SMM Morning Review - 2012/7/13 Copper Market

SHANGHAI, Jul. 13 (SMM) – Market hope over near-term stimulative action from the Federal Reserve (Fed) was dented overnight, while investors expected that Friday's Chinese economic data would remain pessimistic, propelling them to cut positions for risky assets but buy the US dollar as a safe-haven. In response, the US and European stock markets closed down amid capital withdrawal. Besides, South Korea's central bank also announced to slash its benchmark interest rate and exacerbated market concerns over a slide in Asian economic growth. In the euro zone, member states faced obstacles in gaining public support on policies to tackle the region's debt issues, while German has to wait for a few months to decide whether or not the euro zone bailout fund is in line with the country's laws. Furthermore, people in the capital Madrid carried out violent protests immediately after Spain introduced new austerity measures. Coupled with the fact that deposits at the European Central Bank overnight dropped to a fresh 7-month low, an indication of further interest rate cuts, uncertainty in the euro zone prospects was gradually piling up, which sent the euro plunging to a new low in two years amid a climbing US dollar index. LME copper marched lower in step with the euro, down to a low of USD 7,465/mt during this week. Nonetheless, at the tail of trading, the US announced that initial jobless claims fell to 350,000 last week, below 370,000 anticipated by markets, and helped LME copper rally from earlier lows. But LME copper still ended slightly down by USD 23/mt at USD 7,550/mt. In other news, the proportion of canceled warrants to total LME copper stocks rose further to 21.33% overnight, but market focus has gradually turned to China's economic figures to be announced Friday, and support from the fundamentals side for copper prices is gradually weakening.      

Moody's lowered Italian credit rating from 3A to Bbb2 this morning and caused the euro to retreat below 1.22. Combined with negative outlook on China's economic data release Friday, LME copper faces the risk to fall further, with prices expected between USD 7,460 -7,560/mt during Friday's Asian trading hours. The Shanghai Composite Index will suffer resistance at the 5-day moving average. SHFE copper prices will hover around RMB 55,000/mt, and SHFE 1210 copper contract will lurch in the RMB 54,700-55,300/mt range. In spot markets, the SHFE/LME copper price ratio will continue to improve and imported copper will flow into markets, which will keep spot copper premiums between positive RMB 20-100/mt ahead of the delivery for SHFE 1207 copper contract.