SMM Copper Market Daily Review (2013-10-21)

Spot copper in Shanghai was quoted at a contango of RMB 0-100/mt over SHFE 1311 copper contract Monday morning. Traded prices were RMB 52,100-52,180/mt for standard-quality copper, and RMB 52,150-52,250/mt for high-quality copper. Growing supply of imported copper and the end-of-month liquidity crunch compelled cargo holders to sell at lower prices. High-quality copper was offered at a contango near midday. Some traders bought spot copper while selling SHFE copper. Downstream producers held to a wait-and-see stance on the first day of the week. In the afternoon, spot copper was quoted at a contango of RMB 30-120/mt, with prices for standard-grade copper holding relatively firm. Traded prices edged higher to RMB 52,200-52,330/mt.

 

With respect to copper price trends this week, 30% of industry insiders surveyed by SMM were optimistic, predicting that LME copper will rebound to USD 7,300/mt and SHFE copper may jump above RMB 52,500/mt. With the US fiscal impasse unlocked and Q3 performance of listed US companies reported bright, major indices on the US stock markets rallied, turning market attention from the US debt issue to the Q3 financial statements. Meanwhile, as the partial Federal government shutdown may hurt the nation’s economic recovery, market expects that the Fed will keep the monthly asset purchases unchanged at USD 85 billion. The further delay of QE taper may drive US stocks to extend gains for the foreseeable future, helping support copper prices. The US dollar index will continue to consolidate at low levels after the slump last week, also offering support to copper. Besides, forecast for the HSBC’s China October manufacturing PMI is optimistic. In this context, nearly one third of industry participants believe copper prices will rise this week. 

 

55% of market players expected copper prices to remain range-bound this week, with LME copper prices at USD 7,180-7,300/mt and SHFE copper prices between RMB 51,800-52,500/mt. The partial government shutdown in the US will add uncertainty over the belated September nonfarm payroll report this week. The US existing and new home sales in September, as well as the University of Michigan Consumer Confidence Index for October will also be released this week. Market believes that the US debt ceiling issue, thought resolved, in combination with any negative releases, will lead the Fed to continue to postpone the QE scale-back, dampening the greenback and benefitting commodities markets. Technical indicators also pointed to a narrow range for copper prices. The limited volatility of copper prices will persuade investors to buy on the dips and sell at highs and prefer short-term operations, in turn deterring the prices from fluctuating wildly. In China’s stock markets, shares to be unlocked this week fall 2.811 billion or 63.41% from last week, with their value down RMB 8.121 billion or 32.13%, which should be the lowest level so far this year. The Shanghai Composite Index thus is expected to hold firm around 2,200, but lacks momentum to rise further. As a result, over half of market players believe copper prices will unlikely show clear direction, but only remain at the current level this week. 

 

The remaining 15% of industry participant held a bearish attitude, expecting LME copper to fall below USD 7,180/mt and SHFE copper to test support at RMB 51,500/mt. In the Eurozone, the Bank of Spain reported that bad debt ratio of the nation’s banking sector rose to 12.1% in August from July’s 12%, its new historical high, with the non-performing loans mounting to USD 247 billion. The ratio has been climbing during the past few months, despite slower growth at several banks during Q2. The persistently high unemployment rate and rising bad debt ratio in Spain have become the most pressing issues impeding the Eurozone recovery. Elsewhere in Portugal, massive protest was launched against austerity. Some leaders from labor unions and members of the parliament also participated in the protest. Arménio Carlos, Secretary-General of the General Confederation of Portuguese Workers (CGTP) said in a speech October 15 that he expected more protests. The euro will be influenced by these two events which threaten the stability in the currency union, while European stocks may also pull back this week following the rises last week. In China, money rates, especially medium to short term rates, dropped. The rate of seven-day reverse repos edged up 2BP to 3.36% on October 17 after the People’s Bank of China suspended open market operations during the week, revealing a tight balance for market liquidity, which may impact trading in stock and futures markets. In spot copper markets, growing oversupply pressure left spot copper quoted at contango against the SHFE current-month copper contract, with the contango tending to expand, while copper consumption failed to improved. The weak fundamentals will pose downside risk for copper prices.