Bulletins

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2014-February

 MARKET COMMENTARY

Copper prices finished February basically flat, as a mid-month advance to the $7250 level fizzled, sending values back down to the lower end of the trading range. Although LME stocks are now at 14-month low, it is what is happening in China that accounts for copper’s inability to gain much upside traction. In this regard, Shanghai copper stocks, in stark contrast to the LME, are at nine-month highs, while physical premiums are softening. Both these situations should come as no surprise in light of the fact that Chinese refined copper imports have been ramping up of late, with January intake at a record high of 536,000 tons, up a whopping 53% over the last year. However, much of this metal is not being consumed, but instead being utilized as a conduit via which importers are managing to get more credit from the banks. In the meantime, the overall copper balance seems to be tightening; Aurubis see 2014 to be in rough balance, while the ICSG thinks that the market was in a 107,000 tons deficit through November of 2013, adjusted for China’s bonded stocks. (The deficit projection reverses a surplus of 23,000 tons expected in October). However, these numbers are rather squishy given that no one knows how much stocks are indeed at hand in Chinese warehouses.

Copper rose for a second day to hit a one-week high on Wednesday as investors saw signs that tensions could be easing in Ukraine and after China's leaders affirmed a solid growth target for the year ahead. Fears of an immediate escalation of political tension were allayed as Russian President Vladimir Putin said he would use force in Ukraine only as a last resort, but he also delivered a robust defence of Russia's actions in Crimea. Also helping sentiment, China provided the strongest signal yet that the pursuit of breakneck growth was over, saying it aimed to expand the economy by 7.5 percent this year and would pursue reforms in areas ranging from finance to the environment.

Three-month copper on the London Metal Exchange hit its highest level in a week at $7,085.75 a tonne in intraday trade. It was $7,055 a tonne in official rings from $7,049.50 on Tuesday. The metal is still trading 4 percent lower so far this year.

"We are seeing a bit of a relief rally for copper after the geopolitical tension between Ukraine and Russia has eased off," said Naeem Aslam, chief market analyst at Ava Trade. Doubts remain on how far the recent rally can go while demand in top user China has been slow to gain steam following the Lunar New Year. China is the world's biggest consumer of copper, accounting for 40 percent of global refined demand. A growth target of "7.5 percent helps, but let's be realistic. From GDP alone I would be cautious to get euphoric," said analyst Dominic Schnider of UBS Wealth Management in Singapore. "Forward leading indicators do not make for a good picture. We had the weather-induced problems in the U.S. and now geopolitical concerns. Unless we see numbers really coming back with a vengeance in the U.S., it's going to be very tough for copper to hold the current levels," he added.

Traders are likely to focus on the outlook for the U.S. economy. Non-farm payrolls
numbers due on Friday are expected to provide fresh evidence on the pace of growth in the world's largest economy. Economists say U.S. job growth probably picked up enough in February to encourage the Federal Reserve to continue to scale back its monetary stimulus, although the gain is likely to be tepid given the unrelentingly harsh winter weather. "We do have Beige book numbers due today, which will tell us more clearly the impact of bad weather in different Fed regions, and this could sway the Janet Yellen’s decision on tapering," Aslam said.




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2014-January

MARKET COMMENTARY

It’s been a one-way slide for copper over the course of January, with the complex limping to a two-month low of $7100 by month’s end. The turmoil in emerging markets has weighed on the complex, but investors think the main drag is coming from China, where there are more signs of macro deceleration. Furthermore, the outlook for February may not look much better, as the country is now on a one week break for the New Year, meaning that spot purchases and the pressure on nearby premiums could be muted for some time to come. Many have pointed to the decline in LME stocks as a reason to be bullish; if prices are unable to climb higher on falling stocks, they likely will fall when stocks start to move up. The odds of this happening are good, since from all accounts, we are seeing steadily rising output from both the refined and mine side of the picture. On the refined side, Chile’s December output was strong and 2013 production rose by an impressive 6.1%. We very well could be on track for another strong year this year. China’s refined output was up a staggering 13.6% in 2013, well ahead of local demand growth.

Copper prices rose on Wednesday, rebounding from two-month lows hit in the previous session, boosted by encouraging factory orders data from the United States overnight and limited short-term availability of the metal in the physical market.

Meanwhile data showing dwindling supplies of copper stocks, which raised concerns about immediate availability, also lent support to prices. The figures showed stocks in LME-registered warehouses are at their lowest level in a year at 311,225 tonnes.

Three-month copper on the London Metal Exchange traded at $7,060 a tonne in official rings, up from a close of $7,041 on Tuesday. The metal used in power and construction dropped to its lowest level since Dec. 4 at $7,016 in intraday trade on Tuesday, but a late-session rebound helped it avert a 10-session losing streak, which would have been its longest losing streak in 37 years. Prices have fallen 4 percent since January.

Investors are likely to focus on the U.S. non farm payrolls data for signs of the country's economic health scheduled for release on Friday.




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2013-December

 MARKET COMMENTARY

2013 was another down year for the commodity markets. In the metal markets, gold was off some 28%, breaking a twelve-year winning streak. Silver prices also got hammered, down some 36%, but platinum and palladium fared better on account of improving automobile demand. Among the base metals, zinc was the year’s best performer ending down some 1.6% basis three months, while nickel and aluminum were the group’s laggards, down 18.5% and 13% respectively. Copper finished some 7% lower, with lead and tin off by 4.7% and 4.4%, respectively.

In the financial markets, US equity markets were on fire; the S&P-500 was up some 29% in 2013 for its best gain since 1997. Many other equity markets also ended the year at or near records-- Japan’s Nikkei 225 rose a whopping 52%, reaching its highest level since 2007 and there were hefty gains in European markets, with 30%-plus gains seen in both the Greek and Irish equities. The gains in US equities came partly at the expense of the US bond market, where yields ended the year around 3%, a 2 1/2 year high, capping a horrific year for most bond funds.

Last month we had an upbeat market in copper, with prices gaining 4% over the course of the December and hitting a four-month high in the process. However, for 2013 as a whole, copper finished 7.2% lower, roughly in the middle of the LME pack. The December rally was driven in part by the weaker dollar, as well as continued declines in both LME and Shanghai stock holdings. LME inventories shrank by about 60,000 tons in December to end the month at about 366,000, while Shanghai stocks fell by 16,000 tons.

In terms of supply/demand balances, the ICSG sees the market in a 387,000 ton surplus in 2014, rising to a whopping 632,000 next year. However, the Reuters consensus numbers are far less, at 182,000 tons and 328,000 tons, respectively.
Copper steadied on Tuesday above the two-week lows it hit on Monday, helped by a weaker dollar versus the euro although the market was quiet as traders focused on U.S. data due later this week. Three-month copper on the London Metal Exchange was $7,335 a tonne in official prices from $7,325 at the close on Monday when it hit its lowest since Dec. 24 at $7,278.75 a tonne.

But the market was still sluggish early in the first full week of trade after the Christmas and New Year holidays, and market focus was on U.S. non-farm payrolls data and minutes of the Federal Reserve's December policy meeting, Naeem Aslam, chief market analyst at Ava Trade in Dublin, said. "We are going to look at the FOMC minutes very closely, and we think that will bring a lot of volatility to the market for the dollar," Aslam said.

In December, outgoing Fed Chairman Ben Bernanke started the process of navigating the U.S. central bank's way out of its extraordinary stimulus, beginning with shaving its bond-buying programme. A stronger U.S. currency makes it more expensive for foreign investors to purchase dollar-priced commodities, thus pressuring prices lower. The euro rose versus the dollar on Tuesday after data showed euro zone inflation fell last month.

The Federal Open Market Committee's (FOMC) minutes will be released on Wednesday and the non-farm payrolls numbers on Friday.
Speculative investors increased their net copper longs for a third consecutive week in the week to Dec. 31, data from the Commodity Futures Trading Commission showed, climbing by 6,147 contracts to 35,635, the highest in nearly two years.




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2013-November

MARKET COMMENTARY
 

Copper prices on the LME fell 2.5% last month as momentum traders (mainly money managers and hedge funds) increased their bearish positions. However, fundamentals have been supportive throughout the last month because of which prices did not continue below $7,000.

Appetite for refined copper was strong as inventories at LME warehouses fell throughout November. At Shanghai, inventories fell last month by more than 16%. This is astonishing since November is usually a time of re-stocking, implying mounting inventories. At Shanghai-bonded warehouses, inventories are at the lowest since June 2012. From August to October, overall copper imports to China, the world’s largest consumer of the red metal, have been very strong, coming above 1.2 million tons. The November figure is expected to come above 470,000 tons.

On mainland China, demand for copper has been strong as borrowers use copper inventories as collateral for short-term financing. The liquidity squeeze in the interbank money markets in October and June prompted investors to use copper for financing. Demand for copper should also get a boost in December because of seasonal re-stocking.

Cash-3 month forwards, a gauge of physical tightness, has been high, implying a shortage of refined metal in the spot market. It is currently at -$0.75 compared to -$30 at the start of October. Chinese importers of refined copper are confident about demand in the first quarter of 2014; hence, it makes sense for them to have agreed to pay a premium of $131 a ton to Codelco (the world’s largest copper miner) in order to secure term shipments. The Premium has risen 41% y-o-y.

Copper has whipsawed in the past month but was able to stay above $7,000 due to a shortage of refined metal in the physical market. Data from the U.S. were quite encouraging, reinforcing expectations that the U.S. central bank might reduce the size of its bond-buying program especially since it mentioned in its last minutes that it would be looking to “taper” in the next few meets.

Copper rose on Friday, underpinned by tightening near-term supply but gains were capped ahead of U.S. jobs data that could signal an imminent scaling back in U.S. stimulus. This week markets have been nervous about an increased risk of tapering, after a string of U.S. data came in above forecasts, including numbers for U.S. private employers, factory output and GDP.

Three-month copper on the London Metal Exchange was $7,112 in official rings from a last bid of $7,068 on Thursday, leaving the metal little changed on the week, and still set to post losses of more than 10 percent this year.
"The market is concerned that (the Fed) might taper in December. On the other hand if you look at copper inventories (they) already provide indications that the market has been oversold," said Quantitative Commodity Research consultant Peter Fertig.





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2013-October

MARKET COMMENTARY

Investors had a relatively boring copper market in October, with prices trading roughly between $7090–$7350. Copper’s upside was held in check by the unease generated by the US government shutdown and the debt ceiling standoff; both these issues sapped US confidence readings and cast a pall over short-term growth prospects. On the downside, prices enjoyed support from improving macro data coming out of China, along with the significant surge in September cathode imports, which clocked in at an 18-month high. In addition, there are signs of reasonable demand in the US, Japan and even Europe. However, this pick-up is being more than offset by a backdrop of steadily increasing supply; China itself is expected to produce a record amount of copper in 2013, as high treatment fees encourage smelters to run at full capacity. Elsewhere, there are new mines and expansions evident from Mongolia to Indonesia to Chile, leading to the highest rate of mine supply growth in 10 years. The Reuters consensus pegs the 2013 copper surplus at 201,000 tons and the 2014 surplus at 329,000 tons. Despite the comfortable supply picture, some experts expect more of the same from copper going into November and see a $7080-$7400 trading range in place. Their thought is that the weaker dollar and an accommodative Fed should give the market support, at least until copper’s fundamentals assert themselves more forcefully sometime in Q1 of next year.
Copper ticked higher today for a second session as the dollar weakened and investors kept up hopes of extended U.S. monetary stimulus. Cash copper moved to a premium to forward contracts, putting pressure on a large short-position holder, traders said. Three-month copper on the London Metal Exchange rose 0.6 percent to a session high of $7,204 a tonne after a small gain on Tuesday.

Copper has held to a range of $7,000 to $7,420 a tonne since early August, supported by steady demand from top consumer China and cheap liquidity in the United States after the Federal Reserve delayed tapering its bond-buying programme. Copper's range has been narrower and narrower, prompting many who following signals generated by charts to forecast that prices are due to break away. "My guess is that when we break out, if we break out, it will be to the downside," said Stephen Briggs, metals strategist at BNP Paribas in London. The 30 percent decline in LME copper stocks since June does not necessarily represent strong demand but more likely that material is moving off-warrant, sometimes within the same warehouses, he added.

In the short term, traders said copper prices could find nearby support if a large short position in November is forced to cover. Cash copper climbed to a $5 premium against the November contract from a $12 discount in mid-October. Reuters' calculations based on LME data show that November's short position could be to hedge as much as 145,000-220,000 tonnes of metal that is not in the LME warehousing system. This figure tallies with a drop in LME copper stocks and may suggest that metal leaving warehouses is going into storage rather than for consumption. LME stocks have dropped by around one-third from mid-June to around 470,000 tonnes, data shows.
The euro rose to a session high versus the dollar after data showed a much bigger-than-expected rise in German industry orders. Orders jumped by 3.3 percent on the month during September, against forecasts for a rise of 0.5 percent. A weaker dollar makes commodities priced in the U.S. currency cheaper for buyers outside the United States.

LME volumes were low, with traders reluctant to take positions ahead of a labour report from the United States and a major policy meeting in China. The United States will release its October labour market report at the end of the week. A sustained recovery in the job market is a precondition for the Fed to begin hauling back its commodity-friendly stimulus.




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2013-September

MARKET COMMENTARY

After witnessing sharp run up in the month of August copper prices dipped lower in the month of September. Copper prices declined as risks of an attack on Syria subsided following a decision by UK lawmakers against military action. Prices also declined on expectations that the Federal Reserve will taper stimulus after the US economy grew faster than expected in 2Q13.

Meanwhile China planned to reduce copper production as some 654,000 tonnes of production may be closed, which is insignificant when compared with the existing idle capacity of more than 7 million tonnes.

LME copper inventories have jumped from the beginning of the year but have declined from peaks in late June. Copper stocks at Chinese bonded warehouses and at the Shanghai Future Exchange (SFE) have fallen considerably over the year, after peaking in February and March.

London copper drifted on Friday, and was set for its biggest weekly loss in three weeks as worries about U.S. fiscal stability tarnished the outlook for demand, while top consumer China remained on holiday.

The shutdown of the U.S. government appeared likely to drag on for another week and possibly longer as lawmakers consumed day three of the shutdown with a stalling game and there was no end in sight until the next crisis hits Washington around Oct.17. And China's manufacturing growth edged up only slightly in September, official data showed this week, adding to concerns about strength of demand.

Three-month copper on the London Metal Exchange was little changed at $7,190.75 a tonne by 0906 GMT, after losses from the previous session when it fell 1.2 percent. Copper was on track to lose around 1.5 percent this week in what would be its biggest weekly decline since mid September.
The Shanghai Futures Exchange remained closed for a fourth day on Friday. It will reopen next Tuesday.

The number of Americans filing new claims for jobless benefits remained at pre-recession levels last week but growth in the massive U.S. service sector cooled in September as firms took on fewer new workers. September nonfarm payrolls were unlikely to be released today due to the shutdown.

Metals won some support from a weaker dollar. A weaker U.S. currency makes commodities cheaper for holders of other currencies. The dollar languished near an eight-month low as the U.S. budget standoff dragged on, heightening fears it could become embroiled in the likely struggle later this month to raise the U.S. borrowing limit.

The metals industry will gather in London next week for the LME Week, where term deals for 2014 in copper are expected to be hammered out.




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2013-August

  MARKET COMMENTARY

Copper mounted a respectable gain in August, wrapping up its biggest monthly gain in 11 months. However, most of the advance was concentrated in the first half of the month, as by the second half and going into the first week of September, we had a distinctly weaker tone set in. This was surprising given the better than expected Chinese macro numbers, coupled with the fact that Chinese cathode imports came in at a 10-month high in July. In addition, the LME stock picture looks modestly constructive, with stocks dropping from a June high of 678,225 tons to 603,000. Europe’s recovery also seems to be gaining traction and US growth is steady, if not spectacular. We see prices trading between $6900 – $7400 in September, with the weaker side of the range setting in later in the month and after the Fed has moved.

The Euro traded within a narrow range of $1.3200-$1.3450 in August. Helping its steady tone, was the fact that there were no fresh blowups in the credit markets, while on macro side, European data has improved significantly. In this regard, over the last two weeks we have seen stronger-than-expected manufacturing and service activity, as both business and consumer confidence readings continue to push higher.

With Syrian action deferred and some easing of emerging market turmoil, base metals have been caught this week between positive PMI data and, until today, escalating bond yields. They are ending the week little changed, except fierce little tin, long our favourite for its supply-side issues. The broad trend since the LME’s warehousing proposal of falling cancelled warrants, rising contangoes and, for aluminium, easing premiums continues. Syria will be back at centre stage next week, but support for base metals may come from a tapering of Fed taper expectations towards our house view.

Copper held up better than most metals earlier last week and has bounced Friday to record a slim gain w/w. The contango forward curve has steepened further, notably at the front. Though down today, exchange stocks have risen 29kt in the last two weeks and the cancelled warrant share of LME stocks continues to ease below 50%.

Copper rose on Monday, helped by data from China that reinforced expectations of a rebound in demand for metals from the world's largest consumer, and hopes the U.S. Federal Reserve would keep its stimulus programme intact for longer. Three-month copper on the London Metal Exchange rose to $7,235 a tonne, up from a close of $7,160 on Friday. Copper was traded $7080-$7290 a tonne in last week.
The metal used in power and construction has risen by around 9 percent since touching three-year lows in June on mounting evidence that the slowdown in the Chinese economy may be bottoming out. Data on the weekend showed China's exports rose by a forecast-beating 7.2 percent in August from a year earlier, while in-line inflation figures on Monday reflected tame consumer prices. China is the world's largest consumer of refined copper, accounting for around 40 percent of global demand. Data also showed China's copper imports fell to 387,564 tonnes in August from a 14-month high in the previous month, but analysts said the trend still showed healthy demand as the monthly figure represented the second highest shipment this year and was 8.9 percent higher than last year.

"What we are seeing generally is that Chinese data has been surprising on the upside and that's something that base metals have been taking their cue from," said Christin Tuxen, analyst at Danske Bank. "Overall we could see a short-term revival in base metals but that will require that Chinese data continues to improve and also that the Fed is not too aggressive in its (stimulus measures) tapering process."
Economists polled by Reuters still mostly expect the bank to scale back its stimulus at its policy meeting on Sept. 17-18. Two Federal Reserve officials over the weekend suggested the "tapering" plan is still on track. U.S. stock index futures signalled that Wall Street was likely to start the day on a positive note, aided by signs of renewed growth in China's economy.




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2013-July

 MARKET COMMENTARY

We were not surprised to see a relative degree of stability set in over the commodity markets over the course of July, especially considering the sell-off that set in over the last two weeks in June. The big movers in terms of individual commodities were the precious metals, with gold, silver and palladium being particularly strong. Energy markets also finished sharply higher, as did product prices, and combined with the strength seen in the precious group, the two account for the bulk of the increase in the CRB index this month.

Base metals trended mostly higher over the course of the month, but the ferrous group put on a more spirited run, with good gains seen in both iron ore prices as well as in the steel HRC contract.

In the currency markets, the dollar lost ground pretty much across the board, while the S&P 500 recovered almost of June’s losses to hit new highs. The 10-year bond market saw rates spike to a fresh high of 2.76% in early July, but the market has been slightly on the mend ever since.

Although Chinese copper demand imports turned higher in June following an equally strong performance in May, questions remain about whether this metal is going to end-users or if it is instead being used as
lendable collateral in what remains a tight credit market. Certainly, recent Chinese macro numbers do not lend support for stronger intake, as they have been running on the weaker side of late, making the financing argument all the more plausible. Some investors do not expect to see much of a change in prices over the course of August and expect the low end of the trading range at around $6600 to hold, while resistance will be at $7200.

Declining stock levels on both the LME and in Shanghai, coupled with talk of easy money/stimulus coming from the Fed should keep the low end of the range intact, particularly since such talk will weaken the dollar further. Moreover, the ICSG sees the copper market to be in a 266,000 ton surplus y-t-d through April and sees projected global demand falling 4% over this time.
London copper edged down on Wednesday as traders cautiously looked to key economic data from China later this week for indications on the outlook for demand from the world's top metals consumer. The world's No.2 economy has slowed in nine out of the past ten quarters, stoking worries about its demand for commodities and dragging down copper prices by 12 percent so far this year.
"We still have a bearish view given the Chinese growth slowdown. Markets are looking towards the data tomorrow. Copper has remained quite resilient to poor U.S. economic data, but if we see negative data out of China that could weigh on prices," said analyst Tim Radford of Sydney-based adviser Rivkin.
China's trade data is due on Thursday, with inflation, industrial output and retail sales on Friday. Exports, factory output and retail sales may have all edged up in July, according to a Reuters poll, showing initial signs of stabilisation in the Chinese economy as the government takes targeted steps to head off a sharper slowdown.
Three-month copper on the London Metal Exchange had slipped 0.24 percent to $6,988.25 a tonne by 0908 GMT, after finishing up 0.4 percent in the previous session. Copper has been stuck between $6,600 and $7,100 since mid-June, with little prospect of prices breaking out before seasonal pre-Christmas demand ramps up in the fourth quarter.

Market players are also keeping an eye on the U.S. Federal Reserve to see when the central bank will start winding down its stimulus, a key driver of investment in global commodities. The Fed will probably reduce its massive bond-buying programme later this year, and depending on the economic data could do so as early as next month, a top Fed official who is typically among the most dovish policymakers said on Tuesday. A delayed start to scaling back bond purchases would support metals as cheap capital will then be available to investors for longer and because it undermines the dollar. A weaker dollar makes commodities priced in the greenback cheaper for holders of other currencies.



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2013-June

  MARKET COMMENTARY

Copper collapsed over the course of June, dropping by as much as $900 a ton from peak to trough. Much of the decline was attributable to growing concerns about slowing Chinese growth and the surprisingly sharp tightening in local credit markets. In addition, there were worries about Fed policy, as investors did not get a clear sense from Ben Bernanke whether the central bank would start its stimulus program in September or merely watch things as they evolved. In either case, the dolar strengthened in the wake of the Fed announcement, pressuring commodities lower in the process. LME stocks have resumed their climb and are now at 10-year highs and although Shanghai holdings are decreasing, this does not seem to be indicative of stronger spot demand, but likely a reaction to the difficulty in finding scrap or just an exercise in securing metal for financing purposes. On the demand side, Chinese cathode imports ticked higher in May, but are still 15% lower from year ago levels, while May scrap imports are down as well on a month-overmonth basis. In supply news, the Grasberg mine is up and running, removing a moderately bullish prop, while Chilean production remains strong as well (up 3.7% y-o-y through May). However, premiums remain at record highs.

Following a mixed few days, copper, previously under pressure, led a strong rally on Thursday as the market tapered its taper talk after the latest Bernanke speech and FOMC minutes. Some momentum has been lost as the focus has shifted to China, but LMEX is ending the week with a 3-4% gain. Inverse correlation with the USD has returned towards historical norms.

After open interest had leapt to its highest since 2008, copper led the Fed-driven rally on Thursday. Exchange stocks have fallen 39kt mtd, although cancelled warrants have eased to ‘only’ 53% of the LME total. Grasberg is restarting underground mining and Oyu Tolgoi has made its first shipment. Chinese unwrought imports rose 6% m/m and 10% y/y in June to 380kt, but since then SHFE’s premium over the LME has narrowed.

Copper fell on Monday as the dollar rose and after data from China showed a slowdown in the world's top consumer of the metal. China's economic growth slowed to 7.5 percent in the second quarter, from 7.7 percent in the first quarter, though the figures were in line with expectations, helping to limit copper's losses. Three-month copper on the London Metal Exchange was $6,920 a tonne in official rings from Friday's $6,954 close. Its gains of 2.4 percent last week represented the biggest weekly rise since early May.

Many commodities are especially sensitive to growth in China. The country accounts for about 40 percent of global consumption of copper, which is used extensively in construction and power cables. Commodities priced in dollars are also vulnerable to moves in the currency. Its strength on Monday made copper more expensive for holders of other currencies. However, currency markets were cautious ahead of U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony on July 17-18, which will be closely watched for more clarity on the central bank's intentions.




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2013-May

 MARKET COMMENTARY

The market has largely come to terms with the slower growth outlook for China. As such, the base metal complex is now stabilising and range trading heading into the summer following several months of downwards trending prices. As some investors said at the time, consensus expectations were too high for China earlier this year and there was complacency about the fiscal and macro risks still clouding the European and US economies.

Concerns over Chinese deleveraging and liquidity have emerged in recent weeks and need to be monitored closely, while fading commitment to QE in the US and disruption in some of the emerging markets are also weighing on the complex and commodities in general. On balance however, with Chinese data offering fewer negative surprises, arguably most of the downside is now priced in. Whether another summer slump therefore emerges, again depends on exogenous factors, in particular Chinese liquidity.

There have been plenty of price-supportive factors in the copper market recently: Supply disruptions, scrap shortages, short positioning being unwound, improvements in Chinese demand, and declining spot availability as LME cancelled warrants rise and queues form. Prices remain volatile, though
some of these positives will lose their clout. Together with concerns over central banks’ commitment to QE, this should cap any attempts to rally. Provided the supply disruptions keep coming however, and continue to take the edge of the rising tide of new supply (Oyu Tolgoi is about to ship its first concentrates), we still see scope for tighter end to the year, which should be reflected in premiums and spreads in Q4, and potentially prices too. Higher prices over the past month has been in line with expectations, with prices averaging $7,642/tonne in the five months to May.

London copper rose more than 1 percent today after posting its steepest weekly decline in two months, as investors covered short positions ahead of a key Federal Reserve meeting that could provide greater clarity on U.S. monetary policy. Fed Chairman Ben Bernanke is expected to indicate the economy is still performing too poorly to justify slowing the pace of its $85-billion-a-month bond buying right away, at the end of the central bank's two-day meeting on Wednesday. But rising inflation figures could prompt the Fed to rein in stimulus sooner than expected, sapping the liquidity available to metals producers and commodities investors, said Jonathan Barratt, chief executive of Barratt's Bulletin, a Sydney-based commodity research firm.
"If inflation numbers are a little higher than expectations, then the Fed might come out and say they will taper sooner. I think that would be taken negatively for copper," he said. So far, data shows underlying U.S. inflation pressures have remained well below the central bank's 2 percent target. U.S. CPI data for May is due on Tuesday.

Three-month copper on the London Metal Exchange was up 0.68 percent to $7,138 a tonne by 0918 GMT, after rising to as much as $7,176, as shorts rushed to cover positions, two traders said. Copper prices finished last week down nearly 2 percent, their steepest weekly decline since mid-April.

Fundamental demand remains steady and is likely to keep a floor under prices, Barratt said. "We’re at that point where the market is pretty happy to be here, and not to push too much lower. China's 7 percent growth still requires copper as does the housing market in the States," he said. Hedge funds and money managers turned vastly more negative on the copper market in the week to June 11, increasing their net short positions in copper futures and options for the first time in four weeks and by the most in more than six months.




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