SHANGHAI, Jul. 16 (SMM) – A slowdown in the Chinese economy and worse-than-expected industrial value-added in China sparked worries over demand in the world’s top metal consumer. The US retail sales in June missed forecasts, but were partly offset by better-than-expected earnings reports of Citigroup. As a result, S&P gained for an eighth straight day. LME copper slipped to USD 6,900/mt before closing at USD 6,939/mt, down USD 14/mt. Citigroup and MBL cut their forecasts for base metal prices yesterday, citing slowing growth in emerging economies including China. LME copper positions fell more than 6,500 lots to less than 300,000 lots, presaging possible declines in prices for the immediate term.
China's Q2 GDP released during Asian trading hours rose by 7.5% YoY, in line with market expectations, briefly supporting Asian stocks to rise, but falling at noon due to market concerns over slowing China's economic growth. 5.9 percentage points of growth were contributed by investments, much higher than the 2.3 percentage points in Q1, triggering concerns that China is adjusting economic structure so that economic growth sustainability will decrease. JP Morgan and Nomura also lowered China's GDP growth expectations this year.
A series of negative news was reported from Europe and US. Fitch downgraded the rating of (European Financial Stability Facility) EFSF from AAA, to AA+, as French credit rating was downgraded recently; US June retail sales were 0.4%, lower than 0.7% expected and 0.6% in May. Many investment banks lowered expectations for US Q2 GDP growth, but as New York Fed's manufacturing index in July hit a 5-month high and due to positive earnings report of Citibank, US stocks continued to rise.
US stocks rose, and Standard & Poor's 500 index hit a new high; LME base metals prices generally dropped, with LME aluminum and tin leading declines.
The cut in forecasts for base metal prices by Citigroup and MBL will expose LME copper to downward correction, with prices expected between USD 6,850-6,960/mt during Monday’s Asian session. SHFE 1311 copper contract will drop to RMB 49,300-50,000/mt after a flat opening. In spot market, cargo holders will be eager to sell to generate cash. Spot premium of RMB 0-100/mt is expected over SHFE 1308 copper contract prices.