SMM Copper Market Morning Review (2013-7-29)

SHANGHAI, Jul. 29 (SMM) – The Chinese government called for reduction of overcapacity in heavy industries, compounding worries over slowing Chinese economy and manufacturing activities. The Ministry of Industry & Information Technology (MIIT) released the list of enterprises that need to eliminate outdated capacity, involving ferroalloy, steel making, sheet glass, paper making, leather making and lead storage battery sectors. China’s economic restructuring will undermine base metal demand for the short term. On the other hand, shutdown of outdated metal capacity will lift base metals prices in the long run. US Consumer Confidence Index jumped to a new 6-year in July, but US budget issue is heating up. The US dollar index fell along with commodity markets, whereas US stock markets closed up. LME copper tumbled to USD 6,837/mt before closing at USD 6,855/mt, down more than 2%. Some believe the decline in copper prices is due largely to elimination of outdated capacity in China. SMM, however, understands that the drop in copper prices is caused mainly by several major banks’ pessimism over global economy and technical resistance. Copper prices will remain under downward pressure for the near future.     

Base metals prices were affected by concerns over China's demand. The list of outdated capacity elimination in 19 industries was released, and the market was concerned slower Chinese economic growth and sliding manufacturing will reduce demand for base metals. Besides, investment banks are selling spot base metals, and JP Morgan announced last Friday it would seek for strategic substitute for spot commodity business, including selling and quitting spot commodity business, or implement strategic cooperation with those business, which pushed down base metals prices.

University of Michigan's July CCI was 85.1, a record high since March 2007, but this did not boost the US dollar index as the market took a wait-and-see attitude if stimulus policies will be enhanced due to Japan's rising inflation data. The US dollar against JPY dropped by over 1%.

European and US stocks were mixed, with US socks remaining strong. LME base metals prices mostly fell.

Profits at large industrial enterprises in China grew over 10% YoY in H1, though the growth slowed some. Growth in June slowed to 6.3% from 15.5%. This will put downward pressure on copper prices. LME copper will move within USD 6,780-6,880/mt during Monday’s Asian session. SHFE 1311 copper contract will vacillate between RMB 48,800-49,800/mt after opening lower. In spot market, cargo holders will cut offers due to falling SHFE copper prices and tightening liquidity. Spot premium of RMB 50-250/mt is expected over SHFE 1308 copper contract prices.