SMM Copper Market Morning Review (2013-2-28)

SHANGHAI, Feb. 28 (SMM) – The president of the European Council Hermann Van Rompuy said on Wednesday that the worst has passed for the euro zone. The euro zone also announced mild economic data, with the economic and business confidence improving for four consecutive months in February. Meanwhile, Italian government bond auction result was successful following the country's general election. In this context, the euro marched higher, and the European stock markets closed 0.9% up. However, Italian parties' divergence over establishing coalition government capped the increase in the euro.

But the US economic figures came in mixed. The US Commerce Department reported the US durable goods orders were USD 216.98 billion in January, down sharply by 5.2%, larger than the expected 4.4%. The defense spending also saw the biggest decline in more than 10 years, and civilian airbus needs fell. Nevertheless, non-defense capital goods orders excluding aircraft increased 6.3%, the largest gain in more than one year. Besides, US existing home sales rose 4.5% MoM in January, the highest level since April 2010, and also above market expectation of 2%. At the same time, the US pending home sales index surged 4.5% MoM to 105.9 in January on a monthly basis, also the highest since April 2010, and up 9.5% on a yearly basis, offsetting some pressures brought by negative durable goods data.     

Market focus concerning Fed Chairman Bernanke's congressional testimony on economy and monetary policy also influenced the financial market. Bernanke indicated that the Fed would not exit the ultra-loose monetary policy over the short term while confirming the US economic growth. He pointed out that the Fed will continue discussing advantages and disadvantages of current policy and will only re-evaluate the policy if the unemployment problem saw no progress for a certain period of time. Nonetheless, some investors still feared the Fed would end monetary stimulus earlier than scheduled, which will depress construction sector and manufacturing activity. This will hurt copper demand. Furthermore, some investors were awaiting USD 85 billion government spending cut plan set to take place March 1, which kept market activity quiet.

Overall, LME copper remained in negative territory and hovered narrowly above the 5-day moving average, with a low at USD 7,846/mt, down slightly by USD 29/mt. In other news, LME copper stocks climbed further by 5,975 mt to more than 440,000 mt, but the proportion of cancelled warrants to total LME stocks already slipped to around 6%.

SMM believes that LME copper will keep fluctuating near current values, with prices between USD 7,830-7,920/mt during Thursday's Asian trading hours. SHFE copper prices will also see no major changes, and SHFE 1306 copper contract will hover in a range of RMB 57,300-57,800/mt. Shanghai spot copper discounts are estimated between RMB 150-250/mt versus SHFE 1303 copper contract.