SMM Copper Market Morning Review (2013-4-26)

SHANGHAI, Apr. 26 (SMM) – High unemployment rate in Spain highlighted gloomy economic outlook in the euro zone. On the other hand, the UK economy grew 0.3% in Q1, beating forecasts and pushing European stocks up 0.8%. The US initial jobless claims dropped more than expected to 339,000 in the week ended April 20. These inspiring figures coupled with satisfying earnings reports sent the S&P 500 up 0.4%. A weaker US dollar also lent support to gold and crude oil prices. In response, LME copper closed over 2.9% higher at USD 7,200/mt. LME copper positions surged 8,632 lots, due to dip-buying and sell-off at highs. As such, investors should be cautious that sell-off may occur before and during the Chinese May Day holiday.

Preliminary annual UK GDP data for Q1 2013 pointed to a 0.6% increase, well above the forecast of 0.3%. This eased worries that the UK’s sovereign credit rating will be downgraded by the S&P following earlier downgrade by Moody’s and Fitch. As a result, the GBP rebounded significantly against the US dollar.

Following Portugal’s stimulus plans, new Italian Premier Enrico Letta claimed austerity should be relaxed soon and announced system reform and plans to increase employment. Goldman Sachs said the ECB may probably lower major financing interest rate by 25 basis points during its interest rate meeting in early May.

The Standing Committee of the Political Bureau of the CPC Central Committee pointed out yesterday that expansion of highly-polluting and energy-intensive industries should be strictly controlled and industrial transformation and adjustment of overcapacity industries should be accelerated. Yuan Xilu, Deputy Director of the NDRC, said plans for urbanization will likely be introduced in the first half of this year. 

Encouraging economic data will push LME copper up, but gains will be curbed during the Asian trading hours due to risk aversion before the holiday. LME copper should move within USD 7080-7,280/mt during the Asian trading session on Friday. The Shanghai Composite Index will hover around 2,200 points, while SHFE 1308 copper contract will open higher today, with prices expected to fall to RMB 51,000-52,000/mt as longs and shorts will exit the market before the upcoming public holiday. Spot copper premiums are expected between RMB 130-230/mt against SHFE 1305 copper contract.