SHANGHAI, Jul. 10 (SMM) – As LME copper tumbled last Friday, SHFE 1210 copper contract, the most active one, started RMB 700/mt down at RMB 55,040/mt Monday. The contract hovered between RMB 55,100-55,200/mt before the midday as the Shanghai Composite Index retreated below 2,200 and LME copper lurched stably, winning support at RMB 55,000/mt. In the afternoon, as LME copper broke resistance at USD 7,560/mt, the contract climbed to as high as RMB 55,390/mt along with surging domestic agricultural products. However, at the tail of trading, the Shanghai Composite Index extended weakness and dropped sharply by 2.5%, sending SHFE 1210 copper contract back to the morning's fluctuating range. Finally, the most active copper contract for October delivery settled RMB 560/mt or 1% lower at RMB 55,180/mt, with trading volumes and positions decreasing by 100,000 lots and 2,708 lots, respectively. Technical indicators had signs of pointing downside, and SHFE copper prices found weak support at the RMB 55,000/mt mark.
As SHFE copper prices dropped considerably, cargo-holders in spot markets became more willing to move goods amid growing pessimism towards future copper price trends, keeping market supply sufficient. In response, spot copper premiums fell all the way to positive RMB 10-80/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,520-55,620/mt, and RMB 55,580-55,680/mt for high-quality copper. A small number of traders with enough cash opted to buy high-quality copper before SHFE 1207 copper contract is delivered. Downstream producers, though, kept on their toes due to a lack of clear copper price trends, leading to limited actual market transactions. In the afternoon, as SHFE copper prices moved higher, there were still some traders entering markets to buy. However, spot copper premiums held between positive RMB 0-70/mt in the afternoon, while traded prices rose to RMB 55,550-55,700/mt, with downstream consumption remaining sluggish.
SMM conducted a survey with regard to copper price trends this week.
Based on the survey, 59% of market insiders hold the view copper prices will continue to fall this week, expecting LME copper will drop to USD 7,400/mt and that SHFE copper will test RMB 54,000/mt. Debt issues in the euro zone resurfaced once in a while, and the region's economy and the euro can be easily dampened. Greek Prime Minister said recently that Greece may give up the second bailout plan in exchange for extension for bailouts, but other countries in the euro zone have said many times that they will not allow the plan to change. This means that the impact of Greek debt problems brought to the euro zone is far from over. Beside, Spain's financing costs surged to the highest since the euro was introduced in June, and its 10-year government bond yields soared through 7% again last Friday. If Spain is forced to cancel a government bond auction owing to inadequate demand from large domestic banks, the country will have to continue to search for rescue even if it has won EUR 100 billion bailout funds. Hence, uncertainty in the European debt woes remains a major factor depressing markets. The US dollar remains a safe-have for investors with technical indicators pointing upward, which will continue to impose pressure to copper prices. As the latest US nonfarm payroll report and China's CPI and PPI figures are weak, markets are pessimistic over China's GDP data for 2Q to be released this Thursday. Copper cannot gain support from the consumption side either since now is the traditionally low demand period. Technical indicators for both LME and SHFE copper are pointing downside. In China's domestic markets, Chinese stock markets increased significantly last Friday following the announcement of interest rate cuts, but Premier Wen Jiabao stressed at the weekend that the government should prevent from relaxing house purchase policies in other forms and unswervingly carry out regulation work on the housing sector. In response, Chinese stock markets retreated to a low in the past haft year with Shanghai Composite Index finding weak support at 2,200. As such, these market insiders expect copper prices to fall this week.
The remaining 41% of market insiders see copper prices fluctuating at current levels. LME copper will hover around USD 7,500/mt, while SHFE copper will lurch around RMB 55,000/mt. The SHFE/LME copper price ratio has recently remained around 7.3 as SHFE copper fails to keep up with increases in LME copper. But SHFE copper has shown more resilience, and this will cap copper's downside room somehow. In addition, as the delivery day for SHFE 1207 copper contract nears, cargo-holders in spot markets insist on premiums, despite sluggish downstream consumption, which should gave a strong support for copper prices. In this context, these market insiders believe that copper prices will lurch around current values this week while awaiting new directions.