SMM Morning Review - 2012/7/24 Copper Market

SHANGHAI, Jul. 24 (SMM) – Spain's central bank said Monday that Spain's economy in 2Q was more mired in recession, which heightened market fears that Spanish financial crisis may exacerbate rapidly and force the country to become the fourth euro zone member state to seek a full bailout. This may exhaust the bloc's resources to fight against its debt crisis, and drove Spain's 10-year bond yields near 7.5%, the highest level since the euro was introduced. In response, risk aversion grew swiftly and caused European stock markets to tumble by 2.5%, a fresh three-week low, while crude oil prices plunged by 4%. LME copper prices thus fluctuated weakly at the lows during Monday's early US and European trading session, down to as low as USD 7,360/mt. At the tail of trading however, the International Monetary Fund (IMF) denied reports it would not further provide aid for Greece, which helped the euro rally from two-year lows. In consequence, LME copper prices pared some of daily declines, and returned above USD 7,400/mt before finally settling at USD 7,434/mt.

Moody's slashed Germany's 3A credit rating and placed a negative outlook this morning, but Spain has put a ban on short-selling of all securities for three months. Italy also introduced a ban on short-selling of bank insurance stocks for one week. This means that the euro has limited downside room and is expected to mainly fluctuate. Markets have gradually shifted their focus to the HSBC manufacturing PMI index to be announced Tuesday. Hence, LME copper may come under pressure again and move between USD 7,350-7,450/mt during Tuesday's Asian trading session. Chinese stock markets will extend weakness. SHFE copper prices will therefore lurch feebly after starting down, but if the PMI data comes in as market anticipated, shorts may leave the market in the afternoon and help prices rally from earlier lows. SHFE 1211 copper contract prices will hover in the RMB 53,500-54,400/mt range. Spot copper offers are estimated between premiums of positive RMB 80-200/mt versus SHFE 1208 copper contract.