SHANGHAI, Jul. 24 (SMM) – As LME copper tumbled overnight, SHFE 1211 copper contract, the most active one, started RMB 840/mt down at RMB 55,280/mt Monday. After the opening, LME copper prices retreated below USD 7,500/mt rapidly, and Chinese stock markets also hit a new recent low. As a large number of longs left the market and new shorts entered, SHFE copper prices slipped all the way after fluctuating temporarily and met resistance at RMB 55,390/mt, losing RMB 55,000/mt completely. SHFE 1211 copper contract touched a low at RMB 54,290/mt in the afternoon and finally ended RMB 1,750/mt or 3.12% lower at RMB 54,370/mt, with trading volumes and positions increasing by 246,000 lots and 61,098 lots, respectively. With growing selling pressures, SHFE copper prices will likely continue to fall over the near term.
SHFE copper prices started lower and then slumped by over RMB 1,000/mt, so hedged copper flew into spot markets. In this context, spot copper supply was both ample and diversified. As SHFE copper prices again fell by nearly RMB 300/mt near the midday, market pessimism grew and spot copper premiums were unable to increase further. Mainstream spot copper offers were between premiums of positive RMB 80-180/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,120-55,420/mt, and RMB 55,150-55,520/mt for high-quality copper. Traders' buying was restricted in the face of high copper premiums, while downstream producers merely bought at the lows but turned into a wait-and-see posture after copper prices tumbled. Cargo-holders were generally eager to sell for cash amid pessimism over future copper prices, but buyers were wary of purchases. In the afternoon, SHFE 1208 copper contract continued to fall and helped hedged copper come into spot markets again. Therefore, spot copper premium quotes in the afternoon were little changed from the morning levels, between positive RMB 100-180/mt, but traded prices dropped to RMB 54,900-55,150/mt, with limited actual market transactions amid heightening pessimism.
SMM conducted a survey with regard to this week's copper price trend.
Based on the survey, 60% of market insiders are pessimistic about the outlook, with LME copper prices expected to retreat to around USD 7,250/mt and SHFE copper prices to RMB 53,500/mt. The European debt crisis is worsening as Spain's debt problems escalate. It was reported that 6 regions in Spain may seek bailout after the country's heavily indebted Valencia region requested financial aid last Friday, raising market worries over Spanish debt woes. This sent Spain's 10-year bond yields climbing over 7% to 7.32%, the highest since the euro was introduced. German sources reported the International Monetary Fund (IMF) would not further provide aid for Greece, weighing on commodity markets. Besides, from the latest CFTC report, net short positions reached 8,287 lots as of last Tuesday, which will guide future copper prices. Both SHFE and LME copper prices have fallen below all moving averages following considerable losses Monday and face growing upside resistance, with technical indicators pointing downside. In China, stock markets have dropped for four consecutive weeks and forced a lot of investors to withdraw from markets, and stock prices hit a new low again Monday as trading volumes contracted. If there are no positive policies, the Chinese stock markets are unlikely to remain weak over the near term and drag down domestic copper prices. In China's spot markets, investors expect Tuesday's HSBC manufacturing PIM to remain sluggish, so domestic copper demand is not seen to have improved. Furthermore, as SHFE copper prices lose ground, hedged copper will flow into spot markets and add to supply pressures. In this context, spot copper prices will come under pressure and depress SHFE copper prices. As such, these insiders see copper prices falling this week.
The remaining 40% anticipate LME copper prices will fluctuate around USD 7,500/mt and that SHFE copper prices will hover between RMB 54,000-55,500/mt. Despite debt woes in the euro zone, the President of the European Central Bank (ECB) Mario Draghi said Sunday when accepting interviews that a united currency system is an irreversible trend, and that Europe is not going to slip into economic recession and the euro zone economy may begin recovering gradually late this year. His positive comments give a boost to the weak euro and help cap its downside room, which can also help support copper's current trading range. The US this week will release new home sales and durable goods orders, and markets anticipate them to improve mildly, which will drive US equity markets up from previous lows and prop up copper prices. The US dollar index met technical resistance at around 83.8 Monday after a high open, which may help commodity markets rebound. At the same time, once LME copper prices fall below USD 7,300/mt to around USD 7,225/mt, Chinese copper smelters and traders will both catch the opportunity to go bargain hunting since this price mark is already near the lowest level in recent year. Buying on the LME will also help SHFE copper prices rally. In China, the central bank was forced last week to withdraw funds of RMB 40 billion after injecting net funds for five weeks in a row. The Chinese government has relaxed monetary measures but the situation is not stable. However, weak expectations over Tuesday's HSBC manufacturing index have raised market speculation China's central bank may cut the reserve ratio again, which can support domestic stock and futures markets. In Chinese spot markets, the SHFE/LME copper price ratio is around 7.3, and incurs slight losses for copper importers. This, though, helps spot copper maintain slight premiums, which restrict copper's downward space.