SMM Daily Review – 2012/3/12 Copper Market

SHANGHAI, Mar. 13 (SMM) –As LME copper prices closed with strong gains last Friday, SHFE 1206 copper contract prices, the most active one, opened RMB 560/mt higher at RMB 60,700/mt Monday. SHFE copper prices fluctuated briefly following the opening, but met large-scale selling pressures after touching a high of RMB 60,850/mt. Chinese stock markets closed slightly down, dragging down SHFE copper prices, which came under pressure at the daily moving average but won support near the 20-day moving average of RMB 60,350/mt. Finally, SHFE 1206 copper contract prices closed at RMB 60,620/mt, up RMB 480/mt or 0.8%. Positions for SHFE 1206 copper contract were up 3,818 lots, while trading volumes were down 54,208 lots. SHFE copper prices failed to break resistance at RMB 61,000/mt during the first trading day of this week, but gained more support at low-end prices.

In spot markets, since SHFE copper prices lacked momentum to rebound, cargo-holders tried to maintain premiums as the delivery date for SHFE current-month copper contract nears. Mainstream copper offers were quoted between discounts of negative RMB 50/mt and premiums of positive RMB 20/mt in the morning business. Traded prices for standard-quality copper were between RMB 59,650-59,750/mt, and RMB 59,700-59,850/mt for high-quality copper. Spot copper supply decreased during the whole trading day. Traders continued to favor high-quality copper with low premiums, while downstream producers opted to stand on the sidelines, keeping market activity light. In the afternoon business, spot copper offers were virtually unchanged from the morning session levels, but traded prices edged down to between RMB 59,600-59,770/mt. Some traders made purchases when copper prices rallied at the tail of trading, but overall market activity remained quiet.

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

Based on the survey, 42% of market insiders believe copper prices will fluctuate at current values this week, with LME copper prices expected between USD 8,400-8,500/mt and SHFE copper prices around RMB 60,000/mt. Despite successful Greek debt swap deal and strong US economic data, both LME and SHFE copper prices are still struggling among their moving averages, with technical indicators pointing downside. In China, Premier Wen Jiabao lowered China's 2012 economic growth target to 7.5% when delivering a government report, the first time below 8% in recent 8 years. Monetary policy, though, will be maintained stable, and the projected growth of China's broad money supply (M2), which is closely related to liquidity in stock markets, is only estimated at around 14% this year. This means there will be limited room for significantly loosening measures. However, the National Bureau of Statistics (NBS) announced last Friday China's latest CPI growth continued to fall, boosting market expectations that the central bank will introduce some appropriately loosening monetary measures, and providing good support for low-end copper prices. Nevertheless, Chinese stock markets face great pressures at 2,450 points, which will drag commodity markets down. These factors mentioned above will lead copper prices to fluctuate this week.
        
29% of the market insiders SMM surveyed are optimistic about the outlook, believing LME copper prices will challenge resistance at USD 8,500/mt and that SHFE copper prices will stand above RMB 60,500/mt. As private creditors approved the debt swap deal, the European debt crisis will have a weakening impact on copper markets over the near term. The US nonfarm payrolls are positive, and markets are positive towards this week's import and export price index, initial jobless claims, and the latest CPI data. In this context, the US and European stock markets are likely to rise further this week, which can drive up copper prices. Meanwhile, cargo-holders in spot markets will quote prices firm as the delivery date for SHFE current-month copper contract nears. Slight copper premiums will bolster SHFE copper prices. Therefore, copper prices will trend higher this week.

The remaining 29% are pessimistic, expecting LME copper prices will retreat to USD 8,300/mt and SHFE copper prices will confirm support at RMB 59,000/mt. The US dollar broke resistance at 80 Monday after closing with strong gains last Friday, and will keep increasing momentum this week, both from impossibility of US loosening monetary policy over the near term and technical indicators. Furthermore, spot copper consumption in China fails to improve, and especially given the fact that downstream buying will be unlikely as spot copper will maintain slight premiums due to the approach of delivery date. As such, both a strong US dollar and sluggish Chinese consumption will push copper prices down this week.