SHANGHAI, Oct. 8 (SMM) – The most active copper contract on the Shanghai Futures Exchange (SHFE) opened RMB 10/mt lower at RMB 52,560/mt on Tuesday, dragged down by falling LME copper prices. The contract was traded at a low of RMB 52,300/mt before bouncing back to near the daily moving average, drawing support from the Shanghai Composite Index, which rallied by 1%. Increased buying of SHFE far month copper contracts pushed SHFE copper for December delivery further up to a day’s high of RMB 52,650/mt. The red metal, however, still ended RMB 50/mt or 0.1% lower at RMB 52,520/mt. Trading volumes and positions of SHFE 1312 copper contracts plummeted by 47,630 lots and 7,612 lots, respectively. Trading volumes and positions of SHFE 1401 copper contracts, on the contrary, added 12,825 lots and 12,036 lots, respectively. As such, SHFE copper for delivery in January next year will likely become the new most active contract soon. Investors should be wary that possible selloff in SHFE far month copper contracts will keep a lid on the most active SHFE copper contract.
Spot copper in Shanghai was offered higher than the SHFE current month copper prices Tuesday morning as delivery date for the current month contracts is approaching. However, the typhoon lashing east China dampened spot copper transactions as downstream buyers feared that the severe weather may hamper goods delivery. Thus, spot copper was later at a contango of RMB 0-20/mt and a backwardation of RMB 0-120/mt over SHFE 1310 copper contract. Traded prices were RMB 52,650-52,730/mt for standard-quality copper, and RMB 52,730-52,850/mt for high-quality copper. Traders largely watched from the sidelines. In the afternoon, spot copper was quoted between a contango of RMB 0-20/mt and a backwardation of RMB 0-100/mt, with traded prices edging lower to RMB 52,600-52,750/mt.
According to the most recent SMM poll, 29% of participants in copper markets believe LME copper may break above the resistance at USD 7,280/mt and test a high of USD 7,300/mt this week, with SHFE copper making a foray up to RMB 52,800/mt. In China, manufacturing PMI recovered for a third straight month, confirming that China’s economy in third quarter performed better than the second quarter. The bright data also indicate China will not conduct reforms at the expense of unlimited economic slowdown, with GDP growth expected to remain between 7% and 8%. The positive results of reforms may help bolster stock markets in China and even across Asia, offering upward momentum for copper prices. Elsewhere in the US, the greenback has been falling given the recent US government shutdown, dipping below the 80 mark and tending to drop further on the horizon, lending support for copper prices. In addition, the US Commodity Futures Trading Commission (CFTC) reported that net short positions shrank from 15,253 lots to 7,250 lots during the week ending September 24, with selling pressure on copper easing somewhat. In China’s A-share markets, shares worth only RMB 20 billion will be unlocked in the first trading week after the Chinese National Day holiday, with pressure causing by unlocked share expected to ease in October. Meanwhile, market will shift its focus from the Shanghai Free Trade Zone to financial and land reforms, as well as industrial restructuring given the Third Plenary Session of 18th CPC Central Committee scheduled for November. In China’s spot copper markets, some copper consumers downstream may begin replenishing stocks and the improving consumption will enliven trading in copper markets.
42% of market players expect LME copper to stay around USD 7,250/mt and SHFE copper to move around RMB 52,500/mt this week. The US government shutdown means that release of job report of the Labor Department will be postponed. Despite employment data from other unofficial agencies, market will be cautious before the disclosure of job data from the Labor Department, limiting any sharp movements for copper prices. The underwhelming performance for gold and crude oil will also negatively affect copper price trends in the near term. In addition, the price gap between the SHFE 1310 and 1311 copper contracts is now around RMB 100/mt. Spot copper prices may hold firm at the current level should the price gap narrows with the approach of the delivery date. However, spot copper may be offered at contango if the price gap enlarges to more than RMB 300/mt like in September. In this context, many hold that copper prices will unlikely stage large swings this week.
Nevertheless, 29% of market participants are still pessimistic, anticipating that LME copper will retreat below USD 7,200/mt and SHFE copper will test RMB 52,000/mt. Market will be primarily influenced by the US government shutdown and debt ceiling issue, as the two events are bound to impact global economy which just saw a nascent recovery. With no substantial progress made for the debt ceiling increase, apprehension on the issue mounted, possibly leading to stronger bears in financial markets. That, combined with the slipping US equities, will place downward pressure on copper markets. In China’s money market, the tight liquidity eased in a way given two reverse repos prior to the Chinese National Day holiday, with interbank money rates falling back and bond yields fluctuating. However, three-year Central Bank Bills issued by the People’s Bank of China (PBOC), albeit in limited amount, still suggest that the PBOC remains cautious towards long-term liquidity conditions. On October 10, RMB 80 billion of 14-day reverse repos should mature, while fiscal deposits for the third quarter will be hand in, with liquidity conditions expected to remain tight after the holiday. Under such circumstances, some market players believe copper prices will remain weak this week.