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SMM Daily Review – 2012/3/26 Copper Market
Mar 27,2012 09:39CST
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SHFE 1206 copper contract opened RMB 120/mt higher at RMB 60,190/mt Monday. 68% of market insiders anticipate copper prices will continue to fluctuate near current values this week.

SHANGHAI, Mar. 27 (SMM) –As LME copper prices stopped falling and began to rally last Friday, the most actively-traded SHFE 1206 copper contract opened RMB 120/mt higher at RMB 60,190/mt Monday. SHFE copper prices continued to fluctuate around the daily moving average during the whole trading day, facing upside pressures at RMB 60,500/mt and only reaching a high at RMB 60,370/mt. In the afternoon session, weak Shanghai Composite Index and the falling LME copper prices dragged down SHFE copper prices, which came under pressure at the daily moving average and slid to as low as RMB 60,060/mt. Finally, SHFE 1206 copper contract prices closed at RMB 60,180/mt, up RMB 430/mt or 0.72%, but with technical indicators pointing downward. Positions for SHFE 1206 copper contracts decreased by 8,228 lots, and trading volumes fell by 51,346 lots to less than 210,000 lots during the whole trading day, highlighting low market activity. SHFE copper prices faced increasing technical pressures.

SHFE copper prices fluctuated in a narrow band after a high open, restricting some hedged copper to come into spot copper markets. However, cargo-holders of imported copper kept moving goods for cash generation as March ends, helping overall market supply remain stable. In this context, spot copper discounts expanded slightly to between negative RMB 320-250/mt in the morning session. Traded prices for standard-quality copper were between RMB 59,450-59,500/mt, and RMB 59,500-59,600/mt for high-quality copper. Downstream producers took a wait-and-see sentiment on Monday, so market transactions were mainly conducted by traders. In the afternoon business, SHFE copper prices drifted lower, but spot copper discounts were little changed, while traded prices declined to between RMB 59,350 -59,500/mt with modest market activity.

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

Based on the survey, 19% of market insiders are optimistic about the outlook. According to the US Geological Survey (USGS), a 7.2 magnitude earthquake struck central Chile Sunday, where some important copper mines are located, which can provide momentum for copper prices to rebound. Gold prices have fluctuated at highs recently, while crude oil prices also stand high due to political factors. The US dollar tends to retreat following several days' fluctuations and resistance at 80, bolstering low-end copper prices. LME copper inventories have been falling, and SHFE copper inventories also ended the nearly 2-month increasing trend last week. In this context, these market insiders expect SHFE copper prices will probably soar through RMB 60,500/mt and that LME copper prices may break USD 8,450/mt.

13% of insiders are pessimistic. They hold the view the macroeconomic news fronts in the US and Europe have too many uncertainties, and the US and European stock markets are on a downside track, dragging copper prices down. Imported copper used for financing purpose will continue to impose pressures to spot copper markets, so spot copper discounts are unlikely to narrow. Cash flow problems are becoming more pronounced as March ends, which will depress copper consumption. Combined with weak Chinese stock markets, these insiders believe SHFE copper prices will lose RMB 59,500/mt this week, and that LME copper prices will slide below USD 8,350/mt.

The remaining 68% of market insiders, though, anticipate copper prices will continue to fluctuate near current values. Despite progress in Greek debt issues, debt problems in Spain, Portugal, and other euro zone countries are resurfacing, adding to market uncertainties. The US recently announced mixed economic figures, highlighting that the road for the US economic recovery is still uneven, with the release of this week's durable goods orders and final 4Q GDP data brought into spotlight. Both LME and SHFE copper prices are suffering great technical resistance, but have showed strong resilience. As such, these insiders believe LME copper prices will continue to fluctuate around USD 8,400/mt and SHFE copper prices RMB 60,000/mt.

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