SMM Copper Price Forecast (Nov.7-11)

SHANGHAI, Nov. 7 (SMM) –In China, the amount of three-month bills issued by People's Bank of China (PBOC) was up from the previous week, with the net market investment reaching RMB 96 billion and fueling speculation that current tight monetary policies in China would begin to ease in 4Q. Chinese stock markets rebounded strongly and the Shanghai Composite Index stood above 2,500 points, which in turn drove SHFE copper prices up above the 10-day moving average on Friday after first gaining support at the 30-day moving average. Daily trading volumes for the most active SHFE 1201 copper contracts exceeded 1 million lots for the week, with SHFE copper prices appearing more stable than LME copper.

SHFE copper prices should remain stable in the coming week, with prices expected between RMB 55,500-60,000/mt. Market investors are expected to remain cautious and mainly make intraday transactions.

Although SHFE copper prices remained relatively firm and the SHFE/LME copper price ratio rose slightly over the past week, copper importers still faced losses. In order to reduce losses, traders using copper imports as financing vehicles maintained spot copper premiums of RMB 100-200/mt and were active moving goods for cash generation, resulting in ample market supply. However, cash flow problems due to at the end of October and beginning of November, as well as international economic volatility depressed speculator interest last week. Downstream producers were also cautious and made purchases on an as-needed basis due to capital pressures, falling orders, as well as volatile copper prices. As a result, market transactions were down sharply from the previous week.

Tight cash flows problems at downstream enterprises will continue, while financing demands exist since copper inventories continue to fall, which will support spot copper premiums. The steady decline in the SHFE/LME copper price ratio will also help cargo-holders of imported copper keep prices firm amidst losses, so SMM believes spot copper premiums will remain in the coming week. Market transactions will mainly be made by speculators, while downstream producers will purchase on an as-needed basis to avoid financial inventory risks.