SMM Copper Market Daily Review (2014-3-31)

SHANGHAI, Apr.1 (SMM) – Boosted by a rally in LME copper prices, SHFE copper prices rebounded to a high of RMB 46,930/mt after starting at RMB 46,650/mt, and ended up RMB 660/mt at RMB 46,830/mt during last Friday’s night session. During the trading hours, trading volumes maintained at around 220,000 lots, and positions gained by 6,186 lots for the most active SHFE copper contract. Positions for the SHFE 1407 copper contract fell sharply by 10,260 lots. On Monday, SHFE copper prices fell back slightly after testing resistance at the RMB 47,000/mt mark, and closed up RMB 620/mt, or 1.34%, at RMB 46,790/mt. Trading volumes contracted by 96,716 lots, and positions shrunk by 14,354 lots.

In the Shanghai physical market, copper was offered on Monday at a premium of RMB 100-150/mt. Traded prices were RMB 46,30-47,030/mt for standard-quality copper and RMB 46,970-47,070/mt for high-quality copper. As SHFE copper prices hovered at lows after starting higher, cargo holders moved goods at high prices, with limited spot supply in the market. Middlemen and downstream producers, however, had little buying interest in the last trading day at the end of March due to tight liquidity. As SHFE lead prices were subdued during the afternoon trading hours, a larger amount of spot copper flowed in the market, but still traded at firm prices. Spot copper prices later rose slightly to the RMB 46,950-47,100/mt range.

SMM’s latest survey showed that 63% of participants in copper market believe copper prices will extend gains this week, with LME copper crossing above USD 6,700/mt and SHFE copper prices standing above RMB 47,000/mt. European countries and the US continued to exert pressure on Russia over the country’s annexation of Crimea. Russian Foreign Minister Sergei Lavrov and the US Secretary of State John Kerry met for four hours to talk about the Ukraine crisis, but no concrete progress was reported. However, the tension between the US and Russia eased somewhat, helping reducing market risks.

The US economic data , including the durable goods orders for February, GDP growth in Q4 2013, initial jobless claims and Markit composite PMI for March, all turned out positive, increasing risk appetite and giving a boost to riskier assets.

This week, the PMI data for several major economies and US nonfarm payrolls will be released. Investors were more optimistic about nonfarm payroll data due to improving weather, expecting the payrolls to be 170,000-200,000. Citigroup predicted the nonfarm payrolls will hit 240,000. The resultant buying support will help bolster copper prices, and US stocks may also remain the strong momentum, benefiting copper prices.

Technically, both LME and SHFE copper prices have risen above the 20-day moving average, with support at lower levels enhanced. Positive technical indicators may help with a rebound in copper.

In China, the improving liquidity conditions in early April will enliven trading activity in stock and futures markets. In physical markets, downstream producers reported noticeable growth in order books with the arrival of the high demand season. In this context, many investors expected copper prices to rise further this week.

37% of market players expected LME copper prices to hold steady this week between USD 6,560-6,680/mt, with SHFE copper prices at RMB 46,300-47,000/mt. The US dollar index has been less influenced by the US economic conditions lately, with non-US currencies strengthening. Thus, copper prices will be less affected by the dollar, but any sharp movements were not expected.

The latest CFTC report showed net short positions on copper increased to 32,975 lots for the week of March 25. Meanwhile, gold and crude oil prices showed diverged trends, with the oil prices climbing above USD 100 per barrel while the gold saw a pullback.

In China, April will see a large amount of shares unlocked – 10.43 billion shares worth about RMB 121.41 billion. During the first week of the month, 1.9 billion (RMB 16.6 billion) will be unlocked, putting pressure on stock markets, which may in turn limit moving range of copper prices. In addition, many investors closed positions last week, limiting impetus for copper prices. In China’s spot market, cargo holders became less firm on prices, with spot premiums over the SHFE 1404 copper contract prices narrowing. The above factors may place a ceiling on any copper price increase, leaving prices in the current range.