SMM Daily Review - 2011/7/18 Copper Market

SHAGNHAI, Jul. 19 (SMM) –SHFE 1109 copper contract prices, the most active one, opened up RMB 270/mt at RMB 72,070/mt on Monday, with prices falling after initially increasing during the whole trading day. In the morning session, SHFE three-month copper contract prices fluctuated narrowly around the daily moving average of RMB 72,100/mt, and the longs were cautious towards keeping up with copper price increases, with moderate market sentiment and a low price level at RMB 72,000/mt. Till the closing before the midday, SHFE three-month copper contract prices moved higher following rising LME copper prices, reaching last week's high level of RMB 72,450/mt, and then returned to morning price levels after meeting resistance. In the afternoon business, SHFE three-month copper contract prices were pressured at the daily moving average due to weak domestic stock markets. A rising US dollar index at the tail of trading caused another round of declines in LME copper prices, and SHFE three-month copper contract prices lost RMB 72,000/mt in response. Coupled with positions closings, SHFE three-month copper contract prices fell further to a low level of RMB 71,730/mt. Finally, the most actively-traded copper contract prices closed at RMB 71,840/mt, up RMB 30/mt or a gain of 0.04%. Positions for SHFE 1109 copper contracts were down 3,182 lots and trading volumes were up 4,872 lots, while positions for SHFE 111o copper contracts were up 7,976 lots and trading volumes were up 13,862 lots. Total volumes of Shanghai Copper Index were down slightly. Investors chose to stand on the sidelines, and the most actively-traded copper contracts didn't experience significant shift. SHFE three-month copper contract prices would fluctuate around RMB 72,000/mt for the foreseeable future.

In the spot market, copper discounts increased from negative RMB 200-120/mt to negative RMB 280-150/mt, as SHFE copper prices moved higher after a high open in the morning business and weak consumption despite ample market supply. Traded prices for standard-quality copper were between RMB 71,780-71,880/mt in the morning session, and RMB 71,820-71,950/mt for high-quality copper. Downstream producers continued to stand on the sidelines wisely and made purchases on an as-needed basis. In the afternoon session, copper prices in the SHFE market decreased due to resistance, and spot copper discounts were little changed from morning levels. Traded prices dropped to RMB 71,500-71,850/mt, and trading remained limited.        

Based on SMM survey, there are mainly two views toward the copper outlook this week. About 40% surveyed market players believe copper prices will keep their rising momentum, expecting LME copper prices will reach USD 9,850/mt and SHFE copper prices will likely advance above RMB 73,000/mt after breaking the resistance at RMB 72,500/mt. As a set of economic data in the US showed a slowdown in the US economic recovery, the Federal Reserve has stated to adopt further monetary easing to stimulate economy. In this context, the US dollar will be on a falling track, which will push up copper prices. Market risk aversion sentiment is growing, and gold prices set new record highs for several times, leading commodity markets. Against the backdrop of global inflation, the low-end copper prices will move higher. From the perspective of supply and demand, global copper supply is tight, and China's copper demand in 2H 2011 will keep stable, creating real lift for copper prices. Therefore, copper prices will continue to climb up.   

The remaining 60% market players in the survey believe limited upside space for copper prices within the week. They think LME copper prices and SHFE copper prices will move between USD 9,550-9,750/mt and RMB 71,000-72,500/mt, respectively, and will need technical corrections after reaching highs based on signals of all indicators. Whether or not the US will increase its debt ceiling is still unknown, and Standard & Poor's seems to have made determination to downgrade the US credit ratings, both of which will keep speculative markets cautious. In the Euro-zone area, potential European debt crisis is still having a dampening impact on markets, despite limited influence of European banks' stress test results. Recently, a rally in the US dollar index has caused crude oil prices to fall, which will negatively affect LME copper prices in the short term. From technical indicators, since the start of July, LME copper prices are facing growing pressures to move higher and lack rising momentum in the near term, although the low-end prices are well supported. In domestic market, the gains in stocks market have slowed down after reaching 2,800 points, which will have a limited lift for SHFE copper prices. Downstream producers show more cautious sentiment after SHFE copper prices stand at RMB 71,000/mt, and spot copper discounts are increasing despite ample market supply, which will not support SHFE copper prices. Therefore, copper prices will continue to fluctuate at high levels in this week.    

Copyright © SMM. All Rights Reserved

None of this material may be used for any commercial or public use in any forms or means, without the prior written consent of SMM. For reproduction issue, please contact us by email: service.en@smm.cn