SHANGHAI, Oct. 15 (SMM) – Copper for delivery in January on the Shanghai Futures Exchange (SHFE), opened at RMB 51,720/mt on Monday. The contract found support at the 60-day moving average after a brief retreat to RMB 51,330/mt, being pushed up to RMB 52,000/mt by buying. The red metal, however, fell back again to hover near RMB 51,800/mt. In the afternoon trading, rising LME copper drove SHFE 1401 copper contract up to RMB 52,300/mt. Finally, SHFE copper for January delivery closed RMB 570/mt or 1.1% higher at RMB 52,260/mt. Trading volumes grew by 65,550 lots to 305,670 lots, and positions also increased to 230,580 lots. There is still room for January copper on the SHFE to rise.
Spot copper in Shanghai was quoted at a contango of RMB 0-100/mt and a backwardation of RMB 0-80/mt over SHFE 1310 copper contract in the morning. Traded prices were RMB 52,070-52,150/mt for standard-quality copper, and RMB 52,150-52,330/mt for high-quality copper. SHFE copper swung violently in early morning session, but later held stable. Cargo holders were anxious to sell, causing backwardation to narrow. Contango of standard-quality and low-end hydro copper, in particular, expanded. Some speculators bought spot copper while selling SHFE copper after the price gap between SHFE 1310 and 1311 copper contracts narrowed to less than RMB 100/mt. Downstream producers seldom entered the market. In the afternoon, cargo holders in spot markets showed diverged opinions on the rallying SHFE copper. Contango for standard-grade copper expanded to RMB 100-150/mt with some traders selling at high prices to generate cash. High-grade copper was quoted at a contango of RMB 0-30/mt and a backwardation of RMB 0-50/mt. Traded prices increased to RMB 52,100-52,500/mt. However, some bullish traders still refrained from selling, awaiting price rebound.
The most recent SMM survey shows that 30% of participants in copper markets predict that LME copper will rise further to break above USD 7,250/mt, with SHFE copper moving between RMB 52,200-52,800/mt. With the US fiscal impasse easing last Thursday, market became more optimistic to the result of debt ceiling increase, leading to a rise in long positions for LME copper. Elsewhere in Europe, the latest Eurozone industrial data improved as expected and CPI is expected to remain in control. Germany economic signposts continued to show positive signs, driving European equities to climb. The euro also obtained support at the 20-day moving average following a brief pullback against the US dollar, and is expected to test a high of 1.360. These factors will also help lift base metals. Last Thursday, the US stock market presented the biggest intraday gain since September, with the Dow closing higher for a third day straight, increasing by 1.1% in a single week. Moreover, market is optimistic towards the US building permits and NY Fed manufacturing index due for release this week. As such, the US stocks will extend the gains, encouraging morale in base metals markets. In China, despite the mixed economic data reported last week, the remarks of Premier Li Keqiang that GDP growth should be between 7.5-7.8% in Q3 and Q4 and reform policies expected to be introduced at the Third Plenary Session of the CPC Central Committee forthcoming will lift market confidence. Chinese A-shares will likely challenge 2,250 points. That, combined with increasing trading volumes and positions for SHFE copper expected after the delivery, will enable SHFE copper to gain traction. In spot copper markets, selling interest downstream will improve as copper consumers will continue to report decent orders in the traditional peak demand season.
20% of market players believe the rebound in copper prices will be ephemeral and LME copper prices will fall back to USD 7,100-7,150/mt, with SHFE copper expected to move at RMB 51,300-51,700/mt. Backwardation for spot copper will also narrow. Although market focus switched from the Fed’s QE tapering to the US debt ceiling crisis, expectation for the wind-down of Fed’s asset purchasing still dragged currencies for several emerging countries down to new lows, eroding momentums for economic recovery in these nations. The US dollar index thus rebounded after gaining strong support, which is expected to weigh on base metals. This was particularly evident to gold which already suffered sell-offs and presented sharp decline last Friday. In China, Customs data posted an unexpected decline in September exports, while the CPI for September was reported higher than forecast and is expected to approach 3.5% in the next three months, leaving investors wary of swelling inflation pressure. On the other hand, liquidity conditions became tighter with many smaller or local commercial banks attracting deposits via higher interest rates and other wealth management products, competing with the five largest banks. Meanwhile, capital flowing into financial and base metals markets remained limited, and the resulting financial pressure prompted some cargo holders to rush to sell for cash flow. The rising supply will prevent spot copper prices from increasing.
The remaining 50% of market players surveyed by SMM are cautious, expecting LME copper to remain between USD 7,150-7,250/mt and SHFE copper to be around RMB 52,000/mt. High risk assets are expected to rally after the negative influence of the US budget talk dissipates, while copper will be favored again after the release of Chinese economic data. However, caution prevailing in the market should cause speculators to go bargain hunting and sell at highs, preventing copper prices from swinging largely. China Customs reported that China’s copper imports in September grew noticeably by 18% MoM. In response to the strong demand from China, LME copper prices attempted to rebound, but the ample supply in China and recovering SHFE/LME copper prices ratio left mounting oversupply pressure in copper market. Besides, the falling backwardation for spot copper prompted an increasing number of investors to buy spot goods and sell in futures markets, adding to selling pressure on back-month copper contracts, also leaving copper prices in consolidation.