SMM Copper Market Morning Review (2013-4-15)

SHANGHAI, Apr. 15 (SMM) – US economic indicators announced last Friday were downbeat. The US retail sales in March dropped to the lowest in nine months. Consumer confidence index for April fell far short of forecasts. Its PPI hit a 10-month low, while its business inventories increased only 0.1% MoM in February, which is below expectations. These disappointing figures dampened market sentiment. As a result, the US dollar index staged a strong rally, causing US stock markets to close down. Cyprus plans to sell 400,000 mt of gold, while Goldman Sachs lowered forecasts for gold prices in 2013, stimulating shorts to aggressively increase positions and sending gold and silver prices down by more than 5%. LME copper plummeted along with commodity prices below USD 7,400/mt, with its low-end price at USD 7,375/mt. Finally, LME copper shed over 2.2% to close at USD 7,428/mt.  

The US retail sales in March slipped 0.4% MoM to USD 418.28 billion due to falling gasoline prices. Sales from catering, online shopping and furniture, in contrast, increased. The preliminary reading of the University of Michigan Consumer Sentiment Index for April slid 6.3 percentage points from the final reading of March to 72.3, its lowest since last July. The unexpected slump in labor market in March and uncertainty from the US Federal Government’s fiscal policies are the major reasons behind the decline in consumer confidence index. As much as 32% of people surveyed believe the US unemployment rate will rise compared with current levels at the end of this year, while only 24% expect unemployment rate to fall sharply. A mere 9% of people surveyed are satisfying with existing fiscal policies. The March PPI was -0.6%, below the previous reading and forecasts.   

The Eurogroup meeting was fruitful as aid package to Ireland and Portugal has been extended, progress has been made in banking alliance and Cyprus basically confirmed bailout funds. In response, the euro reversed losses by rising to near 1.31. However, Cyprus’ plan to sell gold sent international spot gold prices down by nearly 5% last Friday to a low of USD 1,481/oz. Gold prices shed 6% last week, the biggest weekly decline since December 2011. Brent crude oil also fell to a nine-month low at USD 101/barrel.

The central parity rate of the RMB against the Us dollar was 6.2506 on April 12, up 91 basis points from the previous day and a new record high. This is a sign that more foreign capital is flowing into China. According to China’s central bank, China’s foreign exchange reserve increased nearly USD 130 billion in 1Q this year. Funds Outstanding for Foreign Exchange also rose by RMB 295.43 billion in February. The Standing Committee of State Council decided to further expand pilot program of replacing business tax with value-added tax (VAT). VAT pilot program in transportation and some modernization services will be implemented nationwide starting in August 1 this year. VAT pilot project will also be implemented in rail transportation and postal telecommunication industrial as appropriate. 

Investors are eyeing China’s GDP due today. LME copper should test support at USD 7,400/mt, with prices between USD 7,400-7,480/mt during the Asian trading hours on Monday. The Shanghai Composite Index will stop falling. SHFE 1308 copper contract prices should move within RMB 54,000-54,800/mt after a low opening. In spot markets, cargo holders will refrain from selling at discounts since SHFE 1305 copper contracts will become the new current-month contract tomorrow. Spot copper premium should be limited at RMB 0-80/mt due to oversupply pressure.