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SMM Copper Market Morning Review (2014-3-20)
Mar 20,2014 10:16CST
price review forecast
Source:SMM
LME copper prices swung sharply Wednesday as the Fed’s decisions on interest rates surprised the market.

SHANGHAI, Mar. 20 (SMM) – LME copper prices swung sharply Wednesday as the Fed’s decisions on interest rates surprised the market. A majority of Fed officials agreed to raise the fed funds rate in 2015, and Janet Yellen mentioned “around six months” when she was asked how long the Fed would wait after the tapering ends before it begins to raise interest rates, which was earlier than market expectation. In addition, the Fed also changed its forward guidance on interest rate decisions. In response, the US dollar index climbed above 80, and US stocks registered sharp falls. LME copper prices dipped to a three-year low of USD 6,321/mt, but then rallied to USD 6,600/mt aided by dip-buying. LME copper prices finally closed at USD 6,580/mt, up 1.5%.

SHFE 1406 copper contract prices started at RMB 44,390/mt during night trading of Wednesday, and dipped as low as RMB 43,770/mt. The SHFE copper for June delivery then bounced back helped by rising LME copper and hit a high of RMB 46,500/mt with shorts taking profits. The prices finally closed the night session at RMB 46,080/mt, up RMB 1,330/mt or 2.97%. Traded volumes for the most active contract soared, but positions slumped by 38,182 lots. The SHFE/LME copper price ratio recovered to around 7.0.

Janet Yellen wrapped up her first policy meeting as the Fed Chief Wednesday. Although the decision to continue trimming asset purchases was within expectations, it’s worth noting that the Fed cut its unemployment forecast and slashed its economic growth forecast for 2014 and 2015. Besides, the Fed has updated its forward guidance, explaining that the new guidance is likely to be “be less specific and more ambiguous and point to a variety of indicators”. Projection for fed funds target rate was also raised – a 1% rate by the end of 2015 (up from 0.75%) and a target closer to 2.5% by the end of 2016 (instead of 1.75%). The US dollar index gained traction after the meeting, rising 0.94%.

The euro zone construction output jumped in January by 1.5% on the month and 8.8% YoY. The number of job losses in UK dropped 34,000, higher than the 25,000 forecast, and unemployment rate fell to 3.5% as expected. The jobless rate measured by International Labour Organization methods was 7.2% in the three months through January, the same as in the final quarter of 2013.

Liquidity conditions tended to tighten in China given declining new forex receipts and PBOC’s continuous bond repurchases. Overnight repo rate increased 74 basis points Wednesday to 2.8, while seven-day rate climbed 51 basis points to 3.41. Shibor rose across the board. However, market should not be over-pessimistic as nearly RMB 400 billion of repurchase agreements are due to mature in for the month ahead.

In other news, China Banking Regulatory Commission announced to revise rules for supervision of small and medium financial institutions in rural areas as a part of China’s financial reforms. Shanghai Stock Exchange also decided to loosen restrictions on shareholdings and investment scope of institutional investors.

Most indices in European and US stock markets dropped Wednesday. All base metals, except aluminum and tin, posted increases on the London Metal Exchange.

On Wednesday, SHFE 1406 copper contract may trade at RMB 45,300-46,500/mt. Spot copper may be offered between a discount of RMB 50/mt and a premium of RMB 50/mt against SHFE 1404 copper contract prices.
 

LME copper
SHFE night trading

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