SMM Morning Review - 2012/7/12 Copper Market

SHANGHAI, Jul. 12 (SMM) – Copper markets relatively lacked guidance from macroeconomic news overnight. Spain's Prime Minister Mariano Rajoy announced a new round of austerity measures of EUR 65 billion to meet the latest deficit-reduction target reached with euro zone member states, including a rise in the standard value-added tax (VAT) rate from 18%to 21% and low VAT rate from 8% to 10%. According to these new austerity measures, Spain will also cut unemployment benefits, slash public servants' salary by around 7%, and save several billion euros through local governments' reforms. However, Germany's Constitutional Court postponed the approval for legitimacy of permanent ESM and the new financial pact, which stirred market doubts when the permanent euro zone bailout fund could be injected debt-troubled Spanish banks remains to be seen. Besides, several financial institutions lowered US economic growth for 2Q, while the latest Federal Reserve (Fed) meeting minutes revealed that only a small number of members saw the need to introduce more stimulative measures. Therefore, the Fed will not increase asset-purchases any time soon, and investors did not see any indication of a new round of stimulative measures either, helping the US dollar index rally from previous lows. US equity markets, though, closed with losses. Market focus gradually shifted to the FOMC's meeting minutes and this Friday's Chinese GDP data for 2Q, retail sales, new RMB loans, as well as fixed assets investments, keeping investors away from markets. As a consequence, LME copper met resistance at USD 7,600/mt following slight rebounds at the tail of trading, and finally ended at USD 7,573/mt, a slight gain of USD 72/mt, but failed to break this week's pricing range.  

Markets are quietly awaiting China's economic data releases, so currency markets will guide LME copper's price trends. The euro will remain weak in the face of worrisome economic situation in Spain which is unsure about when to win the bailout fund. As such, SMM believes LME copper may move between USD 7520-7,580/mt during Thursday's Asian trading session. The Shanghai Composite Index will give up some of the previous day's gains. SHFE copper prices will start higher before lurching, with SHFE 1210 copper contract expected in the RMB 55,000-55,600/mt band. In spot markets, the SHFE/LME copper price ratio will stabilize above 7.3 and propel cargo-holders of low-quality imported copper to move goods for cash. Spot copper premiums are estimated between positive RMB 20-100/mt versus SHFE 1207 copper contract.