SMM Daily Review - 2011/9/13 Copper Market

SHANGHAI, Sept. 14 (SMM) –SHFE 1111 copper contract prices, the most active one, opened down RMB 1,210/mt at RMB 66,550/mt on Tuesday. After the opening, SHFE three-month copper contract prices narrowly fluctuated around the daily moving average due to severe struggle between the long and short investors, with the fluctuating band around RMB 100/mt. Later, although increasing selling pressures from short investors caused SHFE three-month copper contract prices to meet resistance at the daily moving average, LME copper prices' return above USD 8,800/mt supported the low-end SHFE three-month copper contract prices, which showed some resistance to fall sharply, with an intraday low of RMB 66,160/mt. At the tail of trading, SHFE three-month copper contract prices edged down due to position closings, with prices finally closing at RMB 66,310/mt, down RMB 1,450/mt or 2.14%. SHFE copper contracts posted active performance during the whole trading day, with overall positions increasing by more than 35,000 lots. Positions of SHFE copper contracts for December delivery were up 24,224 lots. Trading volumes for SHFE 1111 copper contracts were up 85,418 lots, while positions were up by more than 12,000 lots in the afternoon session, but were up 9,828 lots due to position closings at the tail of trading. SHFE copper prices were already pressured by all moving averages, and would test the support at RMB 66,000/mt with increasing selling pressures from short investors.          
 
In the spot market, as SHFE copper prices opened more than 2% down, spot copper tried to hold premiums at the beginning of opening, with offers for high-quality copper reporting between premiums of positive RMB 0-50/mt. However, as hedged copper came into the markets in large amounts, copper supply increased significantly, with imported copper dominating the spot copper market. In this context, imported copper was the first to be traded between premiums of RMB 0/mt and discounts. Traded prices for standard-quality copper were between RMB 66,800-66,900/mt in the morning session, and RMB 66,850-66,950/mt for high-quality copper. Bearish sentiment overshadowed the spot market again. Furthermore, as downstream producers already made some stocks before the Chinese Mid-Autumn Festival holiday, the characteristic of market surpluses was more pronounced. Although some speculators made purchases at low prices, market transactions still felt weak. SHFE copper prices continued to be weighed down in the afternoon session, and spot copper offers remained discounts of negative RMB 50-0/mt due to ample supply. Traded prices already fell between RMB 66,700 -66,800/mt, and there were still some traders making purchases at lows.

SMM conducted a survey concerning copper price trends this week.

Based on the survey, about 48% insiders held pessimistic views toward copper prices this week, believing LME copper prices will fall near USD 8,500/mt and SHFE copper prices will test an earlier low of RMB 63,500/mt. There are too much uncertainty surrounding the markets recently, and negative news came one after another. Escalating European debt problems and slow economic recovery in the US have caused low market sentiment. The Consumer Confidence Index and Manufacturing Index in the US haven’t recovered, further dampening market confidence, and increasing risk aversion sentiment. In this context, the US dollar index closed higher for nine consecutive days in the past 11 trading days, increasing to 77.78 from 73.7. In contrast, worsening European debt crisis caused the euro to close down for nine consecutive days in the past 11 trading days, declining below 1.35 from a high of 1.45. Before the final decision of the US jobs stimulus package and the introduction of loose monetary policies, the US dollar index will remain strong. Gold prices have returned USD 1,800/oz from USD 1,920/oz, which led commodity prices to fall back. Technically, both LME and SHFE copper prices have moved below all moving averages, and are unlikely to stop falling in the short term with more upward pressures gathering. Spot copper supply in domestic markets is sufficient, since the Shanghai Future Exchange (SHFE) has announced copper inventories have increased significantly for two straight weeks, a total increase of 11,042 mt to 113,300 mt. Finance-driven cargo-holders of imported copper are active moving goods to generate cash, and even as the delivery date approaches, they could hardly maintain premiums, which will weigh down SHFE copper prices. Therefore, due to a lack of support, copper prices will move downside this week.      

Approximately 42% insiders believed although copper prices suffered selling pressures from short investors, there is still buying support at the low-end. Therefore, they believed LME copper prices will move between USD 8,750-8,950/mt, with limited downside room. Although the European debt problems are growing, the ECB’s attitudes and moves will help the euro stop declining sharply. From the Obama administration’s move of jobs stimulus package, and with the approach of September 20th, market expectations of QE3 implementation are rising, which will dampen the US dollar's rising momentum and support the low-end copper prices. The preliminary import data released the previous day revealed that China’s imports of unwrought copper and copper semis were 340,398 mt in August, up 11% on a monthly basis, and that China’s refined copper output for the first eight months of 2011 was 3.642 million mt, up 16.3% YoY, highlighting China’s strong copper demand. As domestic copper markets resumed after the Chinese Mid-Autumn Festival holiday, China’s buying power will provide a strong support for copper prices. 

The remaining 10% insiders kept optimism unchanged, expecting LME copper prices will increase to USD 9,000/mt after testing support at USD 8,750/mt. The weak US economic data and proposal of jobs stimulus package are all paving roads for further introduction of loose monetary policies. Hence, the US dollar will fall from highs, which will boost copper prices. Although the European debt crisis persists, copper fundamental side is positive. Therefore, once the Europe’s debt worries ease, short investors’ strength will be released, which will lift copper prices. The approach of delivery date also gives a support for SHFE current-month copper contract prices, and effects of high demand period of September and October and downstream producers’ buying at lows will also support the low-end copper prices. In summary, demand will finally push up copper prices.