SMM Daily Review - 2011/8/29 Copper Market

SHANGHAI, Aug. 30 (SMM) –As LME copper prices closed higher last Friday, SHFE 1111 copper contract prices, the most active one, opened up RMB 160/mt at RMB 67,350/mt on Monday. Due to a close on the LME copper market, SHFE three-month copper contract prices lacked guidance. There was news that China’s Central Bank planed to guarantee deposits in commercial banks into the deposit reserve range in a bid to control domestic inflation, so Chinese stock markets fluctuated after opening significantly lower. In response, SHFE three-month copper contract prices met resistance immediately after the opening, and fell to an intraday low of RMB 67,060/mt. However, as buying force increased near RMB 67,000/mt from shorts, SHFE three-month copper contract prices advance and broke the resistance at RMB 67,500/mt after the midday, reaching to a high RMB 67,630/mt. Finally, SHFE 1111 copper contract prices closed at RMB 67,610/mt, up RMB 420/mt, or a gain of 0.63%. Positions for SHFE 1111 copper contracts were down 66 lots, and trading volumes were down 69,874 lots. Given the close on the LME copper market, speculators kept cautious towards trading, and almost all short-term longs chose to close positions, as they would make further judgments after the LME copper market was open again.  

In spot market, SHFE copper prices moved higher after a low open, and without guidance from LME copper prices, positions were insufficient in futures markets, keeping spot markets cautious. Suppliers were active moving goods at the month’s end and forced to reduce premiums, which fell from premiums of positive RMB 0-80/mt in the morning business to discounts of negative RMB 20/mt-premiums of positive RMB 50/mt in the afternoon session. Trade prices for standard-quality copper were between RMB 67,320-67,450/mt in the morning business, and RMB 67,380-67,500/mt for high-quality copper. Imported standard-quality copper was already traded at slight discounts, and downstream producers made fewer purchases due to high SHFE copper prices, dampening market confidence about rebounds in future copper prices. SHFE copper prices continued to increase in the afternoon session, but copper supply reduced compared with the morning business. As a result, price offers from cargo-holders remained firm at premiums of positive RMB 0-50/mt, nearly flat with morning levels. Traded prices rose to RMB 67,400-67,550/mt, and trading sentiment was low.

SMM conducted a survey of industrial insiders concerning copper price trends this week.

About 27% of the surveyed insiders are optimistic towards copper prices this week, with LME copper prices expected at USD 9,250/mt and SHFE copper prices near RMB 70,000/mt. The US Federal Reserve (Fed) Chairman Ben Bernanke didn’t indicate QE3 last Friday, but from current US economic data, the Fed will choose the introduction of QE3 to stimulate the US economy, and the US dollar index will be on a downside track in the mid and long term, which will give copper prices a boost. From copper-demand side, labor disputes frequently occurred at Chilean and Indonesian mines, causing tight copper supply in the short term, which will support copper prices. Technically, both LME and SHFE copper prices have moved above the 20-day moving average, and coupled with upward technical indicators, copper prices will continue the rising momentum. 

The remaining 73% insiders in the survey believed LME copper prices will continue to move between USD 8,800-9,000/mt, and that SHFE copper prices will fluctuate in the RMB 66,000-67,500/mt band. There were signs speculative funds were flowing into the market temporarily before the central bank’s symposium, but after the failed indication of QE3 last Friday, market attentions have shifted to impacts from European debt problems. In this context, the longs will lose momentum. The uneven US economic results will give a limited boost to market confidence, and the Dow Jones will not likely rise, which will depress the buying interest to some extent and restrict the upward room for copper prices. Gold prices have met sell-off pressures after setting several new record highs, which will not serve as a strong leading force for base metal price trends. In domestic markets, both traders and downstream producers are facing tight cash flows due to the approach of the month’s end, keeping downstream consumption weak. Besides, imported copper quoted earlier at low prices will gradually arrive in copper inventories, which will hurt domestic copper markets and spot copper supply will be very sufficient. As cargo-holders are eager to move goods for cash generation due to tight cash flows, spot copper premiums will be dragged down. Some offers of imported copper Monday were reported at discounts levels, and if SHFE copper prices rebound, spot copper discounts will expand this week, so spot markets will not provide a support for copper prices. Furthermore, no price gap in futures copper markets made hedge trading impossible, reducing speculative activities. Ample supply, restricted demand, cash flow pressures and cautious speculations will all lead copper prices to fluctuate.