SMM Copper Market Morning Review (2013-11-1)

SHANGHAI, Nov. 1 (SMM) – The euro tumbled on disappointing European economic data, pushing the US dollar up. The ISM’s Chicago PMI rose to 65.9 in October, marking the best performance since March 2011. Positive PMI rekindled concerns that the US Federal Reserve may taper off QE3 sooner than expected. This drove the US dollar index above 80, sending crude oil and gold prices down. A stronger greenback also dragged base metals prices down. Strong corporate earnings reports and the Fed’s possible scale-back of bond-buying program kept investors on guard. LME copper was range-bound during the Asian session, closing USD 33/mt lower at USD 7,238/mt. LME copper inventories have dropped by 30% since the end of June and are expected to fall further till next March. The recent continuous declines in LME copper inventories and narrowing spot discounts are a sign of pickup in consumption, which will lend some support to copper prices in the future.  

Consumer confidence index for November and retail sales for September in Germany fell surprisingly, dampening economic recovery outlook in the euro zone. Inflation rate in the euro zone slid to 0.7% in October, while unemployment rate hit a record high of 12.2% in September, triggering speculation that the European Central Bank (ECB) will keep easing monetary policy in place or even cut benchmark interest rate. Downbeat economic data caused the euro to shed 0.99% to close at 1.3589, while the US dollar index gained 0.52% to end at 80.196.    

US initial jobless claims fell to 340,000 in the week ending October 26. The ISM’s Chicago PMI rose to 65.9 in October from 55.7 in September. New orders index rose from 58.9 to 74.3. This was at odds with Markit’s preliminary US manufacturing PMI for October, which slipped 1.7 percentage points from September’s 52.8, making investors worried about the final reading for October. This also led markets to expect ISM’s US October manufacturing PMI to fall 1.1 percentage points from September to 55.1. Divergent data may prompt investors to pull out of the market.       

The US dollar index rebounded by 0.66%, while gold prices lost 1.9%. Crude oil prices suffered a three-day losing streak, with the settlement price hit a 4-month low.

Market caution ahead of China October manufacturing PMI will keep LME copper in check within USD 7,220-7,280/mt during Friday’s Asian trading hours. The Shanghai Composite Index will be mired. SHFE 1401 copper contract, the most active one, is expected to fluctuate between RMB 51,600-52,200/mt. In spot markets, cargo holders will become less anxious to sell as the new month begins. However, liquidity will not increase substantially, so contango will narrow only slightly. A contango of RMB 20-140/mt is expected over SHFE 1311 copper contract.