Shanghai Metal Prices to Fluctuate Lower on Pressure from Neighboring Markets

SHANGHAI, Oct. 24 (SMM) -- After hitting a yearly low on October 24th, Shanghai metal prices began to rebound on Monday but surrendered partial gains owing to pressure from stock and related commodity markets.

With base metals prices continuously falling down, some positive news like loose monetary policies appeared last week, but some negative news also came out of the market, creating extreme pessimism in the market. What made investors more worried was that markets held extraordinary low expectations towards macro economy and profit margins at enterprises. Although market players were already prepared for a slowdown in economic growth and already had awareness of tight cash at enterprises, they began to overact to some negative factors in the market given growing pessimistic sentiment, causing market risks to extend. In addition, uncertainties in European debt crisis also dampened investors’ confidence. Standard & Poor’s downgraded the Egyptian sovereign credit rating by two notches, with turmoil in international financial markets remaining.

Shorts have also received support from funds, according to recent capital flows. The CFTC COMEX copper futures positions report for the week from October 10th shows non-commercial long positions decreased 1,861 lots to 28,110 lots and short positions decreased 1,581 lots to 33,449 lots, with net non-commercial long positions decreasing 5,339 lots. This indicates that funds previously favoring long positions have turned to short ones. Shanghai metals are still facing downside risks as domestic capital supply remains tight and huge uncertainties exist for the European debt crisis. Therefore, we expect Shanghai metals to continue moving downward in the short term.