SHANGHAI, Feb. 28 (SMM) –As LME copper prices closed with gains last Friday, SHFE 1205 copper contract prices, the most active one, opened RMB 250/mt up at RMB 60,300/mt Monday. Tracking LME copper prices, the SHFE copper contract for delivery in May kept fluctuating around the opening price of RMB 60,300/mt during the whole trading day. In the afternoon session, as LME copper prices rose to above USD 8,500/mt rapidly owing to the falling US dollar, and as Chinese stock prices also increased, SHFE copper prices surged to an intraday high of RMB 60,730/mt after breaking out RMB 60,500/mt. However, as long investors made profit-taking at the tail of trading, SHFE 1205 copper contract prices lacked momentum to climb further, and gradually pared some of the daily gains before finally ending at RMB 60,400/mt, still up RMB 350/mt or 0.58%. Positions for SHFE 1205 copper contracts were down 8,712 lots, and trading volumes were down 58,032 lots. SHFE copper prices still faced great resistance at above RMB 60,500/mt, keeping market activity cautious.
Spot copper discounts in Shanghai were quoted between negative RMB 450-350/mt in Monday's morning business. Traded prices for standard-quality copper were between RMB 59,300-59,400/mt, and RMB 59,350-59,500/mt for high-quality copper. As SHFE copper prices lacked momentum to rebound, spot copper discounts remained around negative RMB 400/mt. The supply of high-quality copper decreased due to increased buying interest from traders. Domestic copper smelters continued to hold back goods, while cash flow pressures at downstream producers became more pronounced as the month ends, leaving market activity lackluster in the morning session. In the afternoon business, SHFE copper prices rose, but spot copper supply continued to decrease, causing spot copper discounts to remain the morning session levels. Nevertheless, traded prices surged to between RMB 59,450-59,600/mt in the afternoon session, but market activity still stagnated since transaction volumes downstream failed to improve.
SMM conducted a survey with regard to this week's copper price trends.
Based on this survey, 60% of market insiders SMM surveyed are optimistic towards the outlook, believing LME and SHFE copper prices will challenge USD 8,550/mt and RMB 61,000/mt, respectively. The G20 meeting ended Monday and markets are now positive towards the auction of European Central Bank's (ECB) second round of longer-term refinancing operations (LTRO) to be held February 29. Commodity prices will continue to surge once the euro is boosted, which will help LME copper prices climb to highs. US economic data shows the US economy continues to recover mildly, and markets are optimistic over durable goods orders, the Conference Board Consumer Confidence Index, and the revised annual GDP for 4Q to be released this week, which will likely help US equity markets challenge 13,000. Crude oil and gold prices have been rising, which will continue provide support for LME copper prices. Spot copper offers have turned from discounts into premiums of USD 3/mt versus LME copper contract for delivery in March, and will help drive up copper prices. Chinese stock markets have been posting better performance recently, lifting domestic commodity markets. Therefore, these insiders expect copper prices will increase this week.
The remaining 40% market insiders anticipate copper prices will continue to fluctuate this week, with LME copper prices expected between USD 8,300-8,500/mt, and SHFE copper prices between RMB 59,000-60,800/mt. Although LME copper prices are above recent moving averages, but SHFE copper prices continue to struggle at the 20-day moving average, unfavorable for the SHFE/LME copper price ratio. SHFE copper prices therefore will post fewer gains than LME copper. SHFE copper prices will easily suffer selling pressures at near RMB 61,000/mt and therefore cannot stabilize. On the fundamental side, as orders and operating rates at downstream producers haven't improved in February, and as cash flow pressures will become more prominent as the month ends, spot copper discounts will probably expand further, dragging down copper prices. As such, these insiders believe copper prices will extend fluctuations this week.