SMM Copper Market Morning Review (2013-6-4)

SHANGHAI, Jun. 4 (SMM) – Interruption of copper ore supply from a large copper mine in Indonesia will continue to lend support to copper market fundamentals. US ISM manufacturing fell unexpectedly in May, but failed to damp sentiment in base metal markets. This is because weaker economic figure eased worries that the US Federal Reserve will end QE3 soon. This sent the US dollar index below 83 while pushing the Dow Jones Industrial Average to the highest in four weeks. LME copper rose as a result, but met resistance at the 60-day moving average due to a lack of massive buying. Finally, LME copper closed up at USD 7,350/mt. Li Xiaojia, Executive Director of HKEx, announced that the release time of LME benchmark prices in Asia will be adjusted according to closing time of other major futures exchanges in Asia, effective June 3. Besides, LME pricing period will be shortened from 15 minutes to 5 minutes. 

The final reading of Markit's manufacturing PMI picked up to 52.3 in May, capping forecasts. However, US ISM manufacturing PMI slipped unexpectedly to 49. US construction spending rose 0.4% in April, also well below estimate. These figures suggest an uneven road to recovery in the world’s largest economy, weighing on commodity prices. On the other hand, disappointing data also alleviated worries that the Fed will bring monetary stimulus to an end early. The US dollar index shed 0.73% to below 83 as a result, helping base metals rebound across the board.  

Manufacturing PMI in the UK stayed above 50 in May. Manufacturing PMI in the euro zone, Germany, France and Italy also beat expectations, but was still below 50. The euro zone’s final reading of May manufacturing PMI was 48.3, indicating contraction for 22 months in a row, but did hit a fresh 15-month high and rose for the first time in four months. Manufacturing in the euro zone is shrinking at a slower pace. 

It was announced last Saturday that China’s official May manufacturing PMI was 50.8, higher than the 50 forecast and up 0.2 from April, pointing to expansion for an eighth straight month. This appeased worries from HSBC’s earlier announcement of flash China May manufacturing PMI, which dipped surprisingly to below 50. HSBC announced yesterday that China’s final May manufacturing PMI edged down to 49.2, the first contraction since last October. China’s services PMI was 54.3 in May, also down 0.2 percentage point from April. Manufacturing PMI announced by the National Bureau of Statistics and HSBC was inconsistent, signaling cloudy economic outlook in China and eating into gains of base metals. 
        
In other markets, the US dollar index lost 0.73% to a new 4-week low. US stocks closed up, with the Dow Jones Industrial Average up 0.92%. European shares inched down. The euro against the US dollar gained 0.62% to above 1.31. Asian shares generally closed lower. LME base metals ended in positive territory across the board.  

LME copper will rise, but will feel resistance at the 60-day moving average due to a lack of substantial buying, with prices expected between USD 7,320-7,800/mt during the Asian trading session on Tuesday. The Shanghai Composite Index will rally, which will send SHFE 1309 copper contract higher to RMB 52,800-53,200/mt. In spot market, cargo holders will be eager to sell at highs. Spot premium is expected to narrow to RMB 80-220/mt over SHFE 1306 copper contract prices due to ample supply.