SMM Copper Market Morning Review (2013-4-24)

SHANGHAI, Apr. 24 (SMM) - Germany’s private sector shrank for the first time in five months in April, indicating the country’s economy may shrink again following recovery in Q1. This sent the euro down sharply. The US manufacturing slowed to a six-month low in April. These discouraging figures aggravated concerns over demand for base metals. Base metals prices, however, did not drop sharply as investors are expecting the ECB to cut interest rate against worsening economy. Meanwhile, positive earnings reports of major US companies, growing new home sales in the US in March and decline in Spain and Italy’s government bond yields also helped appease bearish mood. The Dow Jones closed 1% higher, and the European stocks also finished up 2.4%. LME copper saw increased buying at USD 6,800/mt and finally ended the day at USD 6,812/mt.  

The preliminary reading of HSBC’s China April manufacturing PMI was 50.5, well below the forecast of 51.5, driving the Shanghai Composite Index below 2,200 points. The euro zone’s flash composite manufacturing PMI recorded a reading of 46.5, level with the previous reading, but pointed to a four-month low. The manufacturing, services and composite PMI of Germany all fell below 50 to a six-month low. It is widely believed that the ECB will cut interest rate next week, sending the euro against the US dollar below 1.3 and bolstering US stocks. The US flash manufacturing PMI slipped to 52 in April, the lowest in ten months. These are signs that global manufacturing activity slowed.  

European Commission President Jose Manuel Barroso said Monday the austerity policies of the EU in recent years have reached their limit in fighting the financial crisis. Since the European Commission has the right to decide whether ore not euro zone members should relax on their austerity, his remarks raised hopes for easing policy in the euro zone.   

The US dollar index gained 0.5% to above 83. With the exception of lead, all base metals on the LME fell. 

Markets are now expecting the ECB to lower interest rate. LME copper should rebound to USD 6,800-6,920/mt during the Asian trading hours on Wednesday following sharp declines earlier. The Shanghai Composite Index will remain weak, while SHFE 1308 copper contract will likely track LME copper up to RMB 48,700-49,700/mt. In spot markets, cargo holders will sell at highs. Middlemen who entered the market yesterday for arbitrage will also be willing to sell. As such, spot copper supply will be ample, causing spot copper premiums to narrow to RMB 100-200/mt against SHFE 1305 copper contract.