SMM Morning Review - 2012/6/4 Copper Market

SHANGHAI, Jun. 4 (SMM) – Last Friday, markets continued to absorb China's soft economic figures which showed that China's manufacturing sector slowed further in May owing to deteriorating domestic and foreign demand. Meanwhile, the euro zone's manufacturing index was reported to slide to the lowest since June 2009, and manufacturing activity in the UK also contracted with the fastest pace in the past three years. Coupled with the fact that Germany's 2-year bond yields dropped below zero for the first time, investors opted to close positions for risk aversion during the early US and European trading session. Later, economic figures from the US all came in negative, with the personal consumption expenditure price index for April lower than both the previous data and market anticipation. The US nonfarm payroll also added only by 69,000 in May, well below market expectation, while the unemployment rate rose in May for the first time since last July. The US ISM manufacturing data was also softer than the prior reading and market estimation. In this context, risk aversion grew again amid investor worries over the global economy, although the US dollar index slid below the 83 mark due to heightening market speculation over QE3 measures. In consequence, commodity prices came under pressure, with Brent crude oil hitting a 16-month low. US equity markets tumbled by more than 2%, European stock markets slipped by 1.9%, and the US crude oil plunged by 3.8%. Gold prices, though, surged by 3.7% owing to a safe-haven. LME copper thus retreated all the way, dropping to a fresh low at USD 7,301/mt so far this year, but pared some of the losses at the tail. Finally, LME copper settled at USD 7,340/mt, a weekly decline of nearly 4%, and down for a fifth consecutive week. In other news, the proportion of canceled warrants to total LME copper stocks fell further, down to 8.71%.  

The LME market is closed for a bank holiday Monday. The Shanghai Composite Index will come under pressure at the 5-day moving average. Since LME copper fell considerably last Friday, SHFE copper will open noticeably down during Monday's Asia trading session and then fluctuate feebly without guidance from LME copper. SHFE 1209 copper contract should move in the RMB 53,500-54,300/mt range. Spot copper premiums are estimated between positive RMB 200-300/mt versus SHFE 1206 copper contract.