SMM Copper Market Daily Review (2013-4-22)

SHANGHAI, Apr. 23 (SMM) – With LME copper being weak overnight, SHFE 1308 copper contract opened RMB 30/mt lower at RMB 50,440/mt on Monday. After its opening, the most active SHFE copper contract hit a high of RMB 50,750/mt before immediately falling back. Later, shorts entered the market again, and the Shanghai Composite Index dropped, sending SHFE copper for August delivery below RMB 50,000/mt again before mid-day. SHFE copper for delivery in four months sank to RMB 48,970/mt in the afternoon, and finally ended the day down RMB 1,430/mt or 2.83% at RMB 49,040/mt. Trading volumes of SHFE 1308 copper contract decreased 110,000 lots, while its positions increased 62,384 lots. Total trading volumes contracted 176,000 lots, while total positions were up 107,644 lots. No clear signs of stopping falling have been seen.

Spot copper in Shanghai was quoted at a premium of RMB 120-220/mt over SHFE 1305 copper contract on Monday. Traded prices for standard-quality copper were between RMB 50,500-50,650/mt, and RMB 50,560-50,780/mt for high-quality copper. SHFE 1308 copper contract slid all the way down, sparking strong bearishness. Cargo holders rushed to sell for cash at highs, leading to abundant supply and narrowing premium. Middlemen entered the market in the morning. Inquiries increased after the most active SHFE copper contract continued to fall near mid-day, but trading volumes remained thin. There was no room for arbitrage. Downstream producers purchased as needed at low prices and their pessimism over future prices is growing. In the afternoon, bearish mood was stronger as SHFE copper fell below RMB 50,000/mt. Cargo holders were eager to sell goods with premiums for spot copper at RMB 140-270/mt. However, few transactions were made and traded prices fell to RMB 50,050-50,350/mt.

According to SMM survey, no industry insider was optimistic to copper price trends this week. 81% market players believe copper prices will continue to fall with LME copper testing USD 6,600/mt and SHFE copper falling to RMB 48,000/mt. The numerous negative reports, including tragic end of the Cyprus crisis, the political standoff in Italy, and dangerous signal of Slovenia banking system, all led the EU and OECD to be pessimistic to euro zone economy. The meeting of G20 finance ministers and bank governors concluded in Washington DC April 19. The finance ministers appeared to soften on the austerity measures in affluent nations, and denied the opinion for setting targets for government debt reduction, indicating worries on slowing global recovery. Besides, Asmussen, Member of the Executive Board of the ECB stated April 20 that the bank may further cut interest rate should economic data for the euro zone remain weak, and once the interest rate cut is taken into consideration by more members, the euro may be weighed on. In addition, with the US dollar index standing above several moving averages, copper prices will come under greater downward pressure. Meanwhile, the positions of SHFE copper surged to 900,000 lots, with shorts dominating the market, indicating further decline in copper prices. Speculators also conducted arbitrage by selling copper and buying zinc, leaving selling pressure for copper prices. In China’s spot copper markets, cargo holders will be urgent to move goods with the month coming to an end, combined with no signal for copper prices to stop falling, premiums for spot copper will keep narrowing, leaving little support to SHFE copper. In this context, most investors expect copper prices to fall noticeably this week.

The remaining 19% market players are cautious, expecting LME copper to move between USD 6,800-7,070/mt and SHFE copper to hover around RMB 50,000/mt. PMI data for China, US and Euro zone will be released this week, and market expects the data will continue to recover, which may constrain the decline in copper prices. The latest data of CFTC showed a decline net position for copper to 24,127 lots as of the week ending on April 16, putting an end to the growth in net position and indicating the caution around the supporting level for copper prices. With RMB 152 billion expected to mature in domestic open market, the highest in 12 months, China’s central bank will likely step up the efforts to drain liquidity, leaving limited funds for investors to sell against falling prices. In China, the earthquake hitting Ya’an city of Sichuan province may influence listed companies in Sichuan with 11 industries affected. Market expectations are that the stock market will be negatively affected in the short term, but influence will be limited in the long run. Building material, medicine, and relief material manufacturers may see increase in the short term, but the A-shares are expected to continue vacillating on the whole, limiting any rise in copper prices. In spot copper markets, traded prices fell to nearly RMB 50,000/mt due to the slumping SHFE copper on Monday, but downstream buyers may be more willing to purchase once spot prices fall below RMB 50,000/mt, the consumption will give certain support to low-end prices. Thus, these investors believe copper prices will hold steady this week.