SMM Copper Market Daily Review (2014-1-20)

In the Shanghai spot market, copper was offered at discounts of RMB 0-100/mt against the SHFE 1402 copper contract prices on Monday. Traded prices were RMB 51,850-51,900/mt for standard-grade copper and RMB 51,880-52,000/mt for high-grade copper. Cargo holders were eager to sell goods, driving spot discounts to exceed RMB 100/mt. Some traders bought spot goods and sold in futures, while downstream buyers rarely entered the market. Some enterprises downstream have already closed for holiday, leaving trading modest and supply ample in spot market. In the afternoon, spot discount expanded to RMB 50-150/mt, and traded prices edged lower to RMB 51,720-51,850/mt. 

 

SMM’s most recent survey showed that 24% of participants in copper industry expected rebound in copper market this week, with LME copper up to USD 7,350/mt and SHFE copper returning to RMB 52,000/mt. In the US, falling initial jobless claims and easing inflation pressure as well as positive manufacturing and sales data enhanced market confidence in the US recovery. The higher-than-expected CPI for the euro zone eased concerns over deflation. The resulting stronger risk appetite will benefit copper prices. The US stock market also remained bullish, which may lend support to base metals. Elsewhere in China, the sunny GDP and industrial data will provide impetus for price hikes. 

 

LME copper stocks have fallen to 330,000 mt last Friday, and cash-to-three-month spread for LME copper spread has moving into backwardation since December 10, also helping with further rises in copper prices. 

 

47% of market players believed that LME copper prices will hold steady between USD 7,280-7,350/mt and SHFE copper prices may move at RMB 51,600-52,000/mt. The latest CFTC report indicated a decline in net long positions for copper to 7,037 lots, a sign of caution among investors towards copper market outlook. Technical indicators showed that copper prices may possibly pare increase, but support at lower levels remained solid.

In China, money rates mostly increased last week with the approach of the Chinese New Year and the absence of open market operation by the People’s Bank of China. This has ignited concerns over another liquidity crunch. The tight cash will remain a constraint to trading in stock and futures market, curbing price volatility.

 

The remaining 29% of market players expected copper prices to fall this week. Encouraging economic data from the US allowed the US dollar index to stand above 81, in turn placing pressure on copper prices.

The Shanghai Composite Index fell below 2,000 on Monday, with trading volumes shrinking significantly. Weak Chinese stock market will weigh on copper prices.

In China’s spot copper market, smelters reduced supplies before the holiday and mainly fulfilled long-term contracts, leaving limited goods available in spot market. However, as urgent needs for cash will continue to push up copper imports, copper supply in the market will remain ample. At the mean time, many downstream producers have already closed for the holiday, with consumption unlikely to improve. The resulting glut in copper market will drag down prices. Thus, nearly one third investors surveyed by SMM anticipated that LME copper will drop below the 30-day moving average and SHFE copper may test RMB 51,500/nt this week.