SMM Copper Market Morning Review (2013-7-25)

SHANGHAI, Jul. 25 (SMM) – HSBC’s flash China manufacturing PMI for July slipped to 47.7. However, this was offset by positive manufacturing PMI from the euro zone and the US, helping base metals prices rebound. LME copper surged to USD 7,119/mt overnight, but gave back earlier gains at the tail of the session due to a firmer US dollar. Finally, LME copper closed USD 32/mt lower at USD 7,016/mt.

US new home sales jumped 8.3% to 497,000 in June, the highest since May, 2008. The surge in new home sales will boost housing construction and home prices, thereby spurring the US economy. The US manufacturing PMI for July was 53.2, also beating forecasts. These upbeat figures signal strong recovery in the US economy, but also raised expectations that the US Federal Reserve may begin to taper off QE3 in September. As a consequence, US 10-year bond yields rose, pushing the US dollar index higher while weighing commodity prices down.  

The euro zone’s flash manufacturing PMI for July climbed to 50.1, the highest since May, 2011 and marking the first time in two years that the index rose above 50. Germany’s flash manufacturing PMI for July hit a 5-month high at 52.8. Flash manufacturing PMI in France, though still below 50 at 48.8 in July, did cap forecasts and hit a 17-month high, suggesting recovery in the country’s economy. Eurozone business expectations index jumped to a new 3-month high at 56.9 in July, implying enterprises in the euro zone are optimistic over economic outlook. These positive indicators drove the euro higher, providing upward momentum to base metals prices. 

HSBC’s flash China manufacturing PMI for July was worse than forecasts, sending commodity and stock markets plunging. Later, a spokesman of the Ministry of Industry & Information Technology (MIIT) said the MIIT and National Development & Reform Commission (NDRC) are working on measures to invigorate enterprises. This indicates the Chinese government may introduce more economic stimulus in the second half of the year, easing market worries and helping base metals prices rally. 

The US dollar index closed 0.33% higher, while the euro lost 0.17% against the US dollar. US stock markets were mixed, while European stocks rose across the board. Asian shares mostly closed with declines. LME base metals prices fell, except aluminum and nickel.

Asian investors will refrain from buying following the pullback in LME copper overnight, keeping LME copper within USD 6,970-7,050/mt during Thursday’s Asian session. China’s A-shares will consolidate at high levels, and SHFE 1311 copper contract will move within RMB 50,200-50,800/mt. In spot market, cargo holders will hold offers not as firm as before on the last day of the delivery of copper signed on a long-term basis. Spot premium of RMB 150-350/mt is expected over SHFE 1308 copper contract prices.