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SMM Daily Review – 2012/3/19 Copper Market
Mar 20,2012 10:00CST
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SHFE 1206 copper contract prices opened RMB 230/mt lower at RMB 60,600/mt Monday. According to SMM survey, 52% of market insiders hold the view copper prices will fluctuate at current values.

SHANGHAI, Mar. 20 (SMM) –SHFE 1206 copper contract prices, the most active one, opened RMB 230/mt lower at RMB 60,600/mt Monday. After the opening, as LME copper prices came under great pressures, and as market activity for SHFE copper was light, SHFE copper prices did not gain buying support and trended lower after suffering resistance at the 5-day moving average of RMB 60,600/mt, with a high only touching RMB 60,660/mt. In the afternoon session, LME copper prices continued to fall, while the Shanghai Composite Index struggled at 2,400. In this context, short investors chose to enter the market but then left when copper prices were pushed down to RMB 60,120/mt, with prices then fluctuating around RMB 60,250/mt. Finally, SHFE 1206 copper contract prices ended at RMB 60,300/mt, down RMB 530/mt or 0.87%. Positions for SHFE 1206 copper contracts were down 2,000 lots, and trading volumes were down 71,242 lots to only 300,000 lots. Speculative activities decreased sharply, and SHFE copper prices got weak support at the 10-day moving average of RMB 60,400/mt.

In spot markets, some hedged copper came into markets, SHFE copper prices trended lower after a low open, allowing overall copper supply to remain sufficient. Besides, transaction volumes were restricted. Therefore, copper discounts remained between negative RMB 320-220/mt. Traded prices for standard-quality copper were between RMB 59,550-59,650/mt during the whole trading day, and RMB 59,600-59,750/mt for high-quality copper. Traders slowed their pace of purchasing due to cautious sentiment towards future copper prices, while downstream producers stayed on the sidelines, although copper prices slid below RMB 60,000/mt. Market activity was quiet as a consequence.  

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

Based on the survey, 28% of market insiders surveyed by SMM are optimistic about the outlook, believing LME copper prices will soar through USD 8,600/mt and SHFE copper prices can break resistance at RMB 61,500/mt. The US employment data remains positive, and markets are positive towards the release of housing starts and existing home sales within the week, which will provide upside momentum for copper prices. Furthermore, the upbeat US economic figures and technical indicators will help US equity markets continue to move at the highs, which will drive up commodity prices including copper. The US dollar is likely to fall due to resistance at 80, which can bolster copper prices somehow. Spot copper premiums in London have risen to positive USD 34/mt as of March 19th, and are expected to remain high before delivery this week. In Chinese markets, some listed companies of copper industry reported excellent performance in their reports, which will boost market confidence over Chinese stock markets. Hence, copper prices will likely rally to high levels this week.

52% of market insiders hold the view copper prices will fluctuate at current values, with LME copper prices expected between USD 8,450-8,600/mt and SHFE between RMB 60,000-61,500/mt. As cash flow problems haven't improved significantly, the Shanghai Composite Index lacks buying support at or near 2,400, which was the reason why copper prices closed down, although the US dollar fell for two consecutive days. China's open market will release around RMB 255 billion in March, 20 times of the size of February, but still well below the RMB 687 billion in the same period last year, highlighting the fact the monetary policy hasn't relaxed significantly. From recent position holdings and trading volumes for SHFE copper, speculative activities are low. Spot copper discounts are around positive RMB 300/mt, and market transactions are mainly made by hedge traders who buy spot copper and sell SHFE copper contracts. Therefore, copper prices will fluctuate at current values this week.  

The remaining 20% of market insiders are pessimistic, believing LME copper prices will retreat to USD 8,300/mt and SHFE copper prices will slide to between RMB 59,000-59,500/mt. The US dollar has fallen from a high of 80.74, but is supported at the 60-day moving average, so any downside room will be limited. In this context, short investors are likely to conduct operations, dampening copper prices. Due to unclear technical indicators, LME copper prices will fall to near the 60-day moving average of USD 8,300/mt once losing USD 8,450/mt. SHFE copper inventories have been increasing continuously, rising by 134,057 to 227,276 as of last Friday, the highest since July 2002, imposing pressures to copper prices. In spot markets, as the end of the month nears, copper smelters will increase sale volumes. As copper prices fall, hedged copper will come into markets. Therefore, spot copper supply should remain sufficient, but copper consumption hasn't improved considerably. Downstream producers generally stay on the sidelines above RMB 60,000/mt, dampening market transactions, while spot copper discounts remain large, both of which will drag copper prices down. As such, these market insiders expect copper prices to fall this week.

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