SMM Copper Price Forecast May 2-3, 2013

SHANGHAI, Apr. 28 (SMM) – Copper price fluctuations will increase in the coming week. The latest US job data was upbeat, but manufacturing activity is still sluggish. US Federal Reserve Chairman Bernanke commented on supervision of the financial sector during his speech to the FSOC, but did not expressed any viewpoint regarding US economic conditions or monetary policy outlook. US April ISM manufacturing, April Chicago PMI, US Conference Board CCI, US April ADP employment data, April’s unemployment and non-farm employment rates will all be released in the coming week, which many analysts expect to be mixed. US stocks are expected to rise and the US dollar index will fluctuate widely looking for direction. Crude oil and gold prices will continue to rebound, helping boost LME copper prices, but struggles between shorts and longs will cause price ranges to widen.

Uncertainties surround the German and French economies are growing as Germany’s economic situation worsens. Combined with ongoing Cyprus crisis and Italy’s political impasse, the likelihood of the ECB lowering interest rates is increasing. The March CPI for the euro zone and EU was 1.7% and 1.9%, respectively, down 0.1% from February levels. These indices mirrored the current low inflation rate in Europe, and when combined with continuously falling crude oil and gasoline prices, short-term inflationary pressure will be low. In this context, the ECB is expected to lower interest rates by 25 basis points in this coming week in order to  stimulate sluggish credit loans and ease debt pressure in peripheral countries. The euro will remain near the current 1.30 level, with shorts capitalizing on risk aversion capital to push down commodity prices.

LME copper prices should edge up to USD 7,000/mt, moving between USD 7,000-7,300/mt.

The SHFE/LME copper price ratio fluctuated sharply during in April, especially in the latter half of April when it fell from 7.30, to 7.15. The lower ratio was a result of a large number of shorts rushing into the market, and as copper prices fell, total positions in the SHFE continued to hit record highs, climbing to over 950,000 lots, or up 48.4%, from the 623,000 lots level last June and July when copper prices were also low. Shorts will now likely leave the market ahead of the holiday and cause significant price fluctuations. SHFE copper prices will be subject to LME copper prices during the coming week due to the three-day Labor Day holiday in China, with prices fluctuating between RMB 50,000 -52,000/mt. In addition, the People’s Bank of China recently implemented a RMB 18 billion 28-day repurchasing operation on April 25th through the use of interest rate bidding, with the bidding rate stabilizing at 2.75%, down RMB 25 billion from the same period a week earlier. A total of RMB 152 billion of capital came due last week to supplement cash flows, including RMB 62 billion repurchasing and RMB 90 billion in central bank notes, allowing a net injection of RMB 124 billion in capital. However, due to the large amounts of asset repurchasing and central bank bills coming due, the People’s Bank realized a net capital injection for the first time after withdrawing capital for nine previous weeks. The Standing Committee of the Political Bureau of the Central Committee’s recent meeting  emphasized the commitment to stable macroeconomic policies, but to allow for flexibility when implementing microeconomic policies. The meeting also emphasized the use of reliable social policies, as well as positive fiscal policies and prudent monetary policies, controlling inflation, as well as the sustainable and healthy development of economy.