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SMM Copper Market Morning Review (2013-6-17)
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SHANGHAI, Jun. 17 (SMM) – The International Monetary Fund lowered its forecast for US economic growth in 2014 and urged the US Federal Reserve (Fed) to end monetary stimulus in a cautious way. A report from the WSJ claimed that Fed Chairman Bernanke might emphasize during the upcoming FOMC press conference that even if the Fed will scale back QE3, it will be done in a gradual way and that the Fed will probably fine-tune its easing monetary policy instead of end it abruptly. This helped alleviate concerns that the Fed will exit QE3 ahead of its policy meeting due to be held tomorrow. On the other hand, US economic figures were depressed. Industrial output in May was level with April and Thomson Reuters/ University of Michigan's preliminary reading of Consumer Sentiment Index for June slipped from late May’s 84.5 to 82.7, weighing down US stocks. LME copper was mired during European session, and finally closed USD 29/mt higher at USD 7,091/mt.

University of Michigan’s initial June CCI for US fell to 82.7, but was still the second highest over the past eight months, and the figure in May was at the highest in nearly 6 years, but that does not mean consumers’ sentiment turned pessimistic. Sub-item index is expected to rise to 76.7 in June, the highest since November 2012; US May manufacturing output rose by 0.1% after sliding for two consecutive months; US capacity utilization rate in May was 77.6%, lower than 77.8% in the previous month or 77.8% expected. US consumer outlook is positive, but the manufacturing is sluggish due to reasons other than consumer demand. US manufacturing will be weighed down further in 2H if consumer spending slows.

The Fed will hold its monetary policy meeting during June 18-19, and will decide when to cut its USD 85 billion debt purchasing. US economic growth is relatively slow, and inflation rate is much lower than the 2% target set by the Fed. Besides, the International Monetary Fund (IMF) lowered its forecast for US economic growth in 2013 and 2014 on June 14, anticipating US economic growth will fall to 1.9% in 2013, and downgrading its expectations of US economic growth in 2014 by 0.3 percentage point to 2.7%. IMF anticipates inflation rate will remain mild next year, attacking the Fed’s intention to quit QE3. The US dollar index maintained downward track during the week ending June 14, and failed to rebound after losing 82.40. That may be because large investors pushed down the US dollar index.

The Athens Journalists' Union (ESIEA) decided June 13 a media strike over Greek public broadcasters should go on strike until Tuesday (June 18). Taking Greece’s 30% unemployment rate into consideration, the stability in the euro zone will hardly sustain for a long term.

According to the National Energy Administration, China’s power consumption in the industry sector in May grew 4.67%, which is nearly 3 percentage points slower than the previous month. China’s GDP growth in 2H will likely drop below 7%, and the likelihood is that the growth will slow to 7.4% in Q3, and fall further to 7.2% in Q4. China’s economic growth is slowing, as financing costs rise, it will be difficult for local governments to maintain construction projects, and this will affect fixed assets investments in the following months. But since Chinese government will unlikely release large scale stimulus policies in the near term.

In other markets, LME base metals ended in positive territory. Dow Jones Industrial Average lost 0.7%. London gold gained 0.33%. The US dollar index trimmed 0.04%.

Caution ahead of Fed policy meeting and concerns over demand in China caused by slowing growth in power consumption will keep LME copper in check with USD 7,060-7,120/mt during the Asian trading session on Monday. The Shanghai Composite Index will pull back, while SHFE 1310 copper contract will fluctuate in the range of RMB 51,200-51,700/mt. In spot market, although SHFE 1307 copper contracts will become the current-month contract tomorrow, large price gap between SHFE 1306 and 1307 copper contracts will make it difficult for cargo holders to hold offers firm. As such, with spot discount of RMB 0-120/mt is expected over SHFE 1306 copper contract prices. 

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