SHANGHAI, Jan. 22 (SMM) – With LME copper posting strong performance last Friday, SHFE 1304 copper contract, the most active one, started RMB 110/mt up at RMB 58,380/mt Monday. The contract fell immediately after the opening, so the opening price became the intraday high level. In the afternoon, as LME copper prices lost ground, SHFE copper prices slipped further and tested a low at RMB 58,150/mt at the tail of trading. Completely coming under pressure at the daily moving average, SHFE 1304 copper contract fluctuated by merely RMB 200/mt during the day and closed RMB 80/mt or 0.14% lower at RMB 57,190/mt. Trading volumes and positions for the most active copper contract decreased by 72,736 lots and 4,090 lots, respectively. Total trading volumes on the SHFE fell by 117,000 lots and 1,736 lots, respectively. With weak support at the 10-day moving average, long and short investors generally took a wait-and-see posture. SMM believes that SHFE copper prices are unlikely to move out of current fluctuating range over the short term.
As SHFE copper prices fluctuated at current levels, Shanghai copper discounts stabilized between negative RMB 120-220/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,650-57,720/mt, and RMB 57,700-57,780/mt for high-quality copper. Buying interest from both traders and downstream producers abated. Cargo-holders offered lower discounts to move goods for cash during the second trading session when copper futures prices slipped, keeping market transaction volumes light. Overall copper supply still exceeded demand. In the afternoon, with SHFE copper prices coming under pressure, copper discounts remained unchanged from morning levels, between negative RMB 120-220/mt. Traded prices were RMB 57,600-57,720/mt in the afternoon, and some traders chose to purchase at lows.
SMM conducted a survey with regard to copper price trend this week.
Based on the survey, 22% of market insiders are optimistic, believing that LME copper can challenge USD 8,100/mt and SHFE copper will increase to RMB 58,500/mt. Recent US economic data was positive, heightening market expectation over the housing data to be released this week. This will boost the financial markets and US equity markets and help drive copper prices higher. Besides, investors anticipate that euro zone finance ministers' meeting January 21 evening should make new progress in the bank restructuring plan, which is likely to lift the euro higher. Jeroen Dijsselbloem's favorable comments on the euro zone have also boosted market sentiment. From a comprehensive perspective, situation in the bloc is improving, so the euro may challenge high levels. Furthermore, crude oil prices recently continued rising on higher Chinese economic growth and International Energy Agency's move of raising global demand, while gold prices have also posted better performance, which will guide future copper price movements. According to the latest CFTC reports, net long positions decreased slightly January 15 from a week ago, but long positions held by noncommercial and commercial investors both increased, which will help copper prices extend gains. Both LME and SHFE copper prices have risen above recent moving averages with technical indicators pointing upside. In China's markets, markets are upbeat about the HSBC China PMI data to be announced this Thursday. According to WIND statistics, there is RMB 150 billion worth of reverse repurchases due in the open market during January 19-25, so cash flow pressures are relatively small. Coupled with the action of China's central bank in introducing short-term liquidity adjusting tool, credit will remain stable in the near term. Hence, these insiders expect copper prices to extend increases this week.
Around 51% of market insiders see no major changes in copper prices, anticipating LME copper will fluctuate between USD 8,000-8,080/mt and SHFE copper will hover around RMB 58,200/mt. Last Friday, Republican leaders in the House of Representatives submitted a new bill, which allowed the US Treasury Department to continue issuing debts for three months to maintain government spending after reaching the debt ceiling. If this bill can be passed in the House this Wednesday, the US debt ceiling negotiations scheduled to start January 23 will be delayed after mid-April. This at least has won precious time for the two political parties on the budget talks, significantly reducing risks in defaulting. Nevertheless, the US government's deficit expanded to USD 1.316 trillion in 2012 from USD 1.313 trillion in 2011, and the proportion of the nation's debts to its GDP rose to 73% in 2012, up from 68% seen in late 2011. This means uncertain factors prevail in the US. In Chinese markets, as high as 287 companies on the Shenzhen and Shanghai markets have slashed position holdings. Moreover, spot copper cargo-holders expressed strong willingness in moving goods for cash. But Chinese A-shares should fluctuate at highs during the week, helping support copper prices. Hence, copper prices are expected to hold flat with current levels.
The remaining 27% of insiders are pessimistic, and contributable to the following factors. In their views, LME copper prices will slip to USD 8,000/mt, and SHFE copper will test support at RMB 57,800/mt. Recently, copper prices have followed same directions with the US dollar, but risk aversion exists. The US dollar will give pressures to copper prices once standing above 80 effectively. Meanwhile, LME copper stocks remain the highest since the end of 2011, while Chinese copper stocks are also high. Supply surplus will continue to weigh on copper markets. In China's spot markets, downstream producers has yet to replenish stocks in large quantities ahead of the Chinese Near Year holiday owing to thin orders, while cargo-holders have stepped up sale volumes for cash. In this context, spot copper has been traded at discounts, which is unable to buoy copper prices.