SMM Copper Market Morning Review (2012-10-24)

SHANGHAI, Oct. 24 (SMM) – Negative news continued to pile up Tuesday. Spain's borrowing costs increased after Moody's slashed credit ratings of the country's five regions, and business morale in France's manufacturing sector slumped to its lowest in over two years. Investors' risk aversion thus grew and they favored the US dollar, which was directly driven higher towards 80, exerting pressures to commodity markets. Besides, markets were knocked by a set of disappointing company earnings reports while remaining worried over Spain's capacity in overcoming its sovereign debt crisis and global economic growth outlook. 3Q profits at large US manufacturing companies came in lower than expected, and stock prices of both 3M and DuPont slipped owing to poor earnings. Unfavorable economic figures released in the evening further depressed markets, with the US Richmond Fed Manufacturing Index for October reported at -7, in contrast with market expectation and the previous data of 4. In response, the US and European stock markets, and the financial market slumped continuously, with the Dow Jones Industrial Average down 1.82% and the Standard & Poor's 500 Index closing down 1.44%. European stock markets settled 1.7% lower, gold prices dipped 1%, and crude oil prices plunged 2.2%. The Fed started its two-day monetary policy meeting, and investors kept cautious before the Fed announced its policy decisions. Therefore, extended the previous trading day's declines, LME copper prices retreated further to USD 7,807/mt after falling below the 60-day moving average, and finally ended at USD 7,853/mt, a drop of 1.2%.

The European Commission approved that 10 Eurozone countries can first introduce financial transaction tax, which can provide some rising momentum for markets. But the focus will turn to the HSBC China manufacturing PMI data, which is anticipated by markets to remain below the 50 mark. Even if LME copper prices can stop falling, they will still suffer relatively great pressures and will likely move between USD 7,800-7,900/mt during Wednesday's Asian trading session. Chinese stock markets will remain weak. SHFE copper prices will lower and test support at the 60-day moving average after starting down, and SHFE 1301 copper contract will hover in the RMB 56,100-57,000/mt range. In spot markets, as SHFE copper prices extend losses, hedged traders will make profit-taking. Moreover, since domestic copper prices are resilient, the SHFE/LME copper price ratio will increase and increase spot copper supply. Hence, spot copper discounts are unlikely to narrow, between negative RMB 20-150/mt versus SHFE 1211 copper contract.