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SMM Daily Review - 2011/10/31 Copper Market
Nov 1,2011 10:16CST
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SHFE 1210 copper contract prices opened RMB 390/mt lower at RMB 59,430/mt on Monday. About 68% market insiders believe copper price gains will be limited this week.

SHANGHAI, Nov. 1 (SMM) –As LME copper prices failed to pare losses last Friday evening, SHFE 1210 copper contract prices, the most active one, opened RMB 390/mt lower at RMB 59,430/mt on Monday. After the opening, SHFE three-month copper contract prices felt weak to move higher and narrowly fluctuated around RMB 59,000/mt. After 10:00 am, the US dollar index surged, helping LME copper prices slide below USD 8,000/mt and SHFE copper prices fall back. Chinese stock markets fell from initial increasing, also weighing down copper prices. In response, SHFE three-month copper contract prices touched the daily low-end at USD 57,530/mt in the afternoon session, and eased declines temporarily near the 5-day moving average of RMB 57,800/mt. At the tail of trading, LME copper prices edged up, and position closings helped SHFE copper prices narrow declines. Finally, SHFE 1210 copper contract prices closed at RMB 58,230/mt, down RMB 1,590/mt or 2.66%. Positions for SHFE 1210 copper contracts were up 36,858 lots, and trading volumes were up 166,000 lots. With increasing struggle between long and short investors, SHFE copper prices would test the support at the 30-day moving average.

In the spot market, as SHFE copper prices opened lower and the SHFE/LME copper price ratio continued to fall, cargo-holders of imported copper tried to push up copper premiums, which were initially reported between positive RMB 100-150/mt in the morning business. Later, the US dollar surged and caused SHFE copper prices to fall back, triggering market panic again. Combined with weak consumption, spot copper premiums fell along with declining copper prices, reporting between positive RMB 20-150/mt near the midday. Traded prices for standard-quality copper were between RMB 59,100-59,350/mt in the morning session, and RMB 59,150-59,600/mt for high-quality copper. Cargo-holders were active moving goods to generate cash given cash flow pressures on the last trading day in October, keeping copper supply sufficient on the market. However, purchasing interest and ability were weak, creating difficulties for market transactions. Traded prices were falling down, and spot copper premiums failed to increase, clearly highlighting the characteristic of the month’s end. In the afternoon session, SHFE copper prices remained weak, and copper consumption continued to become quiet, leading standard-quality copper offers to turn into discounts and high-quality copper to only maintain slight premiums. Mainstream price offers were between discounts of negative RMB 20/mt and premiums of positive RMB 50/mt in the afternoon session, while traded prices fell between RMB 58,450-58,850/mt.

SMM conducted a survey regarding copper price movements this week.

Based on the survey, about 68% market insiders believe copper price gains will be limited, with expectations LME copper prices will continue to move between USD 7,700-8,000/mt and SHFE copper prices will struggle at RMB 58,000/mt by short and long investors. Although the positive news of European debt deal is being absorbed, markets are still optimistic towards the G20 Finance Minister meeting to be held this week, which will greatly lift commodity price movements. Meanwhile, the recently released US economic data turns better, and markets are also positive about some manufacturing figures to be announced this week, improving market risk appetites, helping US equity markets stabilize, and providing support for copper prices. LME copper inventories have been falling for six consecutive weeks, and canceled warrants were high between 13%-14%. Spot copper discounts on the LME are already reported at negative USD 8/mt, and if copper supply continues to be tightening, offers will likely turn into premiums, which will support LME copper prices. In China, markets hold positive views towards some China’s economic data to be announced Tuesday, since HSBC announced last week China Manufacturing PMI increased in October. As the world’s top copper consumer, China’s positive economic reports will give a boost to copper prices over the near term. Besides, large buying activity at RMB 50,000-55,000/mt from Chinese trader on the domestic market will also support copper prices overseas. In Chinese spot copper market, the SHFE/LME copper price ratio continues to fall, and cargo-holders of imported copper will try to keep high copper premiums, supporting copper prices somehow. In summary, copper prices will mainly fluctuate, with limited downside room.

The remaining 32% insiders expect copper prices will fall from highs this week, believing LME copper prices will test the 10-day moving average of USD 7,500/mt and SHFE copper prices will fall to RMB 55,500/mt. The European debt crisis persists, and Italian debt problems are gradually coming onto the surface, weighing on copper markets. The US Federal Reserve (Fed) will hold a meeting this week, and markets expect the Fed meeting is unlikely to produce some positive results. Furthermore, the non-farm payrolls, the US fundamental data, will not improve in the near term, although some other economic figures are turning warmer. The US will announce non-farm payrolls this Friday, and markets are wary towards operations, while short investors will look for opportunity to impose sell-off pressures. The US dollar index has rebounded between 76-77 following sharp declines last week, and this will bring great pressures on copper prices. SHFE copper prices haven’t filled shortfalls registered during Chinese National Day holiday period, becoming big resistance for copper prices to move upward. In the spot market, pressures at downstream producers can’t be resolved fundamentally and their buying interest is weakening, which will not support copper prices. In general, low and panic market sentiment will make it impossible for copper prices to move at high levels, and long investors will make profit-taking. 

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