SMM Copper Market Daily Review (2013-4-1)

SHANGHAI, Apr. 2 (SMM) – COMEX copper dived this morning, causing SHFE 1307 copper contract to open RMB 550/mt lower at RMB 54,480/mt on Monday. After its opening, the most active SHFE copper contract retreated from RMB 54,000/mt to a low of RMB 53,800/mt due to short selling. Later, the struggle between longs and shorts left SHFE copper hovering around RMB 54,000/mt. In the afternoon, SHFE copper for July delivery slipped further to an intraday low of RMB 53,600/mt, and finally ended the day down RMB 1,290/mt or 2.34% at RMB 53,740/mt. Trading volumes increased 47,082 lots, while positions were also up 17,358 lots. SHFE copper will continue to come under downward pressure since shorts are dominating the market. 

Spot copper premiums RMB 100-220/mt in Shanghai. Traded prices for standard-quality copper were between RMB 54,380-54,480/mt, and RMB 54,460-54,570/mt for high-quality copper. The most active SHFE copper contract tumbled by RMB 1,000/mt, leading to a sharp increase in spot copper premiums. Downstream producers and middlemen were active in bargain hunting, allowing cargo holders to hold offers firm. The price spread between standard-quality copper and high-quality copper narrowed and trading was brisk. SHFE copper fell in the afternoon, and some traders in spot market purchased at low prices. Premiums increased further to RMB 120-220/mt, and premiums for standard quality copper was offered at RMB 150/mt, but traded prices fell to RMB 54,150-54,450/mt.

With regards to copper price trends this week, SMM survey shows that 55% industry insiders believe copper prices will keep falling, with LME copper heading to USD 7,350/mt and SHFE copper testing support at RMB 53,500/mt. Official of Cyprus central bank announced March 30 that losses of depositors with savings exceeding EUR 100,000 at Cyprus banks may hit as much as 60%, which is far beyond market expectation. It was reported that Cyprus finally decided to obtain bailout at the expense of its big depositors after failing to get aids from Russia – its largest investor. Market notes this will exacerbate the country’s crisis and will be adverse to liquidity at SMEs, hurting confidence of its people. Cyprus became the first to conduct capital controls in the euro zone, adding to concerns over capital flight. The uncertainty to political situation in Italy also poses downward pressure on base metals. Meanwhile, the US dollar has been rising recently given worries on the Cyprus crisis and Italy’s political instability. In contrast, the euro kept falling and commodity market was weighed on. Latest data of CFTC revealed that net position continued to increase to 20,187 lots as of March 26, still negative to copper prices. The strong selling pressure for both SHFE and LME will place downward pressure on copper prices. Besides, technical indicators also reflected potential downside. These all fueled bearishness in the market, leading many investors to believe copper prices will seek support at lower level this week. 

45% industry insiders expect copper prices to keep vacillating, with LME copper prices expected at USD 7,400-7,450/mt and SHFE copper prices around RMB 54,000/mt. Aside from the Italian political condition, the interest rate meeting of the central bank of Australia, Japan, the Europe and the UK will also greatly affect copper market this week. The decision of Japan’s central bank is especially important. Market expectations are that the new governor of Japan’s central bank will expand stimulus program in April, which will benefit the country’s stock markets. In addition, the US non-farm payrolls will be released April 5, with the data expected to increase 200,000. Given the mixed US economic data and persistently high US equities will both limit decline in copper prices. As of March 29, natural gas, the Dow Jones Industrial Average Index, and crude oil topped as overbought in 14 days on the RSI, with copper, euro, wheat, and equities of Spain and Italy at last position. Meanwhile, net positions according to CFTC rose above 20,000 lots. Similar situation was also seen in February 2007 and January 2009, which had helped gave support to copper prices. With shorts booking profits after copper market was oversold, leaving less pressure for low-end prices. LME copper will gain certain support from bargains after LME resumes trading. In China, a total of RMB 5 billion of 28-day repos will mature on April 4. With the approach of the Qingming Festival, capital demand will increase, but interest rate remains stable, indicating sufficient liquidity. Meanwhile, HSBC manufacturing PMI was 51.7 in February, but China’s electricity consumption growth in early and mid-March slowed, reflecting that a relatively mild recovery in China’s economy. The narrow fluctuations in the A-shares also limit the moving range of SHFE copper prices. The well-matched longs and shorts will leave copper prices in correction. In spot copper market, prices fell sharply in on Monday, driving up transactions made by middlemen, and cargo holders held prices firm. Thus, premiums for spot copper expanded, giving certain support to SHFE copper prices. Thus, these market players believe copper prices should remain stable this week.