Monday, May 27, 2013
Market Commentary
Last week copper prices moved in a broad Rs.20
range, ending the week marginally higher, after a
series of manufacturing numbers from across the
globe capped gains. Add to the not-so-good
manufacturing numbers, the possibility of a hold
down in quantitative easing and the market goes on
a confusion rally, as even the Central banks offer
mixed reprieve to the market uncertainty. The latest
FOMC minutes showed that although the growth is
yet to pick up largely, the Fed would consider to start
cutting down on its monetary easing in the next
couple of months, adding to doubts whether or not
the easing will continue to support industrial metals.
In between the week, Japan’s equity index, Nikkei,
was seen plunging by 7.3% which was followed by a
sharp plunge in markets worldwide.
Exchange
Contract
Open
Close
Change
% Change
Open Int.
Change
Pivot
Resistance
Support
Copper- Weekly Market Data
LME
Cash
7280
7299
-6
-0.08%
LME
3M
7280
7283.25
-26.75
-0.37%
MCX
June-13
405
407.85
2.25
0.55%
21975
-2921
7349
7484
7165
7344
7473
7154
409.5
418.8
398.5
Copper- Weekly Market Data
Exchange
Contract
Open
Close
Change
% Change
Open Int.
Change
Pivot
Resistance
Support
3.29
3.295
-0.02
-0.62%
1241
-420
3.32
3.38
3.24
53350
53410
10
0.02%
52276
-11824
53460
54170
52700
COMEX
Shanghai
LME
Inventory
629,950
621,175
-8,775
-1.4%
Shanghai
Inventory
190,330
176,624
-13,706
-7.2%
Context
On the data front, US jobless claims were seen
dropping to a lower level than previous week
while home sales, existing and new, were seen
picking up. Manufacturing numbers were slightly
bearish, raising some questions over how the
economy is expected to pick up traction.
The latest FOMC minutes which were released last
week highlighted the continued brawl between
the hawks and the doves, as uncertainty over the
economic recovery prevails. While the hawks are
pushing to taper asset purchases as early June,
the doves warned of the risks of deflation and
pushed for more QE.
The minutes also emphasized on the fact that the
US markets were becoming too buoyant and this
could cause the risk of creating an asset bubble.
Bernanke’s testimony sparked a risk asset rally as
he said that the economic recovery would need
some time and it would take time for the
conditions to tighten the policy. However, he also
said that if data supported in the next few
LME 3 Month Forwards – Other Metals
Commodity
Open
Close
Change
% Change
Nickel
14820
14814
-16
-0.11%
Zinc
1839.5
1854
11.75
0.64%
Lead
2014
2074
60
2.98%
Aluminium
1853
1839
-16
-0.86%
Please refer to disclaimer at the end of the report.

months, the Fed could taper its asset purchases in the next two meetings. Toning down
of QE would cause a large market correction.
With the extended QE, there has been ample liquidity and investment capital available
for metals in the market which has been taken for granted. As soon as there is a cut
down in the free money, a big reduction will be seen in the metals markets.
With the sentiment soured by the pullback of QE, data from China offered no reprieve
either, as the preliminary manufacturing numbers were seen contracting the first time
in seven months. The official number is expected to be lower as well, which will be
released on Saturday.
Also affecting the copper prices are new rules from China to control capital inflows.
These rules are likely to end commodity-financing deals which were used as a tool to
enable interest rate arbitrage, hurting the short-term outlook for copper.
These rules have come into being following the severe discrepancies in China’s trade
data in the first four months which aroused suspicions about companies using trade
deals to evade capital controls and take advantage of interest-rate arbitrage between
China and overseas. Some Chinese banks have stopped issuing letters of credit for
copper importers as the regulators tightened rules governing such trade.
On the supply front, a series of mining accidents and plant shutdowns this year have
pushed copper's supply back into the spotlight, supporting prices. The global market for
copper is expected to swing into a small surplus this year after several years of deficit.
Last week's shutdown at the world's second-largest copper mine run by Freeport
McMoRan in Indonesia saw an extended shutdown until the company is convinced of
the mine's safety. However, 40% of the workforce was seen joining back to take care
of the maintenance work. A landslide at Rio Tinto's mine in Utah had also cut
production.
Jinchuan Group Ltd, China's third-largest copper producer, has shut a 200,000 ton-a-
year facility due to a raw scrap shortage, which could reduce its refined output by more
than 16% this year.
India's top copper smelter, run by Sterlite Industries, also remains shut as a court
continues hearing into complaints of emissions.
Signaling that demand for the metal may be improving; stockpiles tumbled by 7.2% for
the eight straight week in Shanghai, falling by 13,706 tons to 176,624 tons this week,
with copper falling to the lowest level in almost eight months. Stocks in LME-registered
warehouses also fell, daily data showed on Friday, posting a 2,700 tons decline to
621,175 tons, their lowest in two weeks.
Outlook
With the surplus in copper going down due to the interruptions in mine productions, copper
prices could remain supported at current levels. The monthly report by the ICSG indicated
of a lower than estimated surplus to 46,000 tons previously forecasted 1,27,000 tons. We
expect industrial metals to trade in a broad range with a slightly bullish bias. We expect
LME copper prices could be in the range of $7200-$7500, which in worst case can slide
towards $7050. Nickel and Lead continue to look bullish in the coming week. On the data
front, preliminary GDP from the US could see some movement in industrial metals, while
the Chinese manufacturing numbers on Saturday may help in defining the trend.
Please refer to disclaimer at the end of the report.

MCX Copper after breach of crucial level at 412 rallied towards 420 last week. On the
downside 400 continues to act as a crucial support followed by 392.40. As long as price is
below 420, selling on rise is advisable.
MCX Lead continues to remain strongest of all the metals pack. After breach of critical
resistance at 111.90, price continued its rally and made a high of 115.70. Going ahead any
dip towards 114 is a good buying opportunity for the target of 118.
For any details contact:
Commodities Advisory Desk - +91 22 3958 3600
commoditiesresearch@motilaloswal.com
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