SHANGHAI, Jun. 24 (SMM) –
Last week, LME copper prices moved lower as the US Federal Reserve announced it was keeping interest rates unchanged and would scale back its debt purchasing at the end of this year. Major US economic figures, including housing figures and construction permits, fell short of expectations. The IMF lowered its expectations for global economic growth in 2014, and the US dollar index to surge by 1.7%, to 82, while gold prices fell by 7.14%. US stock and commodity prices fell, with LME copper prices falling sharply from USD 7,200/mt, to USD 6,697/mt, a record low over the past 20 months, and with a weekly drop of 7%. Total positions and trading volumes were both down as well.
HSBC's PMI for China hit a 9-month low and China's power consumption fell sharply in May on a MoM basis, causing the Shanghai Composite Index to fall by 4% to below 2,100. SHFE copper prices continued to open low each day, following LME copper price trends, and falling to RMB 48,390/mt, a weekly decline of 6.9%. Trading volumes surged by 3 million lots and total positions increased by nearly 90,000 lots, with total positions hitting a high of 770,000 lots and short momentum dominating the market.
Copper prices should continue to fall this coming week. The US Federal Reserve announced it may begin to taper QE3 asset purchases, which negatively affected global financial markets. US stocks markets extended declines on June 20th, with European and Asian stocks, as well as gold prices falling across the board. US 10-year government bond yields rose by 11 basis points, to 2.425%, the highest rate since August 2011, while gold prices tumbled by 6%. The US dollar index soared by over 1%, pushing down commodity prices, with short-term selling pressure expected to further push down LME copper prices to USD 6,500/mt.
In China, capital costs hit record highs due to bond sell-offs. Rumors said Bank of China and Industrial and Commercial Bank of China had defaulted due to a failure in raising capital, but the two banks denied that rumor. In addition, commercial banks denied the People's Bank of China (PBOC) had injected RMB 400 billion into the market during the prolonged trading period. Wind reported that transactions for all 11 terms of pledge-style repurchasing, from overnight to 1-year terms, were made on June 20th, with trading volumes climbing to a record high of RMB 811.771 billion. Overnight and 7-day interest rates hit 30.00% and 28.00%, respectively, pushing up the weighted average cost of capital by 387 and 336 basis points, to 11.74% and 11.62%, and with both prices and increases 10-year record highs. The PBOC issued RMB 2 billion in 3-month Central Bank bills, but was unwilling to release further liquidity into markets. The RMB 40 billion of 6-month deposit biding for commercial banks was sold out, with a bidding interest rate of 6.50%, which was nearly 40 basis points below the 6-month repurchasing interest rate of 6.87%. Cash flow tightness will continue at the month's end, so, Chinese stock and futures markets will sell assets to generate cash, with the Shanghai Composite Index expected to fall below 2,000. SHFE three-month copper prices will test RMB 47,000-48,500/mt.