SMM Daily Review - 2011/9/26 Copper Market

SHANGHAI, Sept. 27 (SMM) –As LME copper prices dropped by more than 4% last Friday, SHFE 1112 copper contract prices, the most active one, opened down RMB 1,470/mt at RMB 55,870/mt on Monday. LME copper prices stabilized near USD 7,300/mt on Monday morning, and SHFE three-month copper contract prices remained weak after a low open, but gained support at the lows around RMB 55,060/mt, with prices fluctuating around RMB 55,500/mt. In the afternoon session, since LME copper prices plummeted by 6% to lose USD 7,000/mt and USD 6,900/mt, and since the Shanghai Composite Index also fell below 2,400 points, SHFE three-month copper contract prices tumbled, with prices again sliding by the daily limit of 7% to touch RMB 53,320/mt after the longs left the market. SHFE three-month copper contract prices tried to flee from the price mark, but failed given increasing sell-off pressures from the shorts. SHFE 1112 copper contract prices finally closed at the downside limit of RMB 53,320/mt, down RMB 4,020/mt or a loss of 7.01%. Positions for SHFE 1112 copper contracts were up 16,770 lots, and trading volumes were up 117,000 lots. After constant copper price declines, markets were dominated by panic sentiment. As the shorts actively built new positions, SHFE copper prices would fall further.  

In the spot market, SHFE copper prices continued to fall by more than 3%, but LME copper prices rebounded slightly in the morning business. In this context, the SHFE/LME copper price ratio improved, creating profit opportunities for copper imports. As a result, copper premiums fell from the positive RMB 350-450/mt in earlier trading hours to positive RMB 150-250/mt near the midday. Traded prices for standard-quality copper were between RMB 55,850-56,000/mt in the morning session, and RMB 55,900-56,200/mt for high-quality copper. Cargo-holders were eager to move goods for cash generation during the whole trading day, but both traders and downstream producers were still cautious towards purchases, preferring to wait until a stable price trend was visible. In the afternoon session, SHFE copper prices slid by their daily limit, and although cargo-holders made aggressive sell-offs, spot copper offers moved towards below RMB 53,000/mt. Consumption failed to improve, and market players generally took a wait-and-see stance amid falling copper prices.  

SMM conducted a survey about copper price trends this week.

Based on the survey, about 72% industry insiders believe copper prices will extend losses within this week. They believe LME copper prices will test USD 6,500/mt at the low-end, and SHFE copper prices will slide further and lose RMB 50,000/mt, as negative news comes in constantly, and copper market is completely bearish. First, the European Central Bank (ECB) hasn't introduced effective new policies or concrete measures to solve the region's debt problems, despite some reassuring comments, and the latest G20 officer's meeting also didn't improve market confidence. As the deadline of Greek debts approaches, investor worries over the Euro-zone area are escalating, dampening financial markets. Second, Obama's USD 470 billion job-creation plan and the Federal Reserve's (Fed) measure of buying long-term bonds and selling short-term ones couldn't save the faltering US economy fundamentally, which greatly hurt market confidence. Third, economic data in the US, including September Consumer Confidence Index, the US Richmond Fed Manufacturing Index for September, August durable goods orders, final reading of annual GDP in Q2 and Chicago Purchasing Managers Index (PMI) for September, is weak, and the September Consumer Confidence Index in the Euro-zone area is also weak. Markets expect the HSBC's China manufacturing PMI data for September to be announced this Friday will be weak, which will further dampen financial markets and copper markets. Fourth, markets are panic, and will lead investors to largely buy US dollar for a risk hedge, which will help the US dollar index surge and weigh down copper prices. Fifth, gold and silver prices slumped on Monday, with gold prices falling below USD 1,600/oz from USD 1,900/oz, while crude oil prices also dropped to USD 77/bbl, negative for commodity markets. Six, Chinese stock markets have lost 2,400 points, and the financial markets will negatively affect copper prices. Meanwhile, cargo-holders will actively move goods for cash generation due to increasing cash flow pressures this week, in addition to the factor of panic sell-offs and profit-taking for imported copper. In this context, firm spot copper premiums will be unlikely as the month's end nears, which will not support copper prices. In summary, copper prices will fall further this week.  

The remaining 18% insiders hold the view copper price drops will ease this week, believing LME copper prices will gain buying interest between USD 6,800-7,000/mt and SHFE copper prices will get support between RMB 51,000-52,000/mt. Although markets are dominated by bearish sentiment, global inflation continues, and the improvement in the SHFE/LME copper price ratio will also spur Chinese buyers to make quotation pricing, which will help LME copper prices. Technically, copper markets are considered oversold after slumps in both LME and SHFE copper prices, and will need corrections later, and both traders and downstream producers are waiting to enter into the market after a stable price trend is visible. In the spot market, downstream producers will need to build inventories before the Chinese National Day holiday. Although they are cautious towards trading now, they will gradually make purchases later, which will support copper prices. Hence, these insiders believe copper price declines will ease, with prices expected to increase after initially falling.