SMM Copper Market Morning Review (2013-1-21)

SHANGHAI, Jan. 21 (SMM) – Last Friday, the US and European markets continued absorbing favorable Chinese economic data, which showed the top consumer's economy is recovering mildly following a slowdown in more than two years. Moreover, it was reported that the House of Representatives would vote on raising the US debt ceiling issue a week later, despite political deadlock in Washington, offsetting the softer-than-anticipated US consumer sentiment in January and disappointing earnings report of Intel Corporation. In this context, the US dollar index rose above 80, while US equity markets swung between gains and losses with the Standard & Poor's 500 Index recording a fresh 5-year high again. LME copper prices increased along with the dollar, and climbed to a high of USD 8,130/mt. Nevertheless, the US later announced its consumer sentiment unexpectedly deteriorated for a second straight month to its lowest in over a year in January. Meanwhile, the European Central Bank Executive Board member Benoit Coeure said the central bank don't plan to begin pressing banks to start repaying funds borrowed in 2011 and 2012. This heightened market worries over an increase in the interest rate in the euro zone and dampened the euro. Coupled with downbeat comments from Italy's central bank over the country's economy in 2013, investors became more concerned towards the euro zone's outlook. The financial markets thus narrowed daily gains at the tail of trading, with LME copper settling at USD 8,088/mt, but still a slight gain of USD 30/mt.

Market sentiment has improved, but an US dollar rising above 80 should give pressures to copper prices. That, combined with possible profit-taking, indicates limited upside room in LME copper during Monday's Asian trading hours, with prices between USD 8,050 -8,120/mt. Chinese A-shares will extend rebounds. SHFE copper prices will start slightly higher before fluctuating at highs, and SHFE 1304 copper contract will hover in a range of RMB 58,200-58,700/mt. Shanghai spot copper discounts are estimated between RMB 120-220/mt versus SHFE 1302 copper contract.