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SMM Daily Review – 2012/6/11 Copper Market
Jun 12,2012 10:19CST
smm insight
SHFE 1209 copper contract settled RMB 1,080/mt or 2.03% up at RMB 54,350/mt Monday. 22% of market insiders expect copper prices can extend rebounds this week.

SHANGHAI, Jun. 12 (SMM) –As LME copper rebounded significantly after news was reported that Spain will get a large sum of loans, the most active SHFE copper contract for September delivery started RMB 730/mt higher at RMB 54,000/mt Monday. The contract rose rapidly to RMB 55,000/mt following the opening, but gradually fell and then hovered narrowly around RMB 54,300/mt as investors closed positions on a large scale. In the afternoon, the Shanghai Composite Index broke resistance at 2,300, helping the contract return and lurch around the daily moving average of RMB 54,500/mt, but with a fluctuating band of around RMB 300/mt during the whole day. Finally, SHFE 1209 copper contract settled RMB 1,080/mt or 2.03% up at RMB 54,350/mt, with trading volumes and positions decreasing by 93,118 lots and 31,030 lots, respectively. Total positions and trading volumes for all SHFE copper contracts fell by 39,218 lots and 85,558 lots, respectively. SHFE copper is facing great risks owing to a lack of substantive buying support and will likely test support at around the 10-day moving average of RMB 54,100/mt repeatedly.
As SHFE copper prices rebounded by more than 2%, spot copper premiums narrowed sharply. The SHFE/LME copper price ratio continued to improve, compelling cargo-holders of imported copper to move goods for cash. Spot copper supply thus was sufficient and diversified, also dragging down spot copper premiums. Spot copper premiums were quoted between positive RMB 140-220/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 55,220-55,320/mt, and RMB 55,260-55,480/mt for high-quality copper. The price gap between SHFE 1206 and 1207 copper contract widened as the delivery day for SHFE 1206 copper contract draws near. Downstream producers had little interest in buying owing to doubts about copper price rebounds, so spot copper market activity was lackluster during the first trading day of the week. In the afternoon, SHFE copper prices came under pressure and fluctuated in a narrow band, but copper consumption remained slack, causing spot copper premium quotes to slide further, down to positive RMB 120-180/mt. Traded prices edged down to RMB 55,180-55,380/mt in the afternoon, but actual market transactions remained limited.

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

Based on the survey, 22% of market insiders expect copper prices can extend rebounds this week, believing LME copper can stand above USD 7,500/mt and SHFE copper above RMB 54,800/mt after breaking resistance at RMB 54,500/mt. Last Friday, the Euro Group announced it would provide the Spanish banking industry no more than EUR 100 billion (USD 125 billion), with the concrete sum of money released in late June. This gave Greece a glimmer of hope that the European Union could relax its strict requirements for the bailout fund, improving market sentiment. Besides, the US President and UK Prime Minister Cameron have asked the European leaders to take emergency measures to tackle their debt problems, injecting confidence into markets. The US this week will release important economic figures for May including the Import Price Index, Producer Price Index, and retail sales, and markets are positive towards these data since the Fed's Beige Book last week showed the US economy is still growing at a slow pace, despite recent poor figures. The US dollar index fell below the 10-day moving average on Monday and is facing greater risk to fall further over the near term. Hence, these insiders see copper prices increasing this week.   

33% of market insiders are pessimistic over the outlook, expecting LME copper will slide to USD 7,200-7,300/mt and SHFE copper will test RMB 53,000/mt. Markets are negative about this week's euro zone economic data including industrial production index, trade data for April, and CPI for May. In China's domestic markets, as this Friday is the delivery day for SHFE current-month copper contract, spot copper premiums will gradually fall. Furthermore, the price gap between SHFE 1206 and 1207 copper contract is relatively large. Copper consumption thus is unlikely to improve. Therefore, these insiders anticipate copper prices to sink this week. 

The remaining 45% of market insiders hold the view copper prices will continue to fluctuate at current values this week. LME copper will hover between USD 7,350-7,500/mt, while SHFE copper will lurch in the RMB 53,500-54,500/mt band. The European debt crisis is exacerbating as the Spanish government has finally applied for bailout for the European Union. Although euro zone countries have agreed to lend about EUR 100 billion to Spain, markets worries Spain's financial situation is worse than expected. Moreover, the Greek election draws near and will decide whether or not the country can stay in the euro zone, and the French National Assembly election will also begin very soon, which will decide whether or not the new President can have enough room to execute reform. Despite an increasing euro Monday, the euro zone's prospects remain uncertain, compounding turmoil in the financial market. Chinese stock markets ended the five-session down close on Monday and rose above 2,300, but experienced considerable drops in trading volumes. In the face of existing risk aversion and a lack of capital, the Shanghai Composite Index will continue to test 2,300 repeatedly, which will restrict copper prices. In the meanwhile, SHFE copper saw significant rebounds Monday but suffered large-scale position closings, while both shorts and longs opted to stand on the sidelines. As such, these insiders believe copper prices will move at their current levels this week.  

SHFE copper Monday
China copper price forecast

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