SHANGHAI, Jun. 3 (SMM) –
Last week, markets lacked major macroeconomic news, but US economic data was upbeat, triggering expectations that the US Federal Reserve may trim the current QE3 program. In response, US stocks fell initially but later rebounded. The US dollar index fluctuated more widely and broke through 84, but fell back below 83 at the week’s end, dragged down by US jobless claims and downward revision in GDP figures. The IMF lowered its forecast for China’s economic growth, weighing down demand for commodities. The restart of operations at one Indonesian copper mine exacerbated the current surplus of copper, so LME copper prices met resistance at USD 7,380/mt, but found support at USD 7,200/mt, with the proportion of canceled warrants surging to 38%. LME inventories are expected to continue falling, but should give more support to LME copper prices, which are current weak and volatile compared to other base metals.
The Shanghai Composite Index rebounded last week by 1.3%, but failed to help SHFE copper prices, which fell to as low as RMB 51,790/mt after SHFE copper prices lost 1%. Trading volumes grew to nearly 300,000 lots and total positions surged by nearly 20,000 lots by the end of the week.
Copper prices will continue to fluctuate in the coming week. Major US economic data, including revised Q1 GDP and initial jobless claims, fell short of expectations and helped push down the US dollar index from 83.70 to 82.98. US home sales, however, beat forecasts. Markets are now focused on whether or not the US Federal Reserve will ease QE3. The US economy is expected to continue to grow, but the US dollar will remain strong. For the week ending May 21st, investors had increased positions of the US dollar to the record high from June 2008. US durable goods and job figures released this week will reflect US economic growth, heavily influencing copper prices.
The OECD further lowered its forecast for euro zone economic growth in its Economic Outlook report, down from a 0.1% contraction, to a drop of 0.6%. The report also pointed out that ongoing austerity policies, fragile market confidence and credit tightening will jeopardize the euro zone economy, and called upon the European Central Bank to take additional measures to stimulate economic growth. The report stated the long-term euro zone recession will also jeopardize the global economy and that unemployment rates in the euro zone will rise, but remain steady throughout 2014. Although the euro is current stable, it will face increasing downward pressure and drag down commodity prices.
Crude oil prices remain volatile, but gold prices rebounded slightly. Reuters reported on May 30th that Freeport McMoRan Copper & Gold workers will not return to work at its open pit mines until inquiries of the recent tunnel collapse are completed. Freeport has had turn to international financial markets to fulfill shipment contracts during the near-two-week disruption. The work stoppage at the Freeport mine will give support to copper prices, however, with LME copper price expected to remain around USD 7,300/mt.
The People’s Bank of China issued the seventh round of Central Bank Bills for the year on May 31st by price bidding, while also executing asset repurchasing. The PBOC issued RMB 15 billion in three-month Central Bank Bills and implemented RMB 13 billion of 28-day repurchasing. RMB 19 billion in Central Bank Bills were issued on May 28th, with RMB 11 billion to be hedged. The bill issues and repurchases last week resulted in a new withdrawal of RMB 17 billion, but with open market operations injecting a net RMB 130 billion during May. These operations are an indication of the central bank’s focus on fine tuning the economy and maintaining stable market liquidity. SHFE copper price should move around RMB 52,500/mt, challenging RMB 53,000/mt.