SMM Daily Review - 2011/12/19 Copper Market

SHANGHAI, Dec. 20 (SMM) –As LME copper prices closed with gains overnight, SHFE 1203 copper contract prices opened slightly up by RMB 210/mt at RMB 53,990/mt Monday. SHFE three-month copper contract prices still struggled below RMB 54,000/mt, and reached a high at RMB 54,090/mt in the morning business. However, as Chinese stock markets slid and hit a new low for 2011, and as LME copper prices fell to around USD 7,200/mt, SHFE three-month copper contract prices moved lower after a high open, with prices directly testing support at RMB 53,000/mt before the midday. In the afternoon session, as short-term long inventors entered the market, SHFE three-month copper contract prices got support temporarily at the low-end and fluctuated narrowly around RMB 54,400/mt. At the tail of trading, SHFE three-month copper contract prices pared daily losses since the Shanghai Composite Index returned to the 2,200 point level. Finally, SHFE 1203 copper contract prices closed at RMB 53,580/mt, down RMB 200/mt or 0.37%. Positions for SHFE 1203 copper contracts were up 27,992 lots, and trading volumes were up 121,000 lots. Owing to dampened market sentiment stemming from falling Chinese stock markets and resistance at RMB 54,000/mt, SHFE copper prices were likely to move lower to look for support.    

In the spot market, despite a drop in SHFE copper prices, a lack of confidence caused copper premiums to fall in the morning business. Copper premiums slid to between positive RMB 20-180/mt near the midday. Traded prices for standard-quality copper were between RMB 54,100-54,450/mt in the morning session, and RMB 54,150-54,650/mt for high-quality copper. Traded prices were nearly RMB 54,000/mt at the tail of trading in the morning business. As copper prices didn't stop falling, there was hardly bargain hunting, with both downstream producers and traders keeping cautious as bearish sentiment spread. In the afternoon business, as SHFE copper prices rallied, and as cargo-holders of imported standard-quality copper were actively moving goods, the lowest premiums were reported at positive RMB 0/mt. However, premiums for domestic copper stayed virtually flat with the morning business levels, expanding its price gap with imported standard-quality copper. Traded prices were basically between RMB 54,100 -54,500/mt in the afternoon session, and copper supply remained sufficient, with downstream producers choosing to stand on the sidelines.

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

Based on the survey, 63% market insiders believe copper prices will extend losses this week, with LME copper prices expected to test the USD 7,000-7,100/mt range. France's credit ratings have been placed to negative outlooks, and there is possibility that it will lose AAA credit ratings, creating potential risks to copper markets. As the Christmas holiday nears, investors last Friday already began to close positions to avoid incurring risks, and market activity will gradually become lackluster this week. Risk aversion will also likely help the US dollar index move higher to 81, imposing pressures on copper price trends. Both LME and SHFE copper inventories have increased following previously significant drops, a negative factor for copper prices. Chinese stock markets find weak support at 2,200 points, which will depress market sentiment. SHFE copper prices have moved away from all moving averages, with great technical resistance. As the year's end approaches, buying interest is waning from downstream producers, who have no intention of replenishing stocks due to poor orders, which will not be able to support copper prices.    

The remaining 37% market insiders expect LME copper prices will keep fluctuating between RMB 7,200 -7,500/mt this week, with limited downside room. Eurozone Finance Ministers already agreed to provide EUR 150 billion for the International Monetary Fund (IMF) last night, boosting copper markets somehow. The US announced last Friday that its November CPI held flat, increasing market expectations that the Federal Reserve (Fed) will introduce more stimulus measures to boost the economy, which will lift copper prices. Some short-term long investors tend to buy at the RMB 53,000/mt level, which will limit downside room for copper prices. In the spot market, imports arriving at ports will fall as the end of the year nears, and copper supply will stabilize, which will help copper offer steady at premiums of positive RMB 0/mt or slight premiums. Copper prices will be supported as a result.