SMM Daily Review – 2012/5/28 Copper Market

SHANGHAI, May 29 (SMM) – The most active SHFE copper contract for September delivery started RMB 430/mt higher at RMB 55,550/mt Monday. After the opening, as LME copper rallied above USD 7,700/mt after the US dollar fell below 82, the contract moved higher amid position closings. In the afternoon session, Chinese stock markets increased from the lows, which helped the contract break the resistance of RMB 56,000/mt before climbing to a high at RMB 56,260/mt. Finally, SHFE 1209 copper contract ended RMB 1,090/mt or 1.98% higher at RMB 56,210/mt, with trading volumes and positions decreasing by 16,698 lots and 18,898 lots, respectively. Positions for all SHFE copper contracts fell by around 30,000 lots. Both longs and shorts mainly conducted intraday operations as risks increased at the month-end.

SHFE copper prices trended higher after a high open, with a gain of over 1.5%, so cargo-holders in spot markets became more willing to move goods as March ends. As a consequence, spot copper premium quotes slid all the way to positive RMB 120-200/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 56,520-56,700/mt, and RMB 56,550-56,750/mt for high-quality copper. Downstream producers chose a wait-and-see stance during the first trading day of the week, still skeptical about a continuous copper price rebound, and also restricted by cash flow problems. Market activity was thus lackluster in the morning session. In the afternoon business, as SHFE copper continued to climb, offers for spot copper premiums narrowed further to positive RMB 120-180/mt. Traded prices marched slightly higher to RMB 56,650-56,800/mt in the afternoon, with cargo-holders increasing their sale volumes. Spot copper supply was therefore both sufficient and diversified, but both traders and downstream producers stuck to the sidelines at the month-end. 

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

Based on the survey, 43% of market insiders expect copper prices to extend strong gains. They believe LME copper will rally above USD 7,800/mt and that SHFE copper will soar to around RMB 56,500/mt as the SHFE/LME copper price ratio improves continuously. Recent US economic figures were strong, so markets are optimistic about this week's important data including ADP employment data for May, GDP for 1Q, unemployment rate for May, and the non-farm payroll report for May. In this context, US equity markets tend to rebound and push copper prices up. In China, China's central bank has recently adopted a set of positive and stimulative measures, saving Chinese stock markets again. Premier Wen Jiabao stressed to give more priority to maintaining growth, causing the Shanghai Composite Index to rebound. Besides, the NDRC has accelerated the pace of approving new projects since early May and boosted low market sentiment, which can somehow support Chinese stock markets over the near term. Both LME and SHFE copper have stood above their 5 and 10-day moving averages, with technical indicators pointing upward. Therefore, these insiders anticipate copper prices will continue the winning streak this week.  

14% of market insiders are pessimistic about the outlook, believing LME copper will slide below USD 7,000/mt and that SHFE copper will lower to test support at RMB 55,000/mt. The European debt crisis still dampens markets, although an opinion poll recently suggested that the Conservative Party in Greece took a leading position. Nevertheless, the Standard & Poor's lowered the credit ratings for 5 Spanish banks again last Friday, triggering market worries over more downgrades for other European countries. In China, the China Federation of Logistics & Purchasing will announce the manufacturing PMI for May, which is expected by markets to fall further. Furthermore, as copper prices rebounded, positions were closed on a large-scale, an indication longs had little interest in keeping up with the rising prices. In Chinese spot markets, cash flow problems will become pronounced as May ends, which will propel cargo-holders to move goods for cash. Spot copper supply will increase while consumption remains weak. This will cause spot copper premiums to retreat further. As such, these insiders hold the view copper prices will sink this week. 

The remaining 43% of market insiders predict LME copper will keep fluctuating between USD 7,600-7,750/mt this week and that SHFE copper will hover between RMB 55,500-56,500/mt. The US dollar was down below 82 Monday and is likely to fall further from technical indicators. However, many investors seek the US dollar for a safe-haven given Europe's debt woes, which will help copper prices fluctuate. Shorts want to impose selling pressures at USD 7,800/mt, but cash flow problems at the month-end will restrict market activity in futures and spot markets. In this context, copper prices are estimated to lurch around their current values this week.