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SMM Daily Review - 2011/11/14 Copper Market
Nov 15,2011 10:16CST
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SHFE 1201 copper contract prices opened 1,570/mt up at RMB 57,030/mt on Monday. Approximately 57% insiders expect copper prices this week will continue to fluctuate.

SHANGHAI, Nov. 15 (SMM) –As LME copper prices closed significantly higher last Friday, SHFE 1201 copper contract prices, the most active one, opened 1,570/mt up at RMB 57,030/mt on Monday. After the opening, SHFE three-month copper contract prices edged up due to large-scale position closings by short investors, with a low only touching RMB 56,920/mt. Near the midday, since LME copper prices broke out USD 7,900/mt and since Chinese stock markets surged by 2%, SHFE three-month copper contract prices climbed up to the upper daily trade limit of RMB 58,780/mt. But due to profit-taking by long investors, positions for SHFE three-month copper contracts were down 4,000 lots from earlier increases of nearly 20,000 lots, leading the prices to fluctuate narrowly around RMB 58,500/mt in the afternoon session. Finally, SHFE 1201 copper contract prices closed at RMB 58,430/mt, up RMB 2,970/mt or 5.36%. Positions for SHFE 1201 copper contracts were down 15,576 lots, while trading volumes were slightly down 500 lots. Short and long investors still kept cautious towards building positions for fear of overnight risks, with intraday operation increasing. SHFE copper prices moved higher after a high open on Monday, a signal of stabilizing following the price declines, but with strong resistance at RMB 59,000/mt.    

In the spot market, as SHFE copper prices moved higher after a high open, spot copper discounts expanded to between negative RMB 220-100/mt near the midday, with discounts for some standard-quality copper even quoted at negative RMB 250/mt. Traded prices for standard-quality copper were between RMB 58,200-58,900/mt in the morning business, and RMB 58,300-59,000/mt for high-quality copper. Some speculators were anxious to move goods for cash generation at the highs during the whole trading day. Some traders made purchases for hedge trading, while downstream producers kept cautious at the highs, restricting overall market transactions. Market was dominated by wait-and-see sentiment on Monday. In the afternoon session, SHFE copper prices continued to move at high levels, and the price differential between SHFE 1111 and 1201 copper contracts was still RMB 200/mt, propelling cargo-holders of SHFE 1111 copper contracts to sell actively. As a result, spot copper discounts rose to between negative RMB 300-150/mt in the afternoon session, but speculators and downstream producers had no intention of purchasing, while traded prices were nearly unchanged from the morning business.

SMM conducted a survey with regard to copper price trends this week.

Based on the survey, about 14% market insiders believe copper prices will stably move higher this week, with LME copper prices expected to test USD 8,000/mt. Since SHFE copper prices opened higher on Monday and stood above the 5-day moving average again, these insiders believe SHFE copper prices will likely return to earlier fluctuating band. Market worries over the Europe ease some after new governments in Italy and Greece took office at the weekend, reducing pressures on copper prices. The US economic data is also gradually improving, which will boost market confidence. Gold prices are still fluctuating, but crude oil prices have been recently increasing stably, leading base metals to experience rebound trends. The People's Bank of China (PBOC) is increasing short-term central bank bills as the end of the year approaches, a signal of introduction of targeted loosening monetary policy at the year-end, which is positive for both stocks and commodity markets. On the copper fundamental side, China's domestic copper smelters cut their output by around 10% in 4Q, so supply of domestic high-quality copper will fall, which will support copper premiums and lay a foundation for LME copper price rebound.

Around 29% insiders surveyed are pessimistic, believing LME copper prices will fall below USD 7,500/mt and SHFE copper prices will test support at RMB 55,000/mt. Despite positive attitudes, the establishment of new Italian and Greek governments can't smoothly solve all their debt problems and economic issues, as Greece's deficit is 9% of its GDP, well above than the 7.6% level required by the bailout plan. In the currency markets, the Euro will easily meet selling pressures due to instabilities in the European debt crisis, while the US dollar is greatly welcomed and gets support at the 60-day moving average, imposing new pressures on copper prices. The one-month falling proportion of cancelled warrants to total LME copper inventories is also easing, down to 8% from 14% as of last Friday evening, which will have a limited impact on high copper prices. Short investors are waiting opportunities to impose selling pressures at USD 8,000/mt for LME copper and RMB 60,000/mt for SHFE copper, keeping long investors on edge. Technical indicators for both LME and SHFE copper prices are pointing downward, creating potential risks for copper prices this week. In the spot market, copper premiums are unlikely to sustain after the delivery data for SHFE current-month copper contract due to sluggish consumption and cargo-holders' willingness in moving goods for cash generation, and this will dampen SHFE copper price trends.

Approximately 57% insiders expect copper prices this week will continue to fluctuate due to uncertainties in many factors, with LME copper prices estimated between USD 7,600-7,850/mt and SHFE copper prices between 55,500-58,500/mt.   

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