SMM Morning Review - 2012/6/7 Copper Market

SHANGHAI, Jun. 7 (SMM) – On Wednesday, the European Central Bank (ECB) announced to keep both interest rates and economic growth expectations unchanged. The US later released the Beige Book, saying the US economy was still growing at a slow pace, and following this, Dennis Lockhart, the president of the Atlanta Federal Reserve Bank, said that should the US economy continue to move feebly or Europe's debt problems trigger more financial turmoil, the Federal Reserve (Fed) may need to consider introducing more loose monetary measures. This raised market speculations over more quantitative easing. Besides, the European Union (EU) and Germany were making an urgent plan to rescue Spain's banking sector, and the plan could be introduced as early as the beginning of July. The plan requires less austerity measures for Spain, which does not need to accept close supervision from its lenders either, with the rescue fund at least amounting to EUR 80 billion. In this context, investors saw a glimmer of hope to solve the European debt crisis and boosted market sentiment. As a result, French, German, and British stock markets surged by 2.4%, 2.1%, and 2.3%, respectively, while the euro soared by nearly 1% to 1.25. The Dow Jones Industrial Average and the Standard & Poor's 500 Index registered the biggest intraday gain thus far this year, up 2.36% and 2.3%, respectively. The US crude oil recouped the USD 85/bbl mark, helping lift LME copper prices. Coupled with the fact that some US and European investors were eager to buy at the lows, LME copper prices advanced all the way, touching a high at USD 7,477/mt before finally settling at USD 7,463/mt, up significantly by over 1.7%.  

Despite the ECB's move in maintaining interest rates unchanged and easing worries over the Spanish issue, there is still much uncertainty ahead of the Greek election. The US dollar index is likely to make corrections following the previous day's considerable losses, which can pressure LME copper down below USD 7,500/mt. As such, SMM expects LME copper will fluctuate narrowly between USD 7,440-7,500/mt during Thursday's Asian trading session. The Shanghai Composite Index still faces great resistance at the 5-day moving average. SHFE copper will keep lurching after a high open, and position closings will continue to push prices up, with smaller rising room anticipated than the LME. SHFE 1209 copper contract will hover in the RMB 54,200-54,800/mt range. Spot copper premiums are estimated to slide to positive RMB 200-280/mt versus SHFE 1206 copper contract.