SHANGHAI, Jun. 5 (SMM) – As LME copper tumbled last Friday, the most active SHFE copper contract for September delivery started RMB 1,350/mt lower at RMB 53,120/mt Monday. Without guidance from the LME, the contract suffered aggressive short selling and slid all the way after touching a high at RMB 53,540/mt. In the afternoon, as the Shanghai Composite Index fell by over 2.7%, the contract retreated further, down to RMB 52,330/mt, the lowest in the past ten months. However, as investors closed positions at the tail of trading, SHFE 1209 copper contract stopped falling and kept fluctuating weakly around RMB 52,700/mt, before finally ending at RMB 52,770/mt, down RMB 1,700/mt or 3.12%. Trading volumes and positions for the most active copper contract increased by 252,000 lots and 19,906 lots, respectively. Total positions for all SHFE copper contracts exceeded 46,000 lots during the day. From technical indicators, SHFE copper is facing greater systematic risks and will likely lose support at RMB 52,500/mt on Tuesday, when the LME market remains closed.
As SHFE copper prices tumbled by over 3.5%, offers for spot copper premiums rose to positive RMB 330-420/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 54,250-54,400/mt, and RMB 54,300-54,450/mt for high-quality copper. Cargo-holders became more willing to move goods, causing market supply to remain sufficient. Both traders and downstream producers chose to buy at prices near RMB 54,000/mt, leading to modest market transactions in the morning. In the afternoon session, SHFE copper prices remained weak, so spot copper premiums widened further to positive RMB 350-430/mt. Traded prices touched the RMB 54,000/mt mark in the afternoon, but market transactions were smaller than the morning business levels.
SMM conducted a survey with regard copper price movement this week.
Based on the survey, 65% of the surveyed market insiders see copper prices falling. They believe LME copper will directly test USD 7,000/mt and that SHFE copper will look support at RMB 51,000/mt. The European debt crisis is escalating. Germany's bond yields fell below zero last Friday for the first time, while Spanish debt problems resurfaced and the country is likely to become the fourth euro zone country that needs bailout following Greece, Ireland, and Portugal. Besides, there is too much uncertainty ahead of the Greek election on June 17, sending Greek stock markets down to levels last seen in February 1990. Greek banking industry is also facing risks, dampening the financial market and weighing on commodity markets. PMI data out of China, the euro zone, and other countries was dismal last Friday, while the latest US nonfarm payroll also fell significantly, turning markets pessimistic about this week's economic figures including durable goods orders and initial jobless claims. Gold prices surged last Friday due to a safe-haven, but crude oil prices fell to a low at USD 81.5/bbl, down by more than 5% over just two trading days in June. Investors will still favor gold as a safe-haven this week given heightening expectations over QE3 measures, but will likely sell copper, a risky asset. According to the latest CFTC report, net short positions have already rose to 11,638 lots, up 1,540 lots from the previous day. The LME market remains closed for two trading days, and without guidance, SHFE copper fell appreciably on Monday and is likely to slide further amid growing sell-offs. The latest proportion of canceled warrants to total LME copper stocks has slipped to around 8%, while LME copper stocks rose for two consecutive days. As SHFE forward copper contracts face great selling pressures, participants in spot markets become more negative about future copper prices. Furthermore, given the increasing SHFE/LME copper price ratio, cargo-holders in spot markets continue to be eager to sell, but downstream consumption remains sluggish, which will force copper prices to sink. From technical indictors, both LME and SHFE copper are on a downside track. Chinese stock markets tumbled during the first trading day of this week, registering the biggest decline so far this year, and will probably lose 2,300. As such, these market insiders expect copper prices to drop this week.
31% of market insiders anticipate little changes in copper prices, believing LME copper will fluctuate between USD 7,250-7,400/mt and SHFE copper between RMB 52,500-53,500/mt. Although investor speculation over QE3 measures is increasing, the US dollar index will hover at the highs around 83 this week. As SHFE copper prices fall, cargo-holders in spot markets insist on high copper premiums, although they are eager to sell for cash. Downstream producers also opted to buy at prices around RMB 54,000/mt, which can support copper prices. Hence, these insiders believe copper prices will continue to lurch around current values this week.
The remaining 4% of insiders are optimistic about the outlook, expecting LME copper can rally above USD 7,400/mt and that SHFE copper can increase to around RMB 54,000/mt. Despite many unfavorable factors, all countries are adopting some stimulative measures to improve current situation. In China, the falling PMI data and Chinese stock markets have raised market anticipation that China's central bank will introduce some easy measures very soon. This can help copper prices gain rising momentum.