SMM Copper Market Daily Review (2013-1-14)

SHANGHAI, Jan. 15 (SMM) – With LME copper prices falling last Friday, SHFE 1304 copper contract, the most active one, started RMB 380/mt down at RMB 58,280/mt Monday. The contract gained support at the 10-day moving average following the opening and touched a low at only RMB 58,270/mt before stabilizing gradually. In the afternoon, as the Shanghai Composite Index surged by 3.2% and recouped 2,300, SHFE copper prices broke resistance at RMB 58,500/mt and narrowed daily losses, touching a high at RMB 58,730/mt. But SHFE 1304 copper contract dropped at the tail of trading and settled RMB 140/mt or 0.24% lower at RMB 58,520/mt, with trading volumes and positions down 52,278 lots and 2,254 lots, respectively. Long and short investors generally stood on the sidelines. With pressure at the 5-day moving average but strong support at RMB 58,200/mt, SHFE copper prices will probably fluctuate at current values over the short term.

As SHFE copper prices retreated, and as the delivery day for SHFE 1301 copper contracts neared, cargo-holders tried to raise copper premiums. Hedged copper flew into spot markets and kept copper supply plentiful, restricting further upside room in premiums. Standard-quality copper traded at slight discounts. Shanghai spot copper offers were largely between discounts of negative RMB 40/mt and premiums of positive RMB 50/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,650-57,720/mt, and RMB 57,700-57,800/mt for high-quality copper. With the price gap between SHFE 1301 and 1302 copper contracts remaining around RMB 300/mt, trader buying interest weakened, while downstream producers still bought to need at lows. Therefore, overall market supply still exceeded demand. In the afternoon, since SHFE copper prices continued rising, copper discounts widened, and mainstream copper offers were discounts of negative RMB 50/mt and premiums of positive RMB 50/mt. Traded prices increased to RMB 57,700-57,900/mt, but actual market transactions were limited as only a small number of downstream producers took opportunities to enter markets.

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

Based on the survey, 30% of market insiders are upbeat about the outlook, believing LME copper will rise to USD 8,150-8,200/mt and SHFE copper will challenge RMB 59,000/mt. Market focus has shifted to the Fed's beige book to be released January 17, and at least 7 Fed officials this week will make speeches on monetary policies and future economic prospects. Chicago Federal Reserve Bank President Charles Evans said Monday that the Fed's latest monetary measures can help stimulate economy and stabilize commodity prices. Besides, markets are positive toward the US economic data due this week, including home starts and PMI indexes for various regions. In the euro zone, the financing costs of heavily-indebted countries have fallen, as Italian three-year bond yields slipped below 2%, the best result in the past two years. Meanwhile, the Greek Parliament January 12 passed a bill aimed to increase tax and simplify the tax system, which is one of the conditions set by the EU and IMF for rescue funds. The ECB President Mario Draghi made extremely optimistic statements last week, which will help the euro march higher further. China, the US, and Europe have all kept loose monetary measures in 2013, with China reporting favorable economic figures last week. Despite high Chinese inflationary rate, investors are confident about China's GDP data to be released this Friday. Furthermore, cash flows front is favorable for crude oil, downstream chemical products, as well as silver and gold. According to the latest CFTC reports, net long positions increased to 12,376 lots as of January 8, which will guide future copper price trends. China's central bank drained a net RMB 220 billion last week in the open markets, a three-month high. The bank is expected to maintain loose monetary policy, and combined with comments of Guo Shuqing, chairman of the Chinese Securities Regulatory Commission, on the cross-border RMB transactions, Chinese stock markets will probably reach new highs this week. As such, these insiders expect copper prices to trend higher this week.      

Around 24% of market insiders anticipate that LME and SHFE copper will dip below USD 8,000/mt and RMB 58,000/mt, respectively, and due to the following factors. LME copper stocks continued increasing sharply last Friday as London spot copper traded at large discounts. Moreover, technical indicators for both LME and SHFE copper are pointing downside. In Chinese spot markets, copper discounts will return after SHFE 1301 copper contracts are delivered Tuesday amid slack downstream consumption. Cash flow pressures will force smelters to move goods for cash, increasing spot copper supply.

The remaining 46% of insiders see no major changes in copper prices. LME copper will fluctuate around USD 8,100/mt, and SHFE copper will hover around RMB 58,500/mt. The US dollar has recently retreated appreciably and is likely to remain weak, but will have a limited impact on copper prices. Market participants are more inclined to buy at lows but are cautious of keeping up with rising prices. This indicates copper prices have good support at lows but lack further rising momentum. In this context, copper prices will stay within current trading range this week.