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Falling Copper Prices Stimulate Buying Interest at Lower Prices
Jan 15,2010 11:30CST
smm insight

SHANGHAI, Jan. 15 (SMM) - On Tuesday, China's Central Bank announced to raise the deposit reserve requirement ratio by 0.5 percentage points from January 18th.  The news triggered market concerns that China will speed up the pace of tightening the monetary policy, which will curb market liquidity.  In this context, the commodity market experienced marked declines, with SHFE three-month copper prices plunging by more than 4%.  However, spot market reported brisk transactions, and traders moved goods smoothly. 

SMM contacted downstream producers with regard to the round of price declines.  One medium-size processing enterprise of copper semis told SMM that copper processing enterprises generally build up stocks before the Chinese New Year holiday, given the peak production period after the holiday, and as post-holiday prices are usually higher than the pre-holiday level. Those producers largely will replenish stocks for 3-5 day's consumption.  Another large-size copper processing enterprises said stock replenishment generally start from mid January, and in fact, they have paid close attention to copper prices since earlier January. Dropping copper prices on Tuesday created a good opportunity for them to make purchases.  Most downstream producers believe little possibility exists that they are able to buy products below RMB 60,000/mt.  On Tuesday, traded prices in the Shanghai spot market was in the RMB 60,100-60,400/mt range, with high buying interest.

It was strong downstream purchasing interest at lower prices that supported brisk trading sentiment in the spot market, and helped futures copper prices rebound.  In addition, the round of price rebounds further made market players believe that any downward room for copper prices would be limited, and the bullish sentiment towards outlook remains in the market.


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