SMM Daily Review - 2011/8/8 Copper Market

SHANGHAI, Aug. 9 (SMM) –As LME copper prices plummeted by USD 200/mt last Friday, SHFE 1110 copper contract prices, the most active one, opened down RMB 1,610/mt at RMB 67,460/mt on Monday, with prices experiencing weak fluctuations during the whole trading day. The Shanghai Composite Index lost 2,500 points during trading hours after falling by more than 100 points, and LME copper prices failed to hold USD 9,000/mt and fell down to USD 8,950/mt while absorbing the news of a US credit downgrade. In this context, SHFE three-month copper contract prices fluctuated weakly around the daily moving average of RMB 67,600/mt under pressures from the shorts, with an intraday low at RMB 66,630/mt. Finally, the most actively-traded copper contract prices closed at RMB 67,680/mt, down RMB 1,390/mt, or a loss of 2.01%. Positions for the most actively-traded copper contracts were up 6,304 lots, while trading volumes were down 22,692 lots. Without support from all moving averages, SHFE copper prices were expected to fall further. China will announce important economic data on August 9th, and the US will also hold interest rate discussion meeting on the evening of August 9th, both of which will help decide the price trends in the near term. However, before that, the shorts will continue to dominate the market.  

In spot market, as SHFE copper prices opened 2% lower, all spot copper offers returned into premiums. Traders for hedge purpose were active in moving goods, and copper offers were quoted between premiums of positive RMB 50-150/mt. Trade prices for standard-quality copper were between RMB 68,000-68,180/mt in the morning business, and RMB 68,100-68,250/mt for high-quality copper. Market players who wanted to make purchases at low prices chose to stay out of the market due to panic sell-offs in commodity markets, while higher spot copper premiums also dampened trader’s buying interest, with bearish sentiment dominating the market, and resulting in weak transactions. Due to weak fluctuations in SHFE copper prices in the afternoon session and sluggish transactions, copper premiums were only reported at around positive RMB 50/mt for high-quality copper, and offers for standard-quality copper were even quoted at slight discounts. Traded prices fell between RMB 67,750-68,050/mt, and downstream producers were still pessimistic towards copper prices.   

SMM conducted a survey on copper outlooks this week.

Based on the survey, about 72% market players believed copper prices will fall further this week, believing LME copper prices will fall to USD 8,800/mt and SHFE copper prices will test RMB 66,000/mt. Some market players even believed LME copper prices will drop to a yearly low end at USD 8,500/mt, and that SHFE copper prices will fall back around the previous low level RMB 63,000/mt. Although the US political leaders reached a deal over the debt ceiling at the last minute, US debt problems remain unresolved, which will linger on copper markets. The US credit rating downgrade by Standard & Poors has added to market panic sentiment, further hitting market confidence and stoking fears over another financial crisis. The longs are reducing their position holdings after the strike ended at Chile’s largest copper mine, stopping to support copper prices. Europe’s sovereign debt issues are re-emerging as the main market focus after the US debt problem, with big chances of default in Italy and Greece, overshadowing the market. In domestic market, China’s stock markets will not likely hold 2,500 points, with bearish sentiment spreading over the market. Market has long expected a higher CPI data for July to be announced on August 9th, increasing market worries over more tightening monetary policies by China’s Central Bank, which is keeping market cautious. In domestic spot market, downstream producers are generally pessimistic toward copper prices, and are not making purchases. Spot copper premiums also keep traders unprofitable, which will not provide support for copper prices. Technically, both LME and SHFE copper prices have lost support, and will be unavoidable to fall further.    

The remaining 28% market players believed LME copper prices will fluctuate around USD 9,000/mt. After the downgrade of the US credit rating, the US dollar will depreciate. Despite a slump in commodity markets, the US dollar index yesterday fell to 73.98, and is expected to have limited rising space. Market players are currently awaiting news from the US interest rate discussion meeting to be held on the evening of August 9th, and they believe there will be comments about QE3 or some boosting policies, which will be negative for the US dollar index but positive for commodity markets. Besides, gold prices have steadfastly stood at USD 1,700 per ounce, which will help drive commodity markets and limit the losses. Copper futures will need corrections after plummeting last week, and the SHFE/LME copper price ratio will improve, which will attract buying and support copper prices. Therefore, futures copper prices during this week will fall, and then increase. After resuming from the declines in the previous week, any downward room will be limited for LME copper prices, which will quickly return to USD 9,000/mt.