SHANGHAI, Mar. 5 (SMM) – As LME copper prices extended declines last Friday, the most active SHFE 1306 copper contract opened slightly RMB 200/mt down at RMB 56,710/mt Monday. As the Shanghai Composite Index dived by 3.7% on tight Chinese property control, and since LME copper prices lost USD 7,700/mt again, SHFE copper prices dropped all the way following the opening, and touched a low at RMB 56,060/mt in the afternoon. However, the falling momentum eased after SHFE copper prices won technical support. SHFE 1306 copper contract settled RMB 600/mt or 1.05% lower at RMB 56,310/mt, with trading volumes and positions up 9,428 lots and 5,262 lots, respectively. With bearish sentiment growing, SHFE copper prices already lost ground for two straight days and are likely to dip further over the short term.
SHFE copper prices trended down after opening lower, and helped hedged copper enter spot copper markets. Spot copper supply remained plentiful as a result, so discounts can barely narrow, largely between RMB 50-160/mt in the morning business. Traded prices for standard-quality copper were between RMB 56,030-56,250/mt, and RMB 56,130-56,350/mt for high-quality copper. Copper prices dived again near the midday, but speculators were still eager to move goods. Traders, however, became bearish towards future prices and cut purchase volumes, while downstream buying increased at prices around RMB 56,000/mt. In the afternoon, SHFE copper prices rallied from lows, but spot copper discounts held virtually flat with morning levels, but traded prices declined to around RMB 56,000/mt. Speculative activity was depressed since there was nearly no price gap among SHFE copper contracts following copper price drops, and downstream producers continued standing on the sidelines. Market transactions were comparatively limited as a consequence.
SMM conducted a survey concerning copper price movement this week.
Based on the survey, 52% of market insiders are negative about the outlook, believing LME copper will lose USD 7,620/mt and SHFE copper will test support at around RMB 55,500/mt. The US dollar index has advanced appreciably recently and has no sign of falling, which will weigh on commodity markets including copper. Besides, crude oil and gold prices are also on a downside track, which should guide future copper price trend. According to the latest CFTC report, positions already turned to net short positions of 728 lots as of February 26, the first of this kind since late November last year, an indication that copper markets are dominated by bearish sentiment. Meanwhile, China introduced tighter property sector controls and sent Chinese A-shares tumbling, which will dampen market sentiment over the short term and thus drag SHFE copper prices down. In China's spot markets, downstream producers were not seen to buy in largely quantities at lows with market pessimism growing, so copper discounts failed to shrank significantly, also unfavorable for copper price trend. LME copper stocks increased to 462,400 mt Monday, and SHFE copper stocks also rose by 18,000 mt to 226,201 mt following the Chinese New Year holiday. Copper supply surplus will also restrict copper prices. All these negative factors will push down copper prices this week.
Around 38% of insiders see no major changes in copper prices, expecting LME and SHFE copper will fluctuate around USD 7,700/mt and RMB 56,500/mt, respectively. The euro zone announced weak PMI data last week and signaled slow economic recovery in the region. Combined with risky factors in Italy and other member states, the euro's trend is still unpredictable. However, governments in the euro zone are taking positive attitudes towards the depressed markets, which will cap downside room in the euro. The SHFE/LME copper price ratio has risen above 7.3, which will boost LME copper buying at lows. In China's markets, stock markets recently fell but are likely to improve since investors believe the NPC and CPPCC meetings will launce positive policies. From technical indicators, the Shanghai Composite Index will hover at lows after testing the 60-day moving average. In spot markets, there is almost no price difference among SHFE copper contracts following the latest round copper price declines, which will depress speculative interest and cause SHFE copper to extend losses. Hence, these market insiders anticipate copper prices will stay within previous trading ranges this week.
The remaining 10% of market insiders hold the view that LME copper may rebound above USD 7,800/mt and SHFE copper will rise above RMB 57,000/mt, and due to the following two reasons. First, the recent US economic data was favorable, and markets are upbeat about the upcoming non-farm payrolls and unemployment rate, which will lift US equity markets. Second, technical indicators for both LME and SHFE copper are approaching overbought territory following two week's considerable drops, and in this context, copper prices will probably experience a wave of significant increases.