SHANGHAI, Jun. 25 (SMM) – Investors sold off base metals out of fear that economic slowdown and liquidity crunch in China will undermine metal demand in China, the world’s top metal consumer. Meanwhile, investors were also worried that the US Federal Reserve will wind down asset-buying program as the Fed’s debt-buying program has been supporting commodity for the past few years. Freeport McMoRan Copper and Gold, the world’s second largest copper ore supplier, stated yesterday that it has resumed open-pit mining operations at its Grasberg copper mine in Indonesia, which will put downward pressure on copper prices. LME copper inventories hit a 10-year high, highlighting oversupply pressure in copper market. The slump in China’s A-shares caused European and US stocks to close down as well. However, US and European stocks pared losses in a dramatic reversal after Federal Reserve officials made dovish comments on the heels of last week's Fed policy meeting, with the Dow Jones down 0.94% and European stocks closing 1.7% lower. LME copper narrowed losses at the tail of the European session, and finally closed at USD 6,705/mt.
“Money shortage” in China is the single largest reason behind the slump in financial markets yesterday. The Monetary Policy Committee of the People’s Bank of China (PBOC) held its 2Q conference for 2013. According to the conference, liquidity in China’s banking system is now within rational level and the PBOC will continue its prudent monetary policy, quashing hopes of further easing monetary policy. This, coupled with brief banking system failure in Bank of China and Industrial and Commercial Bank of China, triggered concerns over liquidity crunch in China and panic sell-off among investors. As a consequence, China’s A-shares plummeted 5.30%, with shares in financial and real estate sectors suffering the biggest losses. Goldman Sachs cut its forecast for China’s GDP growth in 2013 from 7.8% to 7.4%.
Minneapolis Federal Reserve President Narayana Kocherlakota said Monday that financial markets are wrong to view the Federal Reserve as having become more hawkish in its views on the need to tighten monetary policy, weighing down the US dollar index somewhat. Finance ministers failed to agree on common European Union rules for winding down troubled banks after more than 12 hours of talks that ran into Saturday's early hours, with no consensus reached over the issue of bearing bank losses. The ministers agreed to reconvene Wednesday in a further bid to thrash out a deal. EU Summit will be held on Thursday.
European and US stocks suffered heavy losses. LME base metals closed down across the board.
LME copper opened lower this morning, with sell-off dominating the market. Crude oil and gold prices are under downward pressure from a firmer US dollar. As such, LME copper will remain low at USD 6,620-6,720/mt during the Asian trading session on Tuesday. China’s A-shares will continue to fall, and SHFE 1310 copper contract will move within RMB 47,800-48,500/mt after a low opening. In spot market, supply will grow as traders will be in a hurry to sell against tight cash flows and spot premium of RMB 50-150/mt is expected SHFE 1307 copper contract prices.