SMM Daily Review – 2012/4/16 Copper Market

SHANGHAI, Apr. 17 (SMM) –The most-traded July copper contract on the SHFE opened RMB 1,570/mt lower at RMB 56,800/mt Monday, as LME copper prices tumbled last Friday. SHFE copper prices posted weak performance during the day, with a fluctuating band within RMB 150-200/mt. SHFE copper prices suffered resistance at RMB 57,000/mt and touched a low at RMB 56,650/mt. SHFE 1207 copper contract prices finally settled at RMB 56,720/mt, down RMB 1,650/mt or a loss of 2.83%, with trading volumes decreasing by 514 lots but positions increasing by 942 lots. Positions for SHFE 1208 copper contracts increased by 13,326 lots. The price gap among all SHFE copper contracts was extremely limited. With no support at the low end, SHFE copper prices are likely to fall further for the foreseeable future.

As SHFE copper prices plunged by 2.5%, spot copper premiums rose further to between positive RMB 100-150/mt in the morning business. Daily traded prices for standard-quality copper were between RMB 56,770-56,830/mt, and RMB 56,800-56,900/mt for high-quality copper. Cargo-holders were reluctant to move goods at lower price levels, leading to a drop in spot copper supply. Downstream producers generally took a wait-and-see stance due to the approach of delivery day for SHFE current-month copper contracts and for fears future copper price would continue to fall. Market activity was therefore quiet during the first trading day of the week.  

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

According to this survey, 78% of market insiders believe copper prices are on a downside track. Once losing support at USD 7,800/mt, LME copper prices will fall to USD 7,700/mt, a level registered in early January this year, while SHFE copper prices will retreat to RMB 55,000/mt. The European debt crisis seems to resurface again, which has spread to Spain and Italy as bond yields in the two countries have surged. Spanish 10-year bond yields have increased above 6%, and its 5-year Credit Default Swap (CDS) has also touched 500 basis points for the first time. As the fourth largest economy in the euro zone, Spain's economic scale is more than twice of that of Greek, Portugal, and Ireland totally. Hence, Spain's debt crisis is undoubtedly deadly for the euro zone's economy even for the whole Europe. The euro therefore has lost support and fallen below 1.30. Moreover, given unclear prospects for QE3 measures and a market dominated by crisis, the US dollar has gained favor for a safe-haven, standing above the 5-day moving average and continuing to point upward. China's GDP for 1Q was recently reported to grow lower than expected, dampening market confidence about the slack Chinese consumption. Technical indicators of both LME and SHFE copper are now pointing downside. In spot markets, spot copper premiums are unlikely to sustain after SHFE 1204 copper contracts were delivered. From the above mentioned factors, these insiders anticipate copper prices will fall this week.    

The remaining 22% of market insiders contacted by SMM hold the view copper prices will continue to move at the lows this week. LME copper prices will move between USD 7,900-8,000/mt, and SHFE copper prices will lurch around RMB 57,000/mt. Despite constant negative news, European Central Bank (ECB) Executive Board member Benoit Coeure recently indicated that the ECB may restart the Securities Market Program (SMP) to lower the euro zone's borrowing cost. This means that, even if bond yields in Spain and other countries in the region climb, the ECB will introduce some measures to save the market in urgent situations. In this context, any downside room for risky assets including the euro and copper is limited. As of April 13th, spot copper premiums in London already rose to USD 53/mt, while the volume of cancelled warrants remains high. China's central bank said last Saturday it would increase the yuan's daily trading band against the US dollar to 1% from 0.5% from April 16th, which means worries over a hard landing have eased and will push up financial markets. Given sluggish housing markets in China, investors have shifted their investments in Chinese stock markets, which will fluctuate at the highs and therefore prop up commodity markets. As copper prices fall sharply, the SHFE/LME copper price ratio has improved, which gives hope and opportunities for copper importers to make quotation pricing. Therefore, these insiders predict copper prices will move at low levels this week, but downward room is limited.