SMM Morning Review - 2012/5/24 Copper Market

SHANGHAI, May 24 (SMM) – Unfavorable news piled up on Wednesday. The World Bank lowered its economic growth forecast for China this year to 8.2%, and urged China's central bank to rely on loose monetary measures that boosts consumption rather than state investment to lift the economy. Besides, there was news ahead of the EU summit that two euro zone officials said euro zone officials already reached consensus each country in the region must prepare an individual emergent plan to tackle a possible Greek exit. The unresolved European debt crisis could greatly restrict global base metals demand, so investors' fears increased and helped the US dollar break resistance at 82 while the euro slid further to a 21-month low. Crude oil prices retreated below 90 per barrel, and gold prices sunk by 1.8%. European stock markets slumped by 2%, and US equity markets also fell sharply with the Dow Jones Industrial Average siding directly toward 12,311. LME copper prices thus suffered sell-offs again, and dropped to USD 7,503/mt, the lowest in four and a half months amid rising trading volumes and positions. Although the US announced better-than-expected new home sales at the tail of trading and helped US equity markets and copper pare some of the losses, LME copper still closed at USD 7,559/mt and fell by nearly 3% during the day, leading the decline among base metals. In other news, LME copper stocks climbed further Wednesday, up by 1,725 mt, while the proportion of cancelled warrants to total LME copper stocks declined to 12.73%. This indicated the fundamentals side was having a very weak support for copper prices.

Overnight negative news will spread to Thursday's Asian markets, and the euro will fluctuate feebly. China will announce the HSBC manufacturing PMI data Thursday, and markets expect this data to remain below the 50 mark, which will trigger aggressive sell-offs from short investors. As such, SMM believes LME copper will test the previous day's lows and move between USD 7,500-7,640/mt during Thursday's Asian trading session. Chinese stock markets will meet increasing resistance at the 5-day moving average. SHFE copper will fall after starting down, and SHFE 1209 copper contract will hover in the RMB 54,000-55,000/mt range. Spot copper premiums are estimated between positive RMB 300-400/mt versus SHFE 1206 copper contract.