SMM Morning Review - 2012/5/21 Copper Market

SHANGHAI, May 21 (SMM) – Last Friday, investors chose to cut short positions for risk aversion ahead of the weekend's G8 meeting in Chicago. Besides, a small number of investors went bargain hunting at the lows, while the US dollar retreated. LME copper prices thus had signs of stabilizing in early US and European trading session, climbing to a high at USD 7,760/mt. Nevertheless, Fitch later cut credit ratings of 5 Greek banks to nearly default levels, dampening markets since this meant Greece could still exit the euro zone. In response, US equity markets closed down continuously, sending commodity markets down. Coupled with technical resistance at the 5-day moving average, LME copper prices fell to around the opening price and finally ended at USD 7,657/mt, a slight drop of USD 11/mt. In other news, spot copper stocks in London increased significantly for two trading days in a row, with the increase amounting to 3,725 mt just in last Friday, and the proportion of canceled warrants to total LME stocks already retreated to 16.21%. This indicated that long investor activity is weakening, a major reason why copper prices recently lacked support from the fundamentals side.

The weekend's G8 meeting supported Greece to stay in the euro zone and promised to deal with the financial turmoil, which can give a strong boost to the euro. Besides, LME copper prices have temporarily consolidated at levels near USD 7,620/mt for three consecutive days. As such, SMM believes LME copper prices will move between USD 7,650-7,750/mt during Monday's Asian trading session. Chinese stock markets will move feebly and thus exert some pressures to SHFE copper prices, which are likely to fluctuate around RMB 55,000/mt but with resistance at around RMB 55,500/mt. SHFE 1209 copper contract prices will hover in the RMB 54,800 -55,500/mt range. Spot copper premiums are estimated between positive RMB 200-250/mt versus SHFE 1206 copper contract.