SMM Copper Market Morning Review (2013-7-10)

SHANGHAI, Jul. 10 (SMM) – Worries over tepid demand growth in China are growing. The IMF lowered its forecast fro global economic growth in 2013 and 2014 to 3.1% and 3.8%, and projected that the Chinese economy will grow 7.8% and 7.7% this year and the next. Besides, the S&P unexpectedly downgraded Italy’s credit rating to BBB, driving the euro down. The US dollar index hit a new three-year high as a result, dragging commodity prices down. LME copper sank to USD 6,671/mt before finally closing at USD 6,756/mt, down over 1%, with growing resistance at the upper end.

ECB Executive Board member Jörg Asmussen said the ECB may keep interest rates low beyond 12 months, expanding upon remarks by ECB President Mario Draghi last week. This drove investors to take profits, causing the euro to fall. The S&P downgraded Italy’s sovereignty credit rating from BBB+ to BBB, sending the euro to a low intraday low. The exposure of corruption in Spain’s cabinet also weighted the euro down. 

The IMF cut its growth forecast for global economy during this year and next by 0.2 percentage point, citing a slowdown in economy of emerging countries and ongoing recession in the euro zone as its reasons. It now expects 2013 growth at 3.1% and 2014 growth at 3.8%. This is the fifth time in a row that the IMF cut its growth forecast for global economy.

Industrial output in the UK in May held level with April, but manufacturing output hit the biggest YoY decline since January. Trade deficit hit a record high since December 2012. As such, investors are anticipating that the Bank of England will expand QE further during the policy meeting on August 1. The US dollar index is thus expected to rise further. Negative news in Greece and Portugal will put downward pressure on the euro. The euro against the US dollar may slip to 1.2500 after retreating from 1.2800.

According to the National Bureau of Statistics (NBS), China’s CPI grew 2.4% YoY in 1H, and 2.7% YoY in June, up 0.6 percentage point from May. PPI, however, dipped 2.7% YoY, and was down 0.6 percentage point from May. The PPI still pointed to contraction, though falling at a slower pace. 

LME base metals all ended in negative territory. The US dollar index climbed 0.51%. London gold and silver prices gained 1.15% and 1.07%, respectively. China’s foreign trade in June is eyed today. Germany’s final June CPI is expected to hold flat with May. 

Investors are upbeat about upcoming China’s June trade data, but a strong US dollar will keep LME copper in check within USD 6,700-6,800/mt on Wednesday. China’s A-shares will inch up, and SHFE 1311 copper contract will move between RMB 48,200-49,100/mt after a low opening. In spot market, falling SHFE copper prices will prompt some cargo holders to sell, limiting upside space of spot copper prices. Spot premium of RMB 20-150/mt is expected over SHFE 1307 copper contract prices.