SHANGHAI, May 3 (SMM) – LME copper failed to increase to USD 8,500/mt and reported falling transaction volumes during the May Day holiday period. However, SHFE 1208 copper contract, the most active one, opened RMB 440/mt higher at RMB 58,910/mt Wednesday, but then suffered selling pressures from short investors before trending down towards as low as RMB 58,520/mt. Near the midday, long investors actively built new positions at the lows and pushed SHFE 1208 copper contract prices above moving averages. SHFE 1208 copper contract prices reached RMB 58,950/mt at the high-end in the afternoon, then hovered narrowly around RMB 58,800/mt, and finally ended RMB 310/mt or 0.53% higher at RMB 58,780/mt. Trading volumes and positions for SHFE 1208 copper contract increased by 39,640 lots and 11,156 lots, respectively, while both long and short investors kept cautious during the day. Despite strong support at the 20-day moving average, SHFE copper prices will face an uneven road to move higher on prevailing resistance.
SHFE copper prices moved lower after a high open, causing the SHFE/LME copper price ratio to slide further. Supply of imported copper continued to decrease as a consequence. Spot copper, especially domestic copper, thus held prices firm, and helped spot copper discounts narrow to negative RMB 80-20/mt in the morning business. Traded prices for standard-quality copper were between RMB 58,420-58,520/mt, and RMB 58,450-58,580/mt for high-quality copper. Copper futures prices lacked upside momentum during the first trading day following the May Day holiday, so markets kept generally cautious. Downstream producers were not seen to make stocks, largely taking a wait-and-see stance. Optimistic speculators were mainly market participants in the morning, keeping overall market transactions muted. In the afternoon session, SHFE copper prices surged, boosting optimistic investors, so market activity for high-quality copper that can be delivered was brisk. This led to a sharp drop in spot copper discounts, which even narrowed to negative RMB 0/mt. Traded prices rose to RMB 58,550-58,680/mt, but cargo-holders showed little interest in selling. Speculators were relatively active in buying in the afternoon, while downstream producers stuck to the sidelines.
With regard to copper price trends this week, SMM conducted a survey.
Based on the survey, 44% of market insiders are optimistic about the outlook, believing LME copper prices can increase to USD 8,300-8,500/mt and SHFE copper prices to hold onto RMB 58,500/mt before breaking through RMB 59,500/mt. The euro zone M3 money supply rose by 3.2% in March, which can help lift asset prices. The US manufacturing activity has expanded for 33 consecutive months, heightening market optimism towards market prospects in 2H 2012. Markets are also positive towards the US nonfarm payrolls for April to be announced this Friday. Three major US stock indexes all climbed this week, with the Dow Jones Industrial Average hitting a fresh high in nearly four years, driving up base metals prices. According to China Federation of Logistics & Purchasing (CFLP), China's manufacturing PMI was 53.3 in April, a rally for the fifth straight month and also higher than the level in the same period last year. Investors thus believe China's macroeconomy is heading towards a better direction. Last Friday, China's four largest futures exchanges said they will cut handling fees for listed species by 12.5%-50% from June 1, which will likely boost market activity at domestic futures markets. China Securities Regulatory Commission (CSRC) has released positive signals to markets several times, so Chinese stock markets are likely to be boosted further and drive up commodity markets. SHFE copper prices will increase from technical indicators. Long investor activity in London is far from over as spot copper premiums there have reached as high as USD 115/mt. According to Reuters reports, large Chinese smelters and trading firms have reached consensus to step up copper shipments to the LME in the next two months, which can help adjust overseas copper supply. In Chinese domestic markets, spot copper prices hold firm, and market activity for high-quality copper is brisk. In this context, these insiders expect copper prices to move higher this week.
34% of the surveyed market insiders see copper prices moving around current values. The US economic data is mixed, and markets hold different views towards QE3 implementations as the US economy grows moderately. April's unemployment rate is estimated to remain unchanged. The euro zone's sluggish manufacturing data offsets positive economic figures in China and the US. The SHFE/LME copper price ratio continues to fall, resulting in a drop in imported copper supply. Investors therefore generally take a wait-and-see stance, leaving spot copper market activity muted. As such, these insiders anticipate LME copper prices will move between USD 8,250-8,320/mt this week, and that SHFE copper prices will lurch between RMB 58,000-58,500/mt.
The remaining 22% of contacted insiders are pessimistic about the outlook. The European debt crisis can erupt at any time while the region's manufacturing data remains weak. The US dollar has rebounded strongly and will cap LME copper prices, which have retreated below the 5- and 60-day moving averages and lost upside impetus. Hence, LME copper prices will likely lower to test USD 8,250/mt this week. SHFE copper prices are facing great upward resistance, and investors keep cautious since there are only three trading days this week. Therefore, these insiders expect SHFE copper prices will drift lower to RMB 57,200-57,600/mt this week.