SHANGHAI, Jul. 3 (SMM) – As LME copper surged wildly last Friday, SHFE 1210 copper contract, the most active one, started RMB 960/mt up at RMB 55,750/mt Monday. After the opening, a great number of overnight longs took profit-taking. Besides, the HSBC later announced its final HSBC China manufacturing PMI continued to slip, prompting new shorts to enter markets at the highs. In this context, SHFE 1210 copper contract only touched a high at RMB 55,950/mt and then began trending down, completely coming under pressure at the daily moving average and gradually surrendering daily gains. SHFE 1210 copper contract tested an intraday low of RMB 55,260/mt in the afternoon and finally settled at RMB 55,370/mt, still up RMB 580/mt or 1.06%. Trading volumes and positions for the most active SHFE copper contract decreased by 213,000 lots and 9,440 lots, respectively. Trading volumes and positions for all SHFE copper contracts fell by 240,000 lots and 14,876 lots respectively. Market participants were skeptical over rebounds in SHFE copper prices which faced great pressure at 56,000/mt. SMM thus believes that SHFE copper will fluctuate at relatively high levels for the near future and test effectiveness of recent price rebounds.
As SHFE copper prices moved lower after a high open, the SHFE/LME copper price ratio fell. Cargo-holders in spot markets failed to always maintain premiums during the first trading day of July. Spot copper offers were between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt in Shanghai in the morning business. Traded prices for standard-quality copper were between RMB 55,750-55,820/mt, and RMB 55,800-55,900/mt for high-quality copper. Consumers resisted relatively high copper prices, since downstream producers kept on the sidelines, leading spot copper premiums to fall and even turn into discounts. Traders who hedged against copper price volatility made purchases, but overall market transactions were limited during the day. In the afternoon, SHFE copper prices lurched weakly, so spot copper offers and traded prices were little changed from the morning levels.
SMM conducted a survey with regard to this week's copper price movements.
Based on the survey, 32% of market insiders are optimistic over the outlook, believing LME copper can surge to USD 7,700-7,800/mt and SHFE copper to RMB 56,000-56,800/mt. The two-day EU summit finally yielded three unexpected results: the ESM can directly inject liquidity to banks, the ESM can push down the financing costs through buying government bonds of the heavily debt-stricken countries, and the summit will use EUR 120 billion (around USD 151.9 billion) to boost the economy. Although markets doubted about the implementation of these measures, the summit still boosted global financial markets somehow. Positive attitudes of European leaders should continue to lift markets over the near term and will keep the euro fluctuating at the highs. Besides, owing to the falling risk aversion and technical indicators, the US dollar index still has downside space and will likely remain weak during this week, which will support base metal prices. Technical indicators for copper prices are also pointing upward. In China's domestic markets, cash flows are expected to improve during July, a positive factor for both domestic stock and commodity markets. Therefore, these optimists anticipate copper prices will extend gains this week.
32% of market insiders hold the view LME copper will retreat to last week's trading range, with LME copper expected to fall to USD 7,500/mt and SHFE copper to around RMB 54,500/mt. Although markets cheered European leaders reached consensus at last week's summit, the agreed measures cannot solve the region's debt crisis fundamentally. Hence, surges in a set of risky assets brought by optimism over the summit's positive results are unlikely to sustain for a long time. The euro zone leaders have agreed to establish a united supervisory institution, which is considered as an important step towards building a banking union, but the summit left discussion over the implementation of a banking union till October's and December's summit. Furthermore, Germany's finance minister Wolfgang Schaeuble reiterated Chancellor Angela Merkel's stance that the country is apposed to issue a so-called euro bond, which will prompt new shorts to impose selling pressures. Turning to China's domestic markets, domestic copper markets will gradually enter a traditionally low demand period during July, and pallid consumption will drag down spot copper premiums and thus pressure copper futures prices down. As such, these insiders expect that copper prices may fall to previous fluctuating range this week.
The remaining 36% of insiders see copper prices fluctuating at the highs. They believe that LME copper will hover between USD 7,600-7,700/mt, and SHFE copper will lurch between RMB 55,000-56,000/mt. The US will release May's factory orders index this week, June's ADP employment data and unemployment rate, as well as changes in June's nonfarm payrolls, and markets are unsure about these figures. US equity markets have soared through the 10 and 60-day moving averages after standing above the 5-day moving average last Friday, and are likely to stand at another high this week. Crude oil and gold prices are struggling at recent moving averages and will remain so over the near term, which will restrict both downside and upside room of commodity markets. The SHFE/LME copper price ratio has fallen slightly after copper prices rose appreciably, which means that the supply of imported copper will likely decrease for the near future. Nevertheless, sluggish copper consumption will cap spot copper quotations. As such, these market insiders believe copper prices will continue to fluctuate at relatively high levels this week.