SHANGHAI, Aug. 15 (SMM) –China's government announced on August 2nd that China's July CPI remained high, increasing market expectations of higher interest rates. Global panic sentiment spread to China's stock markets and caused stocks to fall, but also pushed SHFE copper prices down to RMB 63,560/mt, a loss of 8% over two weeks, and a new low for 2011.
Volatile global stock markets will put pressure on weak Chinese stock markets, while high July CPI data has increased market expectations towards more credit tightening policies in China. In this context, SHFE copper prices will not likely regain upward momentum in the near term, with prices expected to remain between RMB 63,500-68,500/mt.
In spot markets, tumbling prices stimulated cargo-holder interest in cash generation. The SHFE/LME copper price ratio also improved after the latest round of sharp declines, which helped increase imports of copper and improve market supply. Despite some bargain hunting, downstream producers generally stayed out of the market. Ample supply helped spot discounts expand and only middlemen with ample cash entered the market.
In spot markets, with the delivery date for 1108 copper contracts arriving on August 15th, spot copper will just be able to maintain slight premiums. Following the delivery date, transactions will remain weak due to oversupply and cautious investor sentiment toward future copper prices. As a result, copper premiums will change into discounts. Although downstream producers could replenish stocks at current low prices, they are looking for signs of stabilizing copper prices before purchasing.