SMM Copper Market Daily Review (2013-2-25)

SHANGHAI, Feb. 26 (SMM) –As LME copper reversed increases last Friday, SHFE 1305 copper contract, opened RMB 340/mt down at RMB 57,280/mt Monday. The contract hovered cautiously around the daily moving average following the opening and suffered resistance at RMB 57,420/mt. Later, the HSBC China PMI came in softer than expected and caused the Shanghai Composite Index to fall from previous highs. SHFE copper prices were thus depressed and slid to a low of RMB 57,050/mt, but rallied above the daily moving average at the tail of trading. SHFE 1305 copper contract settled RMB 340/mt or 0.59% lower at RMB 57,280/mt. SHFE 1306 copper contract ended RMB 380/mt or 0.66% down at RMB 57,320/mt, with a high at RMB 57,520/mt and low at RMB 57,090/mt. Trading volumes and positions for SHFE 1305 copper contract decreased by 5,020 lots and 20,000 lots, respectively, but those for SHFE 1306 copper contract increased by 37,048 lots and 31,746 lots, respectively. The most active copper contract was shifted to SHFE 1306 copper contract during the day. SHFE copper prices had no noticeable signs of stop falling and still face downside pressure over the short term.

SHFE copper prices extended losses, but spot copper cargo-holders expressed strong willingness in moving goods for cash at the month's end. Spot copper supply was thus diversified. Shanghai spot copper discounts were RMB 80-200/mt in the morning business. Traded prices for standard-quality copper were between RMB 56,850-56,950/mt, and RMB 56,950-57,070/mt for high-quality copper. Speculators entered markets and favored high-quality copper which held firm. Hence, the price differential between standard and high-quality copper widened. However, market pessimism was growing as SHFE copper continued falling, so downstream producers were not seen to replenish stocks at prices below RMB 57,000/mt. Market transactions were modest as a result. In the afternoon, with SHFE copper holding flat, copper discounts and traded prices were virtually unchanged from morning levels, as some downstream producers made purchases.

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

Based on the survey, 40% of market insiders are conservative about the outlook, believing LME and SHFE copper will fluctuate between USD 7,800-7,900/mt and around RMB 57,300/mt, respectively. First, recent US economic data was mixed and markets are also cautious towards the upcoming housing starts data, 4Q GDP, PMI and ISM manufacturing index in the world's biggest economy. If these US figures also come in mixed, both upside and downside room in commodity markets will be capped. Second, according to the latest CFTC reports, net long positions on February 19 dropped to 9,317 lots from 15,862 lots a week ago, but total positions increased to 178,372 lots. This indicates that the struggle between long and short investors will become more severe over the short term. Third, the RSI indicator is approaching overbought territory, but downside trend in KDJ indicator tends to narrow.

Around 45% of market insiders expect that copper prices will extend declines. LME copper prices will retreat below USD 7,800/mt, and SHFE copper prices will test support at RMB 56,500/mt. The US dollar index remains strong and has no signs of falling, which will impose great pressure to copper prices. The general election in Italy was held on February 24, and the result will be released on Tuesday, attracting investors' attention. Furthermore, the European Union recently lowered the euro zone economic growth forecast, unfavorable for the financial market. Meanwhile, LME copper stocks have surpasses 430,000 mt, and SHFE copper stocks also increased by over 10,000 mt last week. Weak fundamentals side will continue exert pressures to copper prices. In China's spot markets, tight cash flows at the month's end will force cargo-holders to move goods aggressively and keep market supply plentiful. Hence, large copper discounts will continue, also negative for copper price movement.
  
The remaining 15% of market insiders hold the view that LME copper will rally above USD 7,900/mt and SHFE copper will increase to around RMB 58,000/mt. The Dow Jones Industrial Average has recouped 14,000, so US equity markets will definitely rebound and help drive copper prices higher. The NPC and National Committee of the CPPCC will be held on February 26-28, and markets hold high expectations over the meeting, favorable for both stock and futures markets. In external markets, the borrowing cost has fallen, which will also enliven trading on stock and commodity markets. In China's spot markets, downstream consumption is likely to pick up following the Lantern Festival and lend support to copper prices.