SMM Daily Review - 2011/10/24 Copper Market

SHANGHAI, Oct. 25 (SMM) –As LME copper prices surged overnight, SHFE 1201 copper contract prices opened RMB 1,840/mt higher at RMB 53,500/mt on Monday. After the opening, SHFE three-month copper contract prices continued to fluctuate around the daily moving average of RMB 53,300/mt, with the low-end at RMB 52,800/mt. Later, HSBC announced HSBC's China Flash Purchasing Managers' Index (PMI) rebounded above the dividing line of 50% in October, lifting LME copper prices to stand above USD 7,300/mt and SHFE copper prices to challenge RMB 54,000/mt. In the afternoon session, LME copper prices stabilized at USD 7,400/mt, and Chinese stock markets surged by 2%, helping SHFE three-month copper contract prices rapidly rise by their daily limit immediately after the opening. Finally, SHFE 1201 copper contract prices closed at RMB 54,750/mt, up RMB 3,090/mt or a gain of 5.98%. Positions for SHFE 1201 copper contracts were down 4,942 lots, and trading volumes were down 346,000 lots, with the daily handover rate reaching as high as 300%. SHFE copper prices hadn't filled earlier shortfalls, and markets had little confidence over future copper price rebounds.     

In the spot market, as SHFE copper prices opened higher, copper premiums initially fell to between positive RMB 350-450/mt in earlier morning business. As consumption remained weak and since SHFE copper prices later moved higher and increased by more than RMB 600/mt as of 10:00 am, spot copper premiums already decreased to between positive RMB 250-350/mt near the midday. Traded prices for standard-quality copper were between RMB 54,150-54,600/mt in the morning business, and RMB 54,200-54,700/mt for high-quality copper. Overall spot copper supply was sufficient during the whole trading day. Both domestic and imported copper cargo-holders were active moving goods to generate cash due to the approach of the month's end. Speculators conducted market operations, while downstream producers had little interest in purchases due to doubts about continuous rebounds in future copper prices, with market wait-and-see sentiment growing in the market. In the afternoon session, mainstream offers of spot copper premiums fell to between positive RMB 150-300/mt, as SHFE copper prices rose by their daily limit. Traded prices increased significantly to between RMB 55,400-55,750/mt, but cargo-holders reduced sale volumes, keeping market transactions very limited, although speculators intended to make purchases at low copper premiums.

With regard to copper price trends this week, SMM conducted a survey of market insiders.
Based on the survey, about 38% insiders in the survey expect copper prices will stop falling and rebound this week. The European Union (EU) summit will make the final decision this Wednesday. Although the extent of the effects of new policies is unknown, attitudes of Euro-zone finance ministers will lift the Euro in the short term, which will help market risk appetites improve. The US Federal Reserve (Fed) earlier this week already announced to introduce loose monetary measures out of consideration of faltering US economy, and the US dollar index is moving at a low level of near 76, which will support copper price trends. After US equity markets were soothed by investor confidence, the Dow Jones Industrial Average already stood above all moving averages and has a clearer trend now. Meanwhile, crude oil prices already stood above all daily moving averages, with solid support at the low-end, which will boost copper prices. Technically, LME copper prices have broken the resistance of three daily moving averages, with the high-end directly challenging USD 7,550/mt and strong support at the low-end. China Customs announced Monday that China's refined copper imports were 275,000 mt in September, up 14% YoY and 17% MoM, which also strengthened market confidence about robust demand from top consumer China. LME copper inventories were 444,275 mt as of Monday, and cancelled warrants were 58,425 mt, accounting for more than 13% of the total inventories and up 2% compared with a week earlier. The declines in inventories were mainly in Singapore and flowed into China. SHFE copper inventories were down significantly 11,935 mt in the week ending October 21st to 87,726 mt, and the continuous declines in inventories will support copper prices. In the spot market, spot copper premiums have been climbing since the delivery date, with the highest at positive RMB 600-700/mt, which will help copper prices rebound. Hence, LME copper prices will move at high levels between USD 7,250-7,700/mt this week, and SHFE copper prices will fluctuate in the RMB 53,500-56,000/mt range.

Around 62% insiders surveyed hold cautious sentiment towards copper price trends this week, believing there is limited rebound room for copper prices. The European debt crisis persists, and a Greek default is unavoidable. The EU summit has been deferred many times, and even if the summit produces good decisions, it will not fundamentally lift market confidence. Furthermore, German and French leaders have disagreements on the way of solving the Euro-zone debt crisis for consideration of their own interests, which serves as a potential risk for copper price rebounds. Based on the latest CFTC reports, short investors have more advantages and will weigh down copper prices. Moreover, USD 7,500/mt and RMB 56,000/mt are strong resistance for LME and SHFE copper prices to move upward. Due to huge fluctuations in recently days, market risk sentiment is growing, keeping investors more cautious. SHFE copper prices both fell and rose by their daily limit within one week, and will not quickly make corrections and help copper prices stabilize. Due to the approach of the month's end, cash flow pressures will force speculators to make operations actively, and Chinese stock markets have difficulties to move upward, which will restrict SHFE copper prices. Therefore, copper prices will increase at first and then fall this week. LME copper prices will move between USD 7,000-7,600/mt, with resistance at USD 7,600/mt, and SHFE copper prices will fluctuate in the RMB 51,000-56,000/mt band, with pressures at RMB 56,000/mt.