SHANGHAI, Jul. 16 (SMM) – SHFE 1311 copper contract started RMB 500/mt lower at RMB 49,730/mt on Monday. China’s 2Q GDP was in line with market forecasts, pushing Chinese A-shares up by 1.5%. Meanwhile, LME copper stabilized and physical buying increased, driving the most active SHFE copper contract up to RMB 50,290/mt. However, LME copper retreated in the afternoon, pulling SHFE copper for November delivery down to near its opening price. Finally, SHFE 1311 copper contract ended the day down RMB 340/mt or 0.68% at RMB 49,890/mt. Trading volumes and positions added 64,710 lots and 11,026 lots, respectively. The most active SHFE copper contract has met strong resistance at the 30-day moving average, but did find support at the daily moving average.
Spot copper in Shanghai was quoted at a discount of RMB 0-120/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 50,350-50,550/mt, and RMB 50,430-50,650/mt for high-quality copper. The price gap between SHFE 1307 and 1308 copper contract was around RMB 200/mt, forcing cargo holders to sell at discount. Price cuts of imported standard-quality copper were sharper. The most active SHFE copper contract rebounded during the second trading session, narrowing price gap between SHFE 1307 and 1308 copper contract. Speculators entered the market to buy high-quality copper, allowing suppliers to sell at premium. However, the price spread resurfaced towards the end of the morning session, driving holders of high-quality copper to the sidelines. Spot copper suppliers will quote at premium once SHFE 1308 copper contracts become the new current-month contract tomorrow. Downstream producers were buying to need, and speculators contributed most to today’s trading. In the afternoon, cargo holders held prices firm and refused to sell goods at low prices, with spot copper quoted at premiums of RMB 0-80/mt. Traded prices were between RMB 50,400-50,480/mt.
According to SMM survey, 46% of industry insiders hold a cautious attitude towards the copper price trends this week, expecting LME copper to move around USD 6,900/mt and SHFE copper to be RMB 49,500-50,300/mt. The uncertainty in euro zone economy remains a major constraint to copper prices. Meanwhile, the US dollar starts a correction following previous slump and tends to remain strong, weighing on copper prices. The consolidation of gold and crude oil prices may also offer guides for LME copper. The latest CFTC report showed both longs and shorts increased their positions, which presages a directionless copper price in the near term. In China, a total of 260.8 billion non-tradable shares in 34 listed companies on the Shanghai and Shenzhen stock exchanges will be released to the capital market after their lock-up agreements expire this week, meaning China's stock market will see RMB 673.7 billion in locked-up shares become eligible for trade, 70 times of last week’s level and its highest this year. This will put great pressure on China’s stock markets, but as liquidity in stock markets returned relatively loose following the cash crunch in late June, Chinese stocks may gain certain support. In addition, the rising credit demand after tight control in June may also help drive a rebound in domestic stocks and enliven trading in stocks and futures markets. In this context, these investors believe copper prices should hold steady this week.
37% of market players expect LME copper prices to slip to USD 6,850/mt and SHFE copper to fall to RMB 48,600-49,500/mt considering strong selling pressure in copper market. SHFE copper positions grew over 10,000 lots on Monday, with shorts still waiting in the wings. In spot copper markets, downstream buying interest will remain weak in the low-demand season during July and August. As such, some investors expect copper prices to fall this week to find support at lower prices.
The remaining 17% industry insiders are more upbeat, believing LME copper prices will stand above USD 7,000/mt and SHFE copper will regain the ground at RMB 50,000/mt. Market was optimistic to the US housing starts the Beige Book to be released this week, expecting the figures will help send the US dollar to new historic highs. In China, the continued pro-growth policies may help boost market sentiment. In addition, canceled warrant ratio for LME copper remains high above 50%. With the delivery date for LME copper falling this Wednesday, the delay in deliveries from the LME warehouses will limit supply in spot copper markets, helping bolster copper prices. Besides, the stalemate between suppliers and buyers in China’s spot markets and premiums for spot copper will also push copper prices to challenge higher levels.