SMM Copper Market Daily Review (2013-1-7)

SHANGHAI, Jan. 8 (SMM) – SHFE 1304 copper contract price opened RMB 40/mt lower at RMB 58,330/mt on Monday. The pullback in LME copper and rebound in domestic A-shares left SHFE copper in a narrow band with prices falling after touching RMB 58,450/mt. In the afternoon, SHFE copper prices dropped to RMB 58,030/mt and finally closed at RMB 58,220/mt, down RMB 150/mt or 0.26%, with trading volumes down 19,020 lots and positions increasing 5,068 lots. Technical indicators show that SHFE copper prices may fall to test RMB 58,000/mt in the short term.

Shanghai spot copper discounts were negative RMB 70-150/mt in on Monday. Traded prices were between RMB 57,470-57,550/mt for standard-quality copper, and RMB 57,520-57,650/mt for high-quality copper. Cargo holders were unwilling to move goods at low prices, causing spot discounts over the most active SHFE copper contract price to narrow. As downstream buyers rarely replenished stocks, most transactions were done by traders.

An SMM survey shows that 27% market players are still upbeat on copper price movement this week, expecting LME copper prices to rise to USD 8,200/mt, and SHFE copper prices to test a high of RMB 59,200/mt. The US factory orders to be released this week are expected to remain strong. The latest CFTC reports showed that net long positions were up 936 lots to15,924 lots for the third trading week as of the week ended on December 31, with a bullish outlook for copper price trends. Meanwhile, canceled warrants for LME copper surged 23,075 mt with the proportion up to 22.35% last Friday, also lending support to copper prices. Technically, both LME and SHFE copper prices have crossed above all moving averages, leaving less resistance for prices to rise. In China, with banks issuing new loans for 2013, easing financial pressures facing enterprises, combined with the approach of the Chinese New Year, transactions will be enlivened. As such, spot discounts over the most active SHFE copper contract price may narrow, and rebound in copper prices can be expected this week.

However, 46% market players believe copper prices should be deprived of momentum to rise further after the growth during the holiday period and will remain stable, with LME copper prices expected at USD 8,100/mt and SHFE copper prices at RMB 57,800-58,500/mt. In Europe, despite the recovery in PMI data, market remains highly focused on the unresolved European debt crisis. If the European Central Bank failed to keep the continuity of its structural reforms, the debt crisis will deteriorate, impacting financial market and copper prices. Despite the slight fallback in oil and gold markets, two major indicators in commodities markets, oil prices remained strong at USD 90/barrel while gold prices also gained strong support, providing guides for copper prices. Technical indicators show that LME three-month contract price may meet resistance at USD 8,200/mt. In China’s stock markets, data from Southwest Securities revealed that the number of shares to be unlocked will hit 439.2 billion in 2013 with 793 companies involved, three folds over the number in 2012. The market value of these unlocked shares should total RMB 1.98 trillion, up 71% YoY, while the value for shares unlocked in January alone will be RMB 151.7 billion, causing great pressure to stock market. That, combined with A-shares which fluctuate at high levels, will lead copper prices to move within a narrow range.

The remaining 27% industry insiders believe copper prices will fall this week and expect LME copper prices to fall below USD 8,000/mt with SHFE copper prices down to RMB 57,500/mt. The US dollar index which stood at 80.5, may continue to rise if the Fed put an end to the QE3, weighing on copper prices. Besides, most investors opted to book profits after the continuous rallies in LME and SHFE copper prices, denting traders’ confidence in the rise in copper prices. Besides, trading will turn lighter given the upcoming Chinese New Year holiday, the lower buying interest will result in less support for copper prices. Moreover, technical indicators for LME and SHFE copper prices signified selling pressures, and price actions also started to gap. In spot copper market in China, some traders conducted arbitrage operations before the delivery, adding to selling pressures in the futures market, which will weigh down SHFE copper prices. In this context, these investors believe copper prices may drop to the level before the New Year holiday with LME copper prices falling back to USD 7,950/mt