SMM Copper Market Morning Review (2013-7-2)

SHANGHAI, Jul. 2 (SMM) – Economic data released by the US and Europe overnight were positive. Improving global manufacturing alleviated worries over demand growth. Manufacturing PMI in China was mixed. Some analysts say worries did ease some as China’s manufacturing was not as bad as expected. Manufacturing activity across the euro zone contracted at its slowest pace in 16 months in June. The Institute for Supply Management (ISM) announced the US manufacturing PMI was 50.9 in June, higher than the 50 estimate, strengthening confidence over the US economic recovery. The Mongolian government has not sent clear signals as to when it will allow exports of copper concentrate at Rio Tinto’s Oyu Tolgoi copper mine. A source with Rio Tinto said the delay of exports was due to political considerations as anti-privatization was reported in some parts of Mongolia, lending some support to copper prices. LME copper touched a high of USD 6,978/mt overnight and finally closed at USD 6,963/mt, up more than 3%. The proportion of cancelled warrants of LME copper surged to 56% and spot copper premium over LME copper turned into a discount of USD 19/mt, indicating improvement in market fundamentals.    

Economic data from Europe and US overnight was positive and pushed up stocks and commodity prices. US June ISM manufacturing PMI was 50.9, higher than 49 in the previous month and the expected 50.5. Boosted by the recovering property market, US construction spending increased by 0.5%, to USD 874.9 billion in May, a record high in four years. June PMIs in all euro zone countries rose except for Germany, with the final euro zone PMI recording 48.8, a record high in 16 months. PMIs in Italy, Spain and Greece also climbed to a 2-year high. In this context, stocks markets and commodity prices were drove up by strong long momentum.

But China's economic data released yesterday was mixed. China's official June PMI was 50.1, a record low for the year, which was mainly dragged down by new order index and production and operation activities index; HSBC's June PMI for China recorded 48.2, standing below 50 for a second consecutive month, with output index, new export order index and employment still sluggish. As China's capital crunch eased, the Shanghai Composite Index gained back losses at noon and closed up 1%.

The US dollar index fell by 0.21%, to 83; LME base metals prices closed with increases.

LME copper will encounter resistance at the 20-day moving average and USD 7,000/mt after rebounding, with prices expected between USD 6,850-6,990/mt during the Asian trading session on Tuesday. China’s A-shares will fall back, and SHFE 1310 copper contract will drift lower to move within RMB 49,500-50,300/mt after a high opening. In spot market, cargo holders will be anxious to sell at highs, but downstream producers will evince little buying interest. Spot discount of RMB 20-120/mt is expected over SHFE 1307 copper contract prices.