SMM Copper Market Morning Review (2014-3-28)

SHANGHAI, Mar. 28 (SMM) – On Thursday, the US Pending Home Sales Index was reported down for an eighth month to 93.9, its lowest since October 2011, an indication that the housing market was still affected by the adverse weather conditions and rising mortgage rates. However, the US GDP growth for the final quarter of 2013 was revised upward from 2.4% to 2.6%. The initial jobless claims last week hit a new low in four months to 311,000. St. Louise Fed’s Bullard said the Fed should start increasing interest rate in January 2015 if it plans to bring the funds rate back to normal before 2016’s end. The remark resulted in increased volatility for US dollar index. LME copper prices closed at USD 6,565/mt, up USD 50/mt.

SHFE 1406 copper contract prices started at RMB 46,020/mt during Thursday’s night trading and moved narrowly, touching a low of RMB 45,820/mt before closing at RMB 46,020/mt, up RMB 40/mt. Traded volumes for the most active contract were around 210,000 lots, and positions fell by 2.106 lots.

US final GDP in the fourth quarter of 2013 grew at a 2.6% annual rate, below expectations but up from Q3’s level. Consumer spending, exports, and nonresidential fixed investment rose, but housing investment, government spending and imports contracted, dragging down the Q4 GDP growth. The number of Americans filing new claims for unemployment benefits fell last week to 311,000, the smallest since November 2013, a sign that the US labor market is gradually recovering. In addition, the Kansas City Fed's manufacturing composite index rebounded sharply to 10 in March. Nevertheless, US February pending home sales touched a new low in more than two years. These mixed economic data failed to provide clear guidance for markets. Although the US Federal Reserve has removed the 6.5% unemployment rate as threshold for an interest rate hike, US nonfarm payrolls report due for release next is still worth noting for its role in gauging the country’s economic health.

In China, profits of large scale enterprises rose 9.4% YoY to RMB 779.31 billion in January and February, with the growth down 2.8 percentage points from a year ago. The People’s Bank of China (PBOC) conducted RMB 20 billion of 28-day repurchase agreements and RMB 32 billion of 14-day repurchase agreements. The PBOC has already drained a total of RMB 98 billion from open markets this week, more than doubling last week’s RMB 48 billion. The interbank interest rate is climbing, showing liquidity conditions in China are rather tight by the end of the first quarter. The tight cash flows are expected to be exacerbated by massive fiscal deposits taxation in April.

The US dollar index rose 0.13%. Asian and European stocks were mixed, while three major US stock indexes all closed lower. LME base metals prices, except LME tin and nickel prices, ended slightly up.

On Friday, the most active SHFE copper contract may trade at RMB 45,800-46,400/mt, and spot copper may be quoted at premiums of RMB 100-180/mt over the SHFE current-month copper contract prices.