SMM Copper Market Morning Review (2013-1-16)

SHANGHAI, Jan. 16 (SMM) – Statements given by US Treasury Secretary Geithner and President Obama on the debt ceiling Tuesday will weigh on copper markets Wednesday. Geithner warned Tuesday evening that the US government may suffer the borrowing limit issue in mid-February or early March, while Obama the same day urged the US Congress to raise the debt ceiling as soon as possible. Fitch then said that the US faced a "material risk" of losing its triple-A status if there was a repeat of the wrangling over raising the country's debt ceiling. In the euro zone, Germany's GDP grew by only 0.7% YoY in 2012, an indication that the country can not shake off the impact from the euro zone's debt crisis. Germany's GDP in the fourth quarter contracted by 0.5% QoQ, a drop for the first time in 2012. Investors doubted about continuous copper demand in the context of uncertainty in the European economic growth and the US borrowing limit issue. Combined with the release of Chinese GDP this Friday, investors continued slashing their positions. The US dollar, though, rallied for a safe-haven. LME copper prices thus extended declines in the early US and European trading session and dipped to a trough of USD 7,940/mt. However at the tail of trading, the US reported retail sales rose by 0.5% in December, the largest increase seen since September, which assured markets and helped LME copper narrow daily declines before closing at USD 7,989/mt, still down USD 19/mt. In other news, workers at Chile's Escondida, which belongs to BHP Billiton, will start to vote on a new contract proposal next week, and a union leader said voting will start from January 24 to 28. If workers again turn down the offer, they will go on strike after contracts expire. BHP declined to comment, and investors should continue to follow this issue. Meanwhile, the proportion of canceled warrants to LME copper stocks fell slightly as spot London copper discounts expanded further.

SMM believes that LME copper prices will move between USD 7,940-8,030/mt during Wednesday's Asian trading session. Chinese stock markets will fluctuate at high levels. Long and short investors on the SHFE will struggle around RMB 58,000/mt, and SHFE 1304 copper contract will hover in the RMB 57,700-58,200/mt band. Shanghai spot copper discounts are estimated between negative RMB 50-150/mt versus SHFE 1302 copper contract.