SHANGHAI, Feb. 5 (SMM) – With LME copper advancing significantly last Friday, the most active SHFE 1305 copper contract opened RMB 90/mt up at RMB 60,020/mt Monday. As shorts withdrew from the market after triggering the stop-loss limit, SHFE copper prices followed LME copper higher to RMB 60,270/mt, but gradually narrowed daily increases since longs made profit-taking. SHFE copper prices then slipped to around RMB 60,000/mt, with a low at RMB 59,900/mt. But SHFE 1305 copper contract still settled RMB 450/mt or 0.76% higher at RMB 59,950/mt, with trading volumes and positions up 13,414 lots and 666 lots, respectively. Total copper trading volumes on the SHFE added by 39,278 lots, while total positions decreased by 3,242 lots. Both longs and shorts exerted caution after SHFE copper prices rebounded to RMB 60,000/mt. Hence, SHFE copper prices posted weaker performance than LME copper and are likely to test the RMB 60,000/mt mark repeatedly for the immediate future.
With SHFE copper starting higher, copper discounts expanded. Some spot copper cargo-holders, especially imported copper cargo-holders, chose to sell aggressively at large discounts ahead of the Chinese New Year holiday, while hedged copper cargo-holders became reluctant to move goods. Shanghai spot copper discounts were largely quoted between negative RMB 170-250/mt in the morning business. Traded prices for standard-quality copper were between RMB 59,020-59,080/mt, and RMB 59,070-59,150/mt for high-quality copper. Both traders and downstream producers mostly took a wait-and-see posture, resulting in muted market activity. In the afternoon, SHFE copper prices hovered in a narrow band, but spot copper market transactions decreased further. Mainstream copper discounts widened to negative RMB 180-280/mt in the afternoon, but traded prices remained virtually flat with morning levels.
SMM conducted a survey with regard to copper price trend this week.
Based on the survey, 53% of market insiders are optimistic, believing LME copper will challenge resistance at USD 8,350/mt and that SHFE copper will fluctuate at highs between RMB 60,000-60,500/mt. A spate of US economic figures indicated continuous recovery in the US economy at the beginning of 2013, in strong contrast with the release of last Wednesday's 4Q GDP which fell by 0.1%. Coupled with encouraging manufacturing data and consumer confidence index reported last Friday, markets generally believe that the unexpected drop in the US economy in 4Q was due mainly to severe weather and significantly falling defense spending, but is not going to become a trend. These favorable key economic figures further boosted the financial market last week as US equity markets rose to a new five-year high and are likely to post strong performance this week. Moreover, investors have shifted attention to the upcoming policy meetings of Reserve Bank of Australia and British central bank and anticipate that the two banks will keep the interest rate unchanged. Earlier data revealed that European banks will repay EUR 137.16 billion of long-term refinancing operations (LTRO) they borrowed from the European Central Bank two years early, which further proved that the European debt crisis has alleviated noticeably. Meanwhile, economic data out of Germany, the euro zone's biggest economy, was also positive recently. Hence, the euro will keep fluctuating at highs. According to CFTC reports, net long positions for the euro already totaled USD 4.6 billion as of January 29, far above USD 3.6 billion a week ago. In this context, the US dollar index will probably slip below 79, lifting copper markets somehow. In China's domestic markets, Chinese stock markets continued the winning streak last week, with the Shanghai Composite Index breaking through 2,400 easily, up as high as 5.57% and registering the largest weekly gain in 15 months. Chinese stock markets still have rising momentum, with the Shanghai Composite Index expected to challenge last year's high of 2,478. As such, these market insiders hold the view that copper prices will march higher this week.
The remaining 47% of market insiders, however, are cautious towards the outlook. They predict that LME and SHFE copper prices will fluctuate around USD 8,270/mt and RMB 59,800/mt, respectively, this week, and mainly contributable to the following factors. Technical indicators for LME copper are still pointing up, but the RSI indicator for both LME and SHFE copper is gradually approaching overbought territory. Furthermore, the CFTC reports displayed that net long positions dropped from 9,535 lots to 9,367 lots as of January 29, while both long and short positions held by commercial and noncommercial investors experienced some increases. In addition, gold and crude oil prices have recently suffered resistance to trend up. In China's domestic markets, the SHFE announced to raise deposit for base metals 2 percentage points higher ahead of the Chinese New Year holiday. Combined with the fact that investors will avert risks before the holiday, both buying support and felling pressures will weaken. In the spot markets, copper consumption is unlikely to improve as both cargo-holders and downstream producers chose to stay out of markets for the holiday. Large copper discounts therefore will continue and drag copper prices down.