SMM Daily Review – 2012/4/23 Copper Market

SHANGHAI, Apr. 24 (SMM) –As LME copper prices advanced significantly last Friday, the most-traded SHFE copper contract for delivery in July opened RMB 280/mt higher at RMB 58,020/mt Monday. As the flash China manufacturing PMI was reported to remain below the boom-or-bust level, LME copper prices retreated to test the 10-day moving average. The Shanghai Composite Index also fell by nearly 1%, causing SHFE copper prices to lose all the early gains before the midday and slide to as low as RMB 57,300/mt. Finally, SHFE 1207 copper contract prices ended at RMB 57,330/mt, down RMB 410/mt or 0.71%. Positions and trading volumes for SHFE 1207 copper contract increased by 4,688 lots and 38,608 lots, respectively, while positions for SHFE 1208 copper contract increased by 25,304 lots. With increasing sell-offs, SHFE copper prices found weak support at the 5-day moving average.

As SHFE copper prices trended lower after a high open, the SHFE/LME copper price ratio slid, causing imported copper supply to decrease sharply. Spot copper supply was dominated by domestic copper. Low-quality hydro-copper cargo-holders, though, refused to trade at large discounts. Mainstream spot copper discounts were quoted between negative RMB 80-40/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,580-57,640/mt, and RMB 57,600-57,680/mt for high-quality copper. Trader buying interest weakened due to limited profit margins, while downstream producers mostly took a wait-and-see stance on Monday, the first trading day of the week. Copper consumption therefore was weak. In the afternoon session, SHFE copper prices continued to move lower, so spot copper discounts narrowed further to between negative RMB 80-10/mt. Traded prices declined to between RMB 57,450-57,630/mt in the afternoon business, with bearish sentiment growing.

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

Based on the survey, 29% of market insiders are optimistic about the outlook, believing LME copper prices can rally to between USD 8,230 -8,360/mt and that SHFE copper prices will likely increase to above RMB 58,000mt. Last Friday's G20 summit reached an agreement to provide USD 430 billion for the International Monetary Fund (IMF), higher than the USD 400 billion level proposed by IMF Managing Director, which will continue to stimulate market sentiment this week. In the US, the Federal Reserve (Fed) will hold a two-day monetary meeting this week and announce the results on April 26th. Although there is low possibility that the Fed meeting will introduce a new round of asset purchase plan, it will reiterate extremely low interests between 0-0.25% will be maintained at lease till late 2014. This means the US dollar will move at the lows, which can ease pressures on commodity markets. Markets are positive about durable goods order, GDP data for 1Q, and consumer confidence index this week, which will boost US equity markets. The HSBC Flash China Manufacturing PMI remained weak, and the central bank said last week it would increase liquidity, which lifted market expectations a cut in the reserve requirement ratio will be conducted soon. Chinese stock markets will test 2,400 repeatedly and fluctuate at the highs, supporting SHFE copper prices. Long investor activity in London hasn't ended, and despite drops, spot premiums in London remain at a high of USD 50/mt. In China, stockpiling is likely this week before the May Day holiday. In this context, these insiders believe copper prices will rebound this week. 

50% of market insiders contacted by SMM expect copper prices to fluctuate further at current values this week. Manufacturing data in both China and the euro zone is weak, which cannot offset positive expectations over the US economic figures this week. The SHFE/LME copper price ratio has been falling, incurring increasing losses in imported copper, which will propel cargo-holders to withhold goods. However, due to the approach of the month-end, cash flow problems are becoming more pronounced, the struggle between withholding goods and selling for cash is intensifying. From technical indicators, both SHFE and LME copper prices will continue to lurch. As such, these market insiders hold the view LME copper prices will fluctuate around USD 8,100/mt and SHFE copper prices between RMB 57,000-58,000/mt.

The remaining 21% of market insiders are pessimistic. Due to bearish sentiment, LME copper prices will lower to test USD 8,000/mt and SHFE copper prices will retreat below RMB 57,000/mt. In Chinese markets, the price gap among all SHFE copper contracts is very limited, leaving little speculative room. As April ends, cash flow pressures will keep stock and futures markets cautious. Therefore, copper prices will experience drops this week.