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SMM Daily Review - 2011/9/5 Copper Market
Sep 6,2011 10:06CST
price review forecast
SHFE 1111 copper contract pricesopened down RMB 260/mt at RMB 67,650/mt on Monday, and about 76% insiders believed SHFE copper prices to move between RMB 67,000-68,500/mt.

SHANGHAI, Sept. 6 (SMM) –SHFE 1111 copper contract prices, the most active one, opened down RMB 260/mt at RMB 67,650/mt on Monday, with prices moving downward after a low open. After the opening, SHFE three-month copper contract prices met resistance when trying to move towards RMB 68,000/mt, and reached a high at RMB 68,030/mt. Later, as Chinese stock markets slid by nearly 2% at the opening, and since LME copper prices lost USD 9,000/mt, SHFE three-month copper contract prices moved lower, and touched a low RMB 67,080/mt in the afternoon session. Finally, SHFE 1111 copper contract prices closed at RMB 67,100/mt, down RMB 810/mt, or a loss of 1.19%. Positions for SHFE 1111 copper contracts were up 2,002 lots, and trading volumes were up 16,444 lots. Short investors actively built new positions at high prices. From technical indicators, SHFE three-month copper prices were facing more pressures to fall back, and would likely lose the support of the 20-day moving average.      

In the spot market, as SHFE copper prices moved lower after a low open, offers for high-quality copper turned into premiums, initially reporting between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt today. Offers for standard-quality copper also turned into premiums, since SHFE copper prices slid by nearly RMB 300/mt during spot copper trading hours. Overall spot offers were between premiums of RMB 0-80/mt. Trade prices for standard-quality copper were between RMB 67,680-67880/mt in the morning business, and RMB 67,750-68,000/mt for high-quality copper. Market circulation was mainly high-quality copper during the whole trading day. Price quotations were unstable due to turbulent market sentiments, while downstream producers chose to stand on the sidelines, resulting in poor market transactions. SHFE copper prices slumped by more than RMB 200/mt again in the afternoon session, but there were limited transactions. In this context, copper premiums failed to increase, reporting between discounts of negative RMB 20/mt and premiums of positive RMB 50/mt. Traded prices already fell between RMB 67,500 -67,700/mt.  

SMM conducted a survey with regard to copper price trends this week.

Based on the survey, about 76% industry insiders believed LME copper prices to move between USD 9,000-9,300/mt, and SHFE copper prices between RMB 67,000-68,500/mt. The recently announced US non-farm payrolls were the worst since September 2010, and the unemployment rate was also high at 9.1%. Besides, the five-year US bank Credit Default Swap (CDS) used to be higher this year than that during the financial crisis period, all signaling uncertainties in the US economic prospects, and falling short of the forecasts of positive economic recovery claimed earlier. Even if Obama can get approval of his plan to boost economy and create jobs this week, market concerns will not be easily reassured. As a result, markets will keep cautious towards holdings of positions, and both long and short investors will mainly make intraday operations. The European debt problems persist, with August economic index touching the lowest since March 2010 and the unemployment rate increasing by 10%. With the arrival of deadlines for European countries' debts in September, banks in Greece and Italy will not likely bear the high interest rates and have the risk of defaults, and thus will create panic sentiment in the markets. China's PMI data has been at low levels, also triggering panic sentiment. Technical indicators of LME and SHFE copper prices are also pointing downward, and the pressures at the moving averages are increasing. Meanwhile, due to a string of poor economic results, the expectation of the US introduction of quantitative easing is growing, and the US dollar index hovers around 74 points, which will well support the end copper prices. The longs and shorts will struggle at USD 9,000/mt. In Chinese markets, as downstream producers will gradually step out of the seasonal low demand period in September, demand will improve somehow. Downstream producers took advantage of copper price drops to increase purchases, and stocking needs before the Mid-Autumn Festival and National Holiday will promote market transactions. Spot copper market will provide support for the low-end copper prices.   
The remaining 24% insiders were pessimistic about copper prices, believing LME copper prices will lose USD 9,000/mt and test USD 8,800/mt, and SHFE copper prices will fall near RMB 66,000/mt. As of last week, total position holdings of SHFE copper fell from 360,000 lots in January to around 300,000 lots, a sign of investor cautious sentiment and reduced confidence about future copper prices amid weak economic recovery and risky financial markets. From copper inventories last week, both SHFE and LME copper inventories increased significantly, highlighting the characteristic of market oversupply, which will weigh on copper prices. As a result, copper prices will move downward to find support due to the above mentioned negative factors.          


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