SHANGHAI, Jun. 25 (SMM) – SHFE 1310 copper contract opened RMB 330/mt higher at RMB 49,470/mt on Monday. After its opening, the most active SHFE copper contract was dragged down by sell-off. China’s A-shares dived 5.4% to 1,958.4 points. Meanwhile, LME copper tumbled below USD 6,700/mt in the afternoon, driving SHFE copper for October delivery down to RMB 47,900/mt, a new 20-month low. Finally, SHFE 1310 copper contract ended the day down RMB 1,190/mt or 2.42% at RMB 47,950/mt, with trading volumes up 13.3 lots and positions up 57,570 lots. Total positions increased 65,566 lots to nearly 830,000 lots. SHFE copper is expected to fall further.
Spot copper in Shanghai was offered at a premium of RMB 80-200/mt over SHFE 1307 copper contract prices on Monday. Traded prices for standard-quality copper were between RMB 49,500-49,620/mt, and RMB 49,550-49,700/mt for high-quality copper. SHFE 1310 copper contract drifted lower after a high opening, driving cargo holders to move goods at highs. Ample supply caused spot premium to narrow. Middlemen and downstream producers purchased only on an as-needed basis against liquidity crunch at the end of mid-year. In the afternoon, premiums for spot copper remained at RMB 50-150/mt, with traded prices falling to RMB 49,050-49,450/mt.
The latest SMM survey shows that 64% of market players are bearish to copper prices this week, believing LME copper prices will fall to USD 6,500/mt or even lower, while SHFE copper prices will fall to RMB 47,000/mt. Most investors sought shelter in the US with commodities falling across the board, and once the US dollar index breaks through the 60-day moving average, it may possibly rally to 83.6, weighing down copper prices. Besides, crude oil and gold were also depressed, which will influence the copper price trends. In China, large companies are in urgent need for cash flow and withdrawing their funds from stock and futures markets, resulting in the plunge in A-shares, and the liquidity crunch will continue to affect equities and futures markets. In addition, some RMB 30.9 billion of stocks will be unlocked this week, up RMB 4 billion or 17.52% from the previous week, which will further drag down stocks. In this context, copper prices may seek support at lower levels.
31% of market players believe copper prices will remain stable with LME copper hovering around USD 6,800/mt and SHFE copper around RMB 49,000/mt. In the US, durable goods orders, housing data, and local PMI will be released this week, and market will be cautious before the releases, but most investors are optimistic given the recent recovery. This may help support the US equities and copper prices. In spot copper markets, the rising SHFE/LME copper price ratio encouraged copper imports, driving up copper supplies in domestic spot markets. Besides, copper smelters also resumed production to meet the mid-year output target, which will also push up copper supply. On the other hand, downstream consumption is expected to improve with buyers replenishing stocks after copper prices fell below RMB 50,000/mt. As a result, these investors expect copper prices to vacillate this week.
The remaining 5% investors were optimistic, noting that LME copper prices may still rise to USD 7,000/mt, and SHFE copper prices may return to RMB 50,000/mt, as copper prices may start correction following the sharp decline. In addition, despite increasing copper inventories, canceled warrant ratio surged to 50%, indicating that copper inventories may fall. Meanwhile, the falling refined copper prices and resilient scrap copper prices are persuading some downstream buyers to shift to refined copper market. The improving consumption will help boost copper prices. Thus, these investors expect copper prices to rally this month.