SHANGHAI, Apr. 16 (SMM) – Plunging LME copper overnight caused SHFE 1308 copper contract to open RMB 1,090/mt lower at RMB 54,000/mt on Monday. The Shanghai Composite Index declined as China’s GDP missed forecasts, and LME copper dived to USD 7,300/mt, sending SHFE copper down as well. Longs exited the market as a result, dragging the most active SHFE copper contract down to RMB 52,960/mt. Finally, SHFE copper for August delivery closed at RMB 53,380/mt, a loss of RMB 1,710/mt or 3.1%. Trading volumes and positions increased 354,000 lots and 44,878 lots, respectively. SHFE copper market was dominated by short selling.
Spot copper in Shanghai was quoted at a discount of RMB 50-200/mt over SHFE 1304 copper contract on Monday. Traded prices for standard-quality copper were between RMB 53,800-54,300/mt, and RMB 53,880-54,500/mt for high-quality copper. SHFE 1308 copper contract started the day more than RMB 1,000/mt lower, causing price gap among SHFE copper contracts to expand to RMB 200-300/mt on the last trading day of the SHFE 1304 current-month copper contract. Cargo holders continued to move goods at highs. More imported copper flowed in as the profit/loss ratio of imported goods further narrowed, keeping spot copper supply ample, and forcing suppliers to quote high-quality copper at discounts of RMB 30-50/mt and standard-quality copper at discounts of RMB 80/mt. Most transactions were concluded at RMB 54,300/mt in the morning, with some deals also completed higher at RMB 54,500/mt. SHFE copper for August delivery fell another RMB 500/mt during the second trading session compared with the first session, widening price gap among SHFE copper contracts to over RMB 500/mt. Cargo holders refused to sell at large discounts, holding offers at discount of RMB 100-200/mt. Market bearishness grew. Downstream producers intended to go bargain-hunting after SHFE 1305 copper contract becomes the new current-month contract, while traders would like to hold offers at premium after delivery of SHFE 1304 current-month copper contract. Spot copper traded prices slid to RMB 53,800-54,000/mt during the second trading session, a decrease of RMB 500/mt from the first session. Quotations were rarely reported in the afternoon with SHFE copper remaining weak. Prices for standard-quality copper were offered at discount of RMB 150-220/mt. However, the price gap among SHFE copper contracts narrowed to RMB 50/mt at the tail of trading, prompting cargo holders to raise quotations, with high-quality copper quoted at premiums of RMB 170-200/mt. Traded prices slipped to RMB 53,500-53,900/mt. A few traders started purchasing.
According to SMM survey, 63% market players believe copper prices will continue to fall this week, with LME copper testing USD 7,200/mt and SHFE copper falling to RMB 52,500/mt. Market was dominated by short selling pressure due to the negative economic figures for the US and China, and technical indicators also pointed downwards. Crude oil and gold staged a bearish outlook after falling sharply last Friday, which may be adverse to copper price movements. In addition, CFTC reported an increase in net positions as of the week ending April 9. Thus, many investors believe copper prices will keep falling this week, and LME copper may threaten to head towards USD 7,000/mt once falling below USD 7,200/mt.
24% industrial insiders are relatively cautious, expecting LME copper to hover near USD 7,300/mt and SHFE copper to move around RMB 53,500/mt. Despite the weak US economic data, US equities are showing surprise growth and hitting new highs. However, as equities are oversold, leaving uncertainty and high risk for future market, copper prices will be affected. In China, the A-shares fell below 2,200 on Monday, and resource sector was further weighed down by the lower-than-expected GDP growth and slumping gold. It will still take some time for Chinese stock markets to stabilize and rebounds are not expected in the short tern, but the central bank may conduct repos to keep a balance of market capital given the loose liquidity and increasing capital flowing into the market recently. Thus, the decline in A-shares will be capped. The RMB spot exchange rate appreciated to 6.1862 against the dollar on April 15, hitting a record high. The stronger RMB will keep narrowing losses for importing copper, and copper importers, including the finance-driven ones, are expected to enter the market, place oversupply pressure in copper markets. Besides, the SHFE/LME copper price ratio is on the rise with SHFE copper more resilient compared with LME copper, driving up premiums of imported copper. As a result, quotations for imported copper in domestic markets also increase. Meanwhile, the recovering downstream demand will allow buyers to purchase moderately at low prices, lending certain support to prices. In this context, copper prices are expected to hold steady.
The remaining 13% market players believe copper prices will stage a rally with LME copper rising to USD 7,400-7,450/mt, and SHFE copper standing above RMB 54,000/mt. Despite the rebound seen on Monday, the US dollar index may weaken this week which will help copper prices improve. Besides, market is still upbeat to the US housing data to be released this week, which will buoy copper prices. Moreover, shorts booked profits under the influence of negative news including the disappointing China GDP growth, which may allow higher chance for a rebound in copper market.