SHANGHAI, May 21 (SMM) – China's Central Bank's cut in the Reserve Requirement Ratio (RRR) failed to boost commodity markets, with Chinese stock markets still falling by 1% and SHFE copper prices sinking from RMB 57,700/mt, to a new low for 2012 of RMB 54,390/mt. SHFE 1209 became the most active copper contract last Thursday. Trading volumes for SHFE copper contracts increased by more than 1 million lots, while positions grew by around 50,000 lots. SHFE copper prices moved away from all recent moving averages as short investors were active selling, but this helped improve the SHFE/LME copper price ratio.
In spot markets last week, spot copper premiums climbed to as high as RMB 250/mt as SHFE copper prices fell. Cargo-holders who had not hedged against copper price volatilities chose to aggressively sell, but domestic copper smelters were reluctant to sell at low prices, insisting instead on high premium quotes. High spot copper premiums restricted speculative activities. However, downstream processors with strong orders increased purchases at current low prices, increasing market activity.
In SMM's views, SHFE 1209 copper contract prices have lost support at all moving averages and may retreat to RMB 54,000/mt in the coming week. However, bargain hunting at the lows and profit-taking from short investors will likely help SHFE 1209 copper contract prices rise and test RMB 56,000/mt.