SHANGHAI, Jul. 2 (SMM) – With LME copper holding steady overnight, SHFE 1310 copper contract opened RMB 80/mt higher at RMB 48,480/mt on Monday. The most active SHFE copper contract drifted higher due to a wave of dip-buying, with the low-end price at RMB 48,320/mt. In the afternoon, LME copper broke through USD 6,800/mt and China’s A-shares reversed losses, driving SHFE copper for October delivery up to RMB 49,520/mt at the tail of the session. Finally, the most actively traded SHFE copper contract gained RMB 1,030/mt or 2.13% to close at RMB 49,420/mt. Trading volumes added 39,526 lots and positions were also up 2,552 lots. SHFE 1310 copper contract will test support at RMB 49,000/mt.
Spot copper in Shanghai was offered at a discount of RMB 0-100/mt and premium of RMB 0-20/mt over SHFE 1307 copper contract prices on Monday. Traded prices for standard-quality copper were between RMB 49,280-49,420/mt, and RMB 49,350-49,520/mt for high-quality copper. SHFE copper trended up after a high opening. Cargo holders demanded higher prices now that liquidity crunch has eased some with the start of the new month, narrowing spot discounts. However, consumption remained sluggish as liquidity remained tight before mid-day and since market players doubt whether or not the rally in copper prices will be sustainable. Most are optimistic over copper prices tomorrow, though. In the afternoon, discount for spot copper were between RMB 20-120/mt, with traded prices rising to RMB 49,700-49,950/mt.
According to SMM survey, opinions on copper prices this week were divided after Monday’s rally. 34% of market players surveyed by SMM are optimistic, believing LME copper will challenge USD 6,900-7,000/mt and SHFE copper prices will attempt to rise above RMB 50,300/mt. In euro zone, the European Central Bank (ECB) is considering QE measure. The ECB will announce its interest rate decision this Thursday, and the central bank has already cut its interest rate 25 basis points to a record low and has discussed about negative interest rate. As such, market will be boosted if the ECB continues to report positive news. Besides, Chinese stock markets have been hitting new lows in June, while economic reports were mixed last week with holdings of bank shares increasing and US equities closing lower, which may keep markets relatively stable. However, domestic A-shares are expected to stabilize following earlier plunges, while LME and SHFE copper markets will see more bargain-hunting, with bearishness easing somewhat. In this context, copper prices will stage a rebound once gaining buying support. In spot copper markets, premiums for imported copper soared recently with quotes below USD 200/mt rarely seen on July 1, indicating higher interest for importing copper, which may also lend impetus to copper prices. Thus, some investors expect copper prices to rise this week.
26% of market players are pessimistic, noting that bearish mood remains in copper markets, with LME copper expected to fall back to USD 6,750/mt and SHFE copper to test RMB 48,000-48,500/mt. The Fed chairman Ben Bernanke announced to scale back QE, largely hurting global financial markets. Fed officials tended to maintain stability with their remarks last week relatively dovish to alleviate fears in the market, but this does not indicate the Fed will give up tapering QE. As a result, the US dollar is expected to rise further and show stronger momentum given improvements in economic data, which will continue to weigh down commodities. Technically, although LME and SHFE copper stood above the 5-day moving average, support at the 10-day moving average was not pronounced. The latest CFTC report showed net short positions for copper surged from 26,439 lots to 31,689 lots in the week ending June 25, a reflection of continued bearish attitude of institutions. In China, despite the easing concerns over liquidity crunch, the People’s Bank of China is reportedly developing measures to liquidity channeled into real economy. Financing in China hit RMB 9.11 trillion in the first five months, RMB 3.12 trillion higher than a year earlier, with the figure for May alone at RMB 1.19 trillion. Of them, RMB lending increased RMB 667.4 billion in May, narrowing RMB 125.8 billion YoY, but growth in entrusted loans expanded RMB 175.2 billion YoY to RMB 196.7 billion. Increase in trust loans hit RMB 99.2 billion, up RMB 43.5 billion YoY. According to these figures, the increased money supply has not been used for real economic development. As such, commercial banks, investment institutions, and related authorities are still waiting for further guides from policymakers. Meanwhile, SMM survey reveals that most copper consumers report lower operating rates in June compared with May, and operating rates are expected to continue falling in July, which rekindled apprehension in the market despite rising copper prices. The resulting lower buying interest among downstream buyers will prevent copper prices from rising. Under these circumstances, some investors expect copper prices to fall this week.
The remaining 40% of investors remain cautious, expecting LME copper to hover around USD 6,820/mt and SHFE copper to moved around RMB 49,000/mt. The first week in July is viewed as a “Big Week”, as the US nonfarm payrolls and employment, as well as interest rate policies of the European Central Bank, the Bank of England, and the Reserve Bank of Australia will be release, which will greatly affect financial markets this month. In this context, the US equities and commodities markets are expected to keep vacillating this week. Besides, gold and crude oil prices also showed no clear direction lately, leading some investors to believe copper prices will remain stable but with moving range up slightly this week.