SMM Daily Review - 2011/12/12 Copper Market

SHANGHAI, Dec. 13 (SMM) –As LME copper prices closed with gains last Friday, SHFE 1202 copper contract prices, the most active one, opened slightly up by RMB 330/mt at RMB 57,620/mt Monday. After the opening, SHFE three-month copper contract prices slid rapidly since long investors made profit-taking overnight, lowering to test support at RMB 57,000/mt. In the afternoon business, as Chinese stock markets lost 2,300 points, SHFE three-month copper contract prices came under pressure at RMB 57,000/mt and fell after LME copper prices declined below USD 7,700/mt, with prices fluctuating around RMB 56,700/mt following an intraday low of RMB 56,630/mt. Finally, SHFE 1202 copper contract prices closed at RMB 56,760/mt, down RMB 530/mt or 0.93%. Positions for SHFE 1202 copper contracts were down 5,312 lots, while trading volumes were up 51,916 lots. With increasing selling pressures and position closings by short investors overnight, SHFE copper prices lost support at three daily moving averages and were expected to test support at the 30-day moving average. Hence, SHFE copper prices would meet resistance to rally over the near term with technical indicators pointing downward.

In the spot market, SHFE copper prices began to slide immediately after the opening, but copper discounts were still reported across the board and expanded all the way due to sufficient supply. Copper discounts rose from negative RMB 150-50/mt in earlier trading hours to negative RMB 200-80/mt near the midday. Traded prices for standard-quality copper were between RMB 57,350-57,450/mt in the morning business, and RMB 57,400-57,600/mt for high-quality copper. Cargo-holders were eager to sell to generate cash during the whole trading day, but downstream producers still made purchases on an as-needed basis, while speculators only had buying interest in high-quality copper with large discounts, highlighting cautious trading on Monday. In the afternoon session, as SHFE copper prices continued to fall, spot copper discounts expanded to negative RMB 250-150/mt. Traded prices slid to between RMB 57,050-57,400/mt in the afternoon session, and market transactions remained light.  

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

Based on the survey, about 24% market insiders are positive about copper prices this week, believing LME copper prices will likely move at highs between USD 7,900-8,000/mt and SHFE copper prices will rally above RMB 58,000/mt. Europe's debt crisis tends to ease recently. During Friday's European Union (EU) summit, 26 state members reached consensus on reinforcement of finance rules and agreed to strengthen bailout tools for the debt crisis, heightening market expectations about EU finance integration, reassuring jittery investors, and supporting low-end copper prices. US economic data continues to improve, so markets are optimistic towards economic reports to be released this week, which will help copper prices rally. China's National Bureau of Statistics (NBS) last Friday announced November's CPI continued to fall, while the Central Economic Working Conference will be held this week, from which markets are expecting positive financial measures as well as sound and stable monetary policies for 2012, which will help Chinese stock markets and SHFE copper prices move from the lows. On the Chinese spot markets, SHFE current-month copper contracts will be delivered this week, which will support spot copper prices to some extent and lift SHFE copper prices.  


The remaining 76% market insiders are pessimistic, with LME copper prices expected between USD 7,600 -7,850/mt. Despite some positive factors, there are still too many uncertainties in the euro zone area, and the deal reached during the EU summit didn't introduce detailed rules. HSBC will release the latest Manufacturing Purchasing Managers' Index (PMI) this week, which is unlikely to improve owing to weak domestic consumption, which will drag down commodity markets. The Shanghai Composite Index lost 2,300 points Monday, and Chinese stock markets will not rally due to unstable market sentiment and a lack of capitals. According to the latest import data, China's imports of unwrought copper and copper semis were 450,000 mt in November, up 18% MoM and 28.6% YoY. SHFE copper inventories were up by 15,057 mt in the week ending December 9th, a signal that spot copper supply will remain sufficient over the near term. Besides, copper consumption remains weak due to sluggish orders and finance settlements at the year-end, so copper discounts will likely sustain this week even if SHFE current-month copper contracts will be delivered this week, which is unlikely to support copper futures prices. Technically, both SHFE and LME copper prices are facing increasing upside pressures after both falling below three daily moving averages, hampering future copper price trends.