SMM Copper Market Daily Review (2013-6-17)

SHANGHAI, Jun. 18 (SMM) –With LME copper stagnant overnight, SHFE 1310 copper contract started only RMB 60/mt higher at RMB 51,550/mt on Monday. After its opening, the most active SHFE copper contract was pushed up to an intraday high of RMB 51,960/mt by rising LME copper before falling back to RMB 51,500/mt. Finally, SHFE copper for October delivery closed the session at RMB 51,710/mt, up RMB 220/mt or 0.43%. Trading volumes were off 59,824 lots, and positions also shrank 15,654 lots. Investors generally liquidated positions against rising SHFE copper. The most active SHFE copper contract has found strong support at RMB 51,500/mt, but will face resistance at the 5-day moving average. 

 

Spot copper in Shanghai was offered at a discount of RMB 100-280/mt over SHFE 1306 copper contract prices on Monday. Traded prices for standard-quality copper were between RMB 52,280-52,480/mt, and RMB 52,380-52,580/mt for high-quality copper. SHFE copper contract prices were staying at high levels. Holders of imported copper became more interested in selling against rising SHFE/LME copper price ratio. The price gap between SHFE 1306 and 1307 copper contracts expanded to above RMB 400/mt now that SHFE 1307 copper contracts will turn into the new current-month contract tomorrow. As a consequence, spot copper suppliers rushed to move goods, widening spot discount. A few middlemen entered the market in the morning, but downstream producers held to the sidelines, keeping transactions limited. In the afternoon, discounts of spot copper narrowed to RMB 50-180/mt, and traded prices fell to RMB 52,200-52,450/mt, but actual transactions were limited. 

 

According to the latest SMM survey, 53% of market players believe copper prices will fall back this week to USD 7,000/mt, and SHFE copper will drop below RMB 51,000/mt. CFTC report showed net short position for copper surged 9,945 lots to 18,047 lots as of the week ending June 11 with its outlook for copper prices turning bearish. In addition, qualified traders are reportedly allowed to continue applying for three-month central bank bills this week. Interbank market started to see tighter liquidity since the Chinese Dragon Boat Festival, with repurchase rates rising, and the People’s Bank of China suspended operation in the open market in the first week after the holiday. Although a net RMB 92 billion has been injected in the market during last week, liquidity was not slackened and should remain relatively tight this week. Besides, most domestic companies will see tight financing at midyear, driving cargo holders to sell goods for cash. That, combined with the pullback in domestic stock markets, will leave investors unwilling to enter stock and futures market, pushing down copper prices. 

 

38% of industry insiders believe copper prices will hold steady this week, with LME copper between USD 7,100-7,200/mt and SHFE copper hovering around RMB 51,500/mt. The Fed’s policy meeting this week will result in big swings in US dollar index, posing resistance to copper price movements, while technical indicators reflected that copper prices will unlikely make a breakthrough in the near term. In addition, gold and crude oil prices remained relatively stable recently, which will also affect copper price trends this week. 

 

The remaining 9% industry insiders are optimistic, believing LME copper will rise above USD 7,200/mt and SHFE copper will increase to RMB 52,000/mt. Market focuses on the Fed’s June policy meeting this week, and the FOMC will announce the decision Thursday night Beijing time and Bernanke will convene a press conference later. Although it was reported investors’ opinion will change after the meeting, the Fed’s decision remains uncertain, and market will remain stable if investors believe the Fed will unlikely terminate the easing policy after Bernanke’s remark. In this context, the US dollar will fluctuate down, giving certain support to base metals markets. In China’s spot copper markets, cargo holders may hold quotes high after the shift of the most active SHFE copper contract, while downstream buyers will only watch on the sidelines. As a result, SHFE copper prices will benefit if spot copper is sold at premiums, leaving chance for copper prices to rise.