SHANGHAI, Oct. 29 (SMM) – SHFE 1401 copper contract prices started RMB 10/mt higher at RMB 51,420/mt on Monday, and followed LME copper up, but met resistance at RMB 51,650/mt. SHFE copper for January delivery hovered near RMB 51,500/mt later in the day before closing RMB 100/mt or 0.19% higher at RMB 51,510/mt. Trading volumes and positions were off 102,000 lots and 7,064 lots, respectively. The weak prices were mainly a result of shorts closing positions and longs staying out of the market. SHFE copper still confronts downside risk.
Spot copper in Shanghai was quoted at a contango of RMB 0-100/mt and a backwardation of RMB 0-20/mt over SHFE 1311 copper contract on Monday. Traded prices were RMB 51,630-51,750/mt for standard-quality copper, and RMB 51,680-51,870/mt for high-quality copper. SHFE copper had little upward momentum, driving market players to hold on the sidelines. Some traders started month-end settlement ahead of schedule, curtailing goods available in spot markets, but low buying interest limited any increase in backwardation. Only Guixi copper was offered at a backwardation. Later, a few traders went bargain hunting after SHFE copper fell, but downstream producers remained cautious. In the afternoon, spot copper was offered at a contango of RMB 0-120/mt. Traded prices remained little changed, but transactions sagged.
The latest Shanghai Metals Market (SMM) poll reveals that only 19% of respondents are bullish towards copper prices this week, saying that LME copper prices may bounce back to USD 7,230/mt, and SHFE copper will jump to RMB 51,800/mt. Expectations for the continuation of Fed’s asset purchase program are on the rise, with the US dollar hovering at lows, lending support to commodities. Besides, optimism to the US data releases this week will send the US stocks higher, which will also bolster copper prices. Meanwhile, TC/RC for imported copper concentrate and premiums for imported copper hold up high, as price negotiations about long-term contracts of imported copper should be held by year’s end. That, combined with increasing bargain hunting for LME copper expected recently, will help with the rebound in copper prices.
48% of market participants polled by SMM believe copper prices will hold steady, with LME copper moving around USD 7,180/mt and SHFE copper around RMB 51,500/mt. Despite rosy forecasts for euro zone economic data expected to come out this week, the positive influence will be neutralized by the European Central Bank’s plan to run stress tests on large euro zone banks, leaving copper prices entrenched in a narrow range. Although the US dollar remains weak at the moment, copper prices may gain limited support therefrom. In addition, although crude oil ran counter to the price trends of gold recently, neither of them presented an extensive move in one direction. Technical indicators also showed no clear direction for copper prices in the near term.
The remaining 33% of industry participants are bearish, expecting that LME copper will fall below USD 7,150/mt and SHFE copper prices will test lower level of RMB 51,300/mt. Both LME and SHFE copper prices have dropped below all short term moving averages. Besides, the month-end liquidity strains will dampen activity in futures and stock markets. The value of unlocked shares is expected to be RMB 29.3 billion this week, placing downward pressure on the market, and adding to drag on domestic copper prices. In spot copper markets, the tight financing will persuade cargo holders to increase supply to raise cash, and smelters will also ramp up production in mid-Q4, leaving greater oversupply pressure in spot markets. In this context, contango for spot copper over the SHFE 1311 copper contract price will expand, with copper prices expected to fall this week.