrections.

The euro will likely extend rebounds on slightly improved situation in Greece. But LME copper prices are facing resistance at the 10-day moving average following considerable increases on the prior day. Furthermore, Fitch this morning announced surprisingly it would release lay-off plan following the performance report for 2Q, which indicates that economy is pessimistic in the future and will cap market activity. Hence, LME copper will have marginal rebound room during Tuesday's Asian trading session, with prices expected between USD 7,710-7,830/mt. Chinese stock markets will challenge resistance at the 5-day moving average. China will announce Conference Board leading indicators for April this morning, and if the data is softer than market expected, copper prices will be pressured. SHFE copper prices will keep fluctuating after starting higher, and SHFE 1209 copper contract prices will move between RMB 55,500-56,500/mt. Spot copper premiums are estimated between positive RMB 200-250/mt versus SHFE 1206 copper contract.