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

SHANGHAI, Jun. 6 (SMM) – Worse-than-expected employment in US private sectors in May will overshadow non-farm payrolls due to be released tomorrow. Investors are now wondering whether or not the US Federal Reserve (Fed) will end QE3 early. The Fed issued a report saying the country’s economy is growing at a weak-to-modest pace. This sent Dow Jones Industrial Average down 217 points and S&P to a new one-month low. On the other hand, Freeport-McMoRan Copper & Gold Inc.’s Grasberg copper mine remains closed, offering support to LME copper. LME copper tried to touch USD 7,500/mt, and finally ended USD 11/mt higher at USD 7,441/mt. Market focus has now shifted to US non-farm employment, China’s foreign trade data, industrial output and retail sales in May.     

US economic data released overnight was mixed. The number of US May ADP employment increased by 135,000, lower than expectations, with 138,000 contributed by the servicing sector, and with a decline of 3,000 in the manufacturing. US ISM non-manufacturing index in May improved from 53.1, to 53.7. The job market grew slowly due mainly to fiscal problems after US tax rate increase and government spending cuts. Investors' optimism towards the non-farm employment data decreased due to the sluggish ADP data, so base metals prices lost early gains.

PMIs in May in Italy, Germany and euro zone were all below expectations, with French PMI level with expectations, and UK PMI was better than forecast at 54.9. Euro zone revised Q1 GDP was also worse than forecasts, causing concerns of euro zone economic outlook, and dragging down European stocks markets. European central bank will decide its interest rate today.

Japanese Prime Minister Shinzo Abe unveiled the third arrow of Abe's "three arrow" strategy, including 10 reform measures. But the reforms lack details and power, and was below market expectations. The Nikkei thus plunged by 3.83%.

HSBC's May manufacturing PMI for China was 51.2, topping expectations, and the second lowest in 21 months. HSBC's May PMI for China was 50.9, the lowest since October 2012. China will face downturn risk in Q2 due to sluggish manufacturing and service.

The US dollar index inched down 0.25%. US shares shed more than 1%. The euro against the US dollar gained a meager 0.07%. Asian stocks were mostly down. LME base metals were mixed. 

Investors are cautious ahead of the announcement of US non-farm payrolls, which will keep LME copper within USD 7,380-7,450/mt during the Asian trading session on Thursday. The Shanghai Composite Index will remain high. SHFE 1310 copper contract will test support at RMB 53,000/mt, with prices between RMB 53,000-53,700/mt. In spot market, cargo holders will split over how much they are willing to sell. As a result, price gap among different brands of copper will widen and spot premium will fall. Spot discount of RMB 0-20/mt and premium of RMB 0-120/mt are expected over SHFE 1306 copper contract prices.