SHANGHAI, May 22 (SMM) – As LME copper steadied last Friday, the most active SHFE 1209 copper contract opened RMB 610/mt higher at RMB 55,680/mt Monday. The US dollar fell during the day, so LME copper stabilized above USD 7,700/mt. Coupled with slightly increasing Chinese stock markets, the contract continued to rebound after breaking resistance at the RMB 56,000/mt mark, climbing to as high as RMB 56,130/mt in the afternoon. However, as new shorts entered markets at the tail of trading, SHFE 1209 copper contract pared daily gains but still ended RMB 820/mt or 1.49% higher at RMB 55,890/mt finally, with positions and trading volumes decreasing by 1,612 lots and 176,000 lots, respectively. Positions and trading volumes for all SHFE copper contracts fell by 20,410 lots and 346,000 lots, respectively. Shorts generally closed positions during the whole trading day, while longs were still wary of operations. SMM sees limited rebound room for the foreseeable future.

SHFE copper prices rebounded by more than 1.5%, and the SHFE/LME copper price ratio improved significantly to 7.25 , cutting losses in imported copper. Spot copper supply increased slightly in consequence. But cargo-holders were optimistic about future copper premiums and thus insisted on higher premium quotes between positive RMB 200-280/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 56,550-56,670/mt, and RMB 56,600-56,750/mt for high-quality copper. Downstream producers stood on the sidelines during the first trading day of the week following purchases at the lows the previous week and due to doubts about copper price rebounds. This led to limited market transaction volumes in the morning. In the afternoon, SHFE copper prices remained at the highs, so spot copper premiums fell slightly. Premium quotes for high-quality copper were between positive RMB 250-270/mt. Traded prices were little changed from the morning levels, but market activity remained lackluster.

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

Based on the survey, 56% of market insiders are optimistic, believing LME copper can rebound above USD 7,800/mt before climbing to around the 10-day moving average of USD 7,850/mt and that SHFE copper will challenge RMB 57,000/mt. Last weekend’s G8 meeting held positive attitudes toward solving the European debt crisis, especially the Greek problems. Markets are optimistic that this Wednesday’s European Union leaders’ meeting will also yield positive results, which can calm the jittery markets and help the euro break resistance at 1.2950. Once risk aversion wanes, the US dollar will meet resistance to move higher further following continuous gains, and its pressures to copper prices will weaken. Technical indicators for both LME and SHFE copper are pointing upside at present. Furthermore, according to sources, there are signs domestic supervisors are stepping up efforts in allowing long-term capital to enter markets, and a plan on operation of pension fund investment will be issued soon. This means about RMB 580 billion capital may enter into markets. Coupled with the increasing Chinese stock markets, SHFE copper prices will be strongly lifted. In spot markets, spot copper premiums have recently remained high, heightening market optimism toward future premiums. Hence, these insiders expect copper prices will increase this week.   

23% of insiders are pessimistic about the outlook. LME copper prices will slide to around USD 7,600/mt, while SHFE copper prices will retreat to RMB 55,000/mt. First, long investor activity in London is abating, and spot copper premiums there have also fallen sharply. The proportion of canceled warrants to total LME copper stocks fell to 16% as of last Friday. Domestic copper consumption fails to improve, while cargo-holders of imported copper become more willing to sell given corrections in the SHFE/LME copper price ratio, imposing pressures to copper prices. In addition, China will announce the latest HSBC PMI data this week, and markets anticipate the data to remain below the 50 mark. As such, these insiders expect copper prices to slide this week.

The remaining 31% of market insiders hold the view copper prices will continue to be mired at current levels, with LME copper prices estimated between USD 7,650-7,750/mt and SHFE copper prices between RMB 55,500-56,500/mt. Negative factors prevail, including a lack of substantive solution to the euro zone debt woes and the Greek issues, as well as downgrades of credit ratings to European banks by credit rating agencies. Markets are negative toward the US economic figures this week, including housing starts, existing home sales, and durable goods orders. Longs were still wary of operations when copper prices rebounded Monday. Even if copper prices need technical corrections following considerable drops, any rebound will be limited. Therefore, these insiders believe that copper prices will mainly fluctuate at current values this week.