SMM Copper Market Morning Review (2012-10-22)

SHANGHAI, Oct. 22 (SMM) – The financial market met a "black" Friday last week. Song Guoqing, member of the Monetary Policy Committee of the People's Bank of China (PBOC), said that as domestic inflation rate has decreased noticeably, and since the economy for some time in the future will not experience considerable ups and downs, the central bank should avoid exert excessive intervention in monetary policy, and all control measures should follow the economic cycle, in order to play the role of macroeconomic stability. Chinese media then cited the official's statements that both YoY and MoM growth of current CPI are low and leaves enough room for stimulus measures for the economic fields and also allows some space for monetary policy. Besides, SHFE copper stocks were reported to increase appreciably, which raised market concerns over Chinese economic growth. In response, investors continued cutting current positions cautiously. Moreover, the EU summit failed to yield any progress at the last day. Confronted with Germany's attacks and doubts, some countries with France as the head had to acknowledge that the European Central Bank (ECB) cannot fulfill the target of supervising all Eurozone 6,000 banks in early 2013. European leaders said they can complete formation on related law frameworks of the bank supervising mechanism by the end of this year and gradually implement them during the whole year of 2013. European leaders also agreed that the bank supervisory institution can take effect in 2013, an indication that Europe is making a step forward toward a single bank supervisory institution and also opening the door for the Eurozone rescue funds to directly inject money into troubled banks. However, European leaders did not at the summit make detailed plans on the amount of banks included in the supervision and the right of the ECB. Hence, investors were still cautious and dragged the euro significantly down, which sent crude oil and gold plunging by 2.2% and 1.2%, respectively. The US economic data also came in unfavorable, with existing home sales for September only at 4.75 million units, lower than the previous 4.82 million units. In addition, financial repots of some large enterprises including General Electric Company, Microsoft, and Mac McDonald were poor and caused major stock indexes of US equity markets to register the largest daily decline since June, with the Dow Jones Industrial Average and Nasdaq Composite Index down by 1.5% and 2.19%, respectively. As a result, LME copper prices cannot gain buying support and extend losses during the US and European trading session, falling below the key USD 8,000/mt psychological point before settling at USD 7,992/mt, a drop of nearly 2.6%.

Bearish sentiment in markets is piling up, while uncertain factors are increasing in Spain. The euro thus suffers a risk to fall. LME copper prices continued fluctuating weakly after starting down and are expected to move between USD 7,950-8,050/mt during Monday's Asian trading session. Chinese domestic markets will extend declines. SHFE copper prices will open down and SHFE 1301 copper contract will hover in the RMB 57,500-58,200/mt range. In spot markets, as SHFE copper prices dip, hedged copper will flow into markets and add to supply. Spot copper discounts are estimated between negative RMB 50-150/mt versus SHFE 1211 copper contract.