SHANGHAI, Jan. 29 (SMM) – With LME copper settling down last Friday, SHFE 1305 copper contract started RMB 330/mt down at RMB 58,500/mt Monday. The contract followed LME copper lower after temporarily touching a high at RMB 58,690/mt, but still won strong support at the opening price since the Shanghai Composite Index surged by over 2.4%. SHFE copper prices recouped daily moving average in the afternoon and rose to levels around the intraday high. SHFE 1305 copper contract still ended RMB 210/mt 0.36% lower at RMB 58,620/mt, with trading volumes down 33,738 lots but positions up 3,524 lots. SHFE copper prices were restricted between the 5 and 10-day moving average, with KDJ technical indicator tending to point downside, but won growing support at the lows.
As SHFE copper prices slipped marginally, some hedged copper flew into spot markets, keeping spot copper supply comparatively sufficient. Shanghai spot copper discounts were largely between negative RMB 100-200/mt in the morning business. Traded prices for standard-quality copper were between RMB 57,850-57,910/mt, and RMB 57,920-58,020/mt for high-quality copper. Traders took a wait-and-see posture following copper price drops, but downstream producers stepped up purchase volumes at prices below RMB 58,000/mt. Overall market supply still surpassed demand, however. In the afternoon, SHFE copper prices continued fluctuating in a narrow band, but spot copper supply decreased, helping copper discounts shrank marginally to negative RMB 90-180/mt. Traded prices in the afternoon saw no major changes from morning levels.
SMM conducted a survey with regard to copper price movement this week.
Based on the survey, 44% of market insiders believe copper prices are likely to rebound this week. In their views, LME copper prices will rally to USD 8,200/mt, and SHFE copper prices will challenge RMB 59,000/mt, due largely to the following factors. US durable goods data came in better than expected and buoyed market confidence over the upcoming Conference Board's consumer confidence index, ADP employment data, non-farm payrolls report, unemployment rate for January, as well as the ISM manufacturing data for December. Once the US economic data proves to be favorable, market risk appetites will grow. The US dollar index, though, will suffer pressures, giving support to copper prices. Moreover, crude oil prices hold firm while investors take gold as a safe-haven.
However, 47% of market insiders see no major changes in copper prices, expecting LME and SHFE copper prices will fluctuate around USD 8,050/mt and RMB 58,500/mt, respectively. The ECB announced the amount of LTRO funds the banks returned, noticeably higher than anticipated, which indicated improvement in liquidity in the euro zone's banking industry. In response, the euro surged to 1.3480, the highest in recent 11 months and has remained strong recently. However, Fitch the same day lowered the credit rating of the euro zone member Cyprus by two notches to B while giving a negative outlook, which cited growing uncertainty in the country's banking sector. The international rating agency estimated that the recapitalization cost of Cyprus's banking industry may reach as high as EUR 10 billion, which will continue weighing on copper markets. According to CFTC reports, net long positions on the LME fell to 9,535 lots January 22, but positions held by both commercial and noncommercial investors increased notably. From technical indicators, LME copper prices struggled among recent daily moving averages following drops last Friday, without directions over the short term. Owing to rising companies' profits, Chinese stock markets rose significantly with the Shanghai Composite Index closing at 2346.50, a gain of 2.41%. But Chinese stock markets are likely to fluctuate at highs for the near future. Data revealed that China's central bank will conduct RMB 121 billion reverse repurchases this week (January 26-February 1), and the scale is not considered big. Cash flows thus will keep relatively sufficient. The central bank is expected to step up capital injection with the arrival of the Chinese New Year holiday, which will exacerbate fluctuations in stock and futures markets. In China's spot markets, downstream producers will buy at lows once copper prices experience drops, which will help copper prices stop falling. As such, these insiders hold the view that copper prices will keep fluctuating near current values.
The remaining 9% of market insiders are pessimistic over the outlook, believing that LME copper will lower to test USD 8,000/mt and SHFE copper will test support at RMB 58,000/mt. In China's spot copper markets, cash flow pressures will compel cargo-holders to sell aggressively, so copper supply will increase. In this context, copper discounts will continue and drag down copper prices.