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SMM Daily Review - 2011/10/10 Copper Market
Oct 11,2011 10:32CST
price review forecast
SHFE 1112 copper contract prices opened RMB 1,560/mt higher at RMB 55,060/mt on Monday. About 52% insiders in an SMM survey are cautious towards copper price movements this week.

SHANGHAI, Oct. 11 (SMM) –LME copper prices rallied after initially falling during China's National Day holiday period, with prices returning to USD 7,300/mt last Friday. SHFE 1112 copper contract prices, the most active one, opened RMB 1,560/mt higher at RMB 55,060/mt on Monday. After the opening, SHFE three-month copper contract climbed as high as RMB 55,740/mt after a severe struggle between long and short investors at near RMB 55,300/mt. However, LME copper prices later met resistance at high levels, and Chinese stock markets moved lower after a high open. Coupled with great selling pressures from domestic short investors, SHFE three-month copper contract prices fell back, sliding nearly RMB 1,000/mt before the midday and generally fluctuating around RMB 54,500/mt in the afternoon session. SHFE 1112 copper contract prices finally closed at RMB 54,480/mt, up RMB 980/mt, or a gain of 1.83%. Positions for SHFE 1112 copper contracts were up 10,614 lots, while trading volumes were significantly down 64,084 lots. In addition, positions for SHFE 1201 copper contracts were up 12,524 lots, but trading volumes were slightly down 3,318 lots. With severe struggle between long and short investors, SHFE copper prices would follow LME copper prices to look for support at the five-day moving average.       

In the spot market, copper offers were quoted between RMB 55,400-55,500/mt at discounts of negative RMB 50/mt and premiums of positive RMB 0/mt, since SHFE copper prices opened higher in the morning business and near-month copper contract prices were higher than forward-month copper contract prices. Given discounts for high-quality copper, speculators made purchases before the delivery date, which resulted in brisk transactions. As SHFE copper prices fell significantly, high-quality copper turned into premiums of positive RMB 50-100/mt, with price offers held firm at RMB 55,000/mt. Traded prices for standard-quality copper fell between RMB 54,800-54,950/mt, and RMB 54,900-55,000/mt for high-quality copper. After SHFE copper prices fell rapidly, it failed to attract speculators. Furthermore, since cargo-holders were reluctant to sell at the lows, market transactions became quiet. Downstream producers mostly took a wait-and-see stance on the first trading day after China's National Day holiday. SHFE copper prices remained weak in the afternoon session, but with limited fluctuating room. Market consumption was still sluggish, and spot copper premiums failed to improve, with premiums for high-quality copper reported between positive RMB 30-80/mt. Market transactions were restricted at RMB 55,000/mt, and trading sentiment was low.        

SMM conducted a survey concerning copper price trends this week.

Based on the survey, about 26% market insiders are optimistic towards the outlook, believing LME copper prices will climb to near USD 7,500/mt and SHFE copper prices will challenge RMB 56,000/mt. The Bank of England announced during China's National Day holiday period that it would introduce a new round of quantitative easing on October 10th, injecting 75 billion pound into the economy to improve financing environment among commercial banks. The Bank of England also announced to keep the benchmark interest rates at a historical low of 0.5%. Markets believe that the European Central Bank (ECB) and Federal Reserve (Fed) will also implement loose monetary policies to control Europe's debt crisis and stabilize market confidence, which will worsen global inflation and help copper prices gain momentum. The US dollar index has experienced a down for five straight days after challenging a high of 80, which will support the low-end copper prices. Technically, LME copper prices already consolidated at USD 6,600/mt during China's National Day holiday period, and stood above the 5-day moving average, gaining more support at the low-end. As Chinese investors take copper imports as a way of financing given China's Central Government's tightening monetary policies, low LME copper prices will attract Chinese buying activities. As of October 10th, LME copper inventories were down 8,175 mt compared with the week ending September 30th, and LME cancelled warrants were 54,825 mt as of October 7th, an increase of 23,900 mt compared with the week ending September 30th, and the highest since May 2009. Falling copper inventories were mostly Asian warehouses, which will help rebuild market confidence about China copper demand and is positive for future copper prices. Crude oil prices returned USD 85 per barrel, while gold prices increased to USD 1,650 per ounce, which will help LME copper prices break the resistance at USD 7,500/mt. 

Approximately 22% insiders are pessimistic about copper prices this week. They believe LME copper prices will extend losses and move between USD 6,600-7,000/mt, while SHFE copper prices will test RMB 50,000/mt at the low-end. The European debt problems are deteriorating, and market sentiment was also low during China's week-long holiday period. Economic growth in Europe and the US is slowing down, with manufacturing index hovering at a low level of the 2008 financial crisis period, which will continue to depress investor confidence. Furthermore, the US Senate will vote this Thursday on a bill of RMB operation, and will force RMB to appreciate once passed, which will affect China's imports and exports. Once China demand falls, market consumption will not improve in October. Markets expect China's CPI data to be announced this Friday will remain high, and China's Central Bank will continue its tightening monetary measures, which will dampen downstream producers' buying interest. Imported copper cargo-holders in Chinese markets will be eager to move goods for cash generation before the delivery date, which will drag down spot copper premiums. In summary, copper prices will probably continue to decline this week.

The remaining 52% insiders are cautious towards copper price movements this week, with expectation LME copper prices will struggle at near USD 7,300/mt and SHFE copper prices will move between RMB 52,500 -55,000/mt. The Euro-zone governments constantly introduce measures to ease market sentiment, but investors can't see any substantial improvements for European debt crisis, which will not likely turn better in the short term. The current weak economy in the US and discontent among the people force Obama administration to make a choice between financing policies and loose monetary measures, which will keep investors wary of conducting market operations. Investors generally sell at high prices and buy at the lows to reduce risks, so both increases and declines in copper prices will be limited.          


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