SMM Copper Market Daily Review (2012-10-22)

SHANGHAI, Oct. 23 (SMM) – As LME copper prices fell below USD 8,000/mt last Friday, SHFE 1301 copper contract, the most active one, started RMB 890/mt down at RMB 57,820/mt Monday. The contract continued fluctuating weakly following the opening but moved gradually above the daily moving average, as a lot of shorts took profit-taking after prices retreated to RMB 57,500/mt, still with heavy pressure at RMB 57,900/mt and a high at RMB 57,940/mt. SHFE copper prices hovered narrowly around RMB 57,850/mt in the afternoon, with a fluctuating band of merely RMB 100/mt. SHFE 1301 copper contract ended RMB 820/mt or 1.4% lower at RMB 57,890/mt, with trading volumes and positions down 11,920 lots and 6,374 lots, respectively. Trading volumes and positions for SHFE 1302 copper contract added by 12,392 lots and 20,896 lots, respectively. Forward SHFE copper contracts suffered increasing selling pressures and SHFE copper prices will likely lose the support at RMB 57,500/mt in the near future.

As SHFE copper prices fell by nearly RMB 1,000/mt, hedged copper flew wildly into spot markets in the morning, significantly increasing market supply. Spot copper discounts were largely between negative RMB 20-150/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,850-57,920/mt, and RMB 57,880-58,020/mt for high-quality copper. Cargo-holders became more willing to move goods and caused spot copper discounts to widen all the way. Downstream buying increased slightly at prices below RMB 58,000/mt, but overall purchases were cautious in the morning as bearish sentiment grew. In the afternoon, as SHFE copper prices continued fluctuating feebly, mainstream spot copper discounts were negative RMB 30-150/mt. Traded prices were virtually flat with morning levels, and market activity remained weak.

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

Based on the survey, 47% of market insiders are pessimistic over the outlook, expecting LME and SHFE copper will fall to USD 7,900/mt and RMB 57,000/mt, respectively. Major countries this week will announce the latest PMI figures, which are expected by markets to remain sluggish. This will further weigh on the financial market and drag copper prices down. Besides, US equity markets still tend to move lower after posting the largest decline since June last Friday, which will also exert pressures to copper prices. Technical indicators for both LME and SHFE copper are pointing downside. As such, these insiders anticipate copper prices to slip this week. 

The remaining 53% of market insiders see copper prices fluctuating at current values, with LME copper expected at around USD 8,000/mt and SHFE copper around RMB 58,000/mt. As the US presidential election draws near, recent US economic data came in positive, which is favorable to Obama. The US will release the housing data, durable goods orders, as well as 3Q GDP data, mild improvement in these figures will reassure markets somehow and help the financial market stop falling. The US dollar index failed to challenge 80 and continues to struggle among recent moving averages, which may help ease some of pressures to copper prices. European leaders at the EU summit last week reached agreements on setting up a single banking supervisory institution, but the meeting did not yield any substantive results. German economy has been severely hurt by the euro zone debt crisis, and the UK will probably take looser monetary measures. In this context, investors’ risk appetites have abated some as cautious sentiment dominates markets. In China’s domestic markets, central bank bills of RMB 19 billion on the open market will expire this week in addition to reverse purchases of RMB 405 billion. Without any operations, the open market will reduce money of RMB 386 billion this week. This means cash flows will experience fluctuations, and markets anticipate China’s central bank will step up efforts in reverse purchases this week. Once cash flows ease, domestic stock markets will be lifted, which will prop up domestic copper prices. Downstream buying in spot markets increased when SHFE copper prices dipped below RMB 58,000/mt. If cash flows improve, downstream buying will increase further, which will help support low-end copper price.