SMM Copper Market Daily Review (2014-4-8)

SHANGHAI, Apr. 9 (SMM) – The most active SHFE 1407 copper contract price opened RMB 50/mt higher at RMB 46,550/mt, and only fell to a low of RMB 46,500/mt due to strength in LME copper prices and a 2% rebound in the Shanghai Composite Index. The red metal rallied to a high of RMB 46,870/mt during the afternoon trading session, and ended Tuesday up RMB 230/mt, or 0.49%, at RMB 46,730/mt. Traded volumes shed by 189,000 lots, while positions lost by 5,638 lots.

In the Shanghai physical market, copper was offered Tuesday at a premium of RMB 300-380/mt over SHFE current-month copper contract prices. Traded prices were RMB 47,520-47,580/mt for standard-quality copper and RMB 47,540-47,620/mt for high-quality copper. As SHFE copper prices trended higher, cargo holders pushed up physical premiums to some RMB 400/mt on a bullish sentiment, but speculators ramped up deliveries at high prices. High-quality copper supply increased in the market, but encountered low recognition, with physical premiums narrowing later. Downstream producers Tuesday conducted restocking in small volumes, and trading activity was just modest. As SHFE copper prices continued to rise in the afternoon trading hours, cargo holders ramped up deliveries at lower physical premiums to generate cash. Copper was largely offered at a premium of RMB 230-360/mt over SHFE current-month copper contract prices with various brands found in the market. Premiums for Guixi branded copper fell as low as around RMB 300/mt, but traded prices were up slightly to the RMB 47,550-47,700/mt range.

SMM’s latest survey showed that 31% of industry insiders believed copper prices will remain range-bound this week, with LME copper trading at USD 6,600-6,680/mt and SHFE copper prices at RMB 46,500-46,900/mt. The lingering crisis in Ukraine may continue weighing commodities markets on. Meanwhile, US technology stocks weakened in late March, and the 2.6% decline in Nasdaq last Friday reignited concerns over tech stocks.

CFTC report indicated a fall of net short positions for copper to 25,795 lots for the week ending April 1, but large hedge funds remained relatively bearish on copper prices.

In China, the Shanghai Composite Index increased on Monday, but met strong resistance at 2,100. Market was not optimistic on Chinese economic data due for release this week, including PPI and CPI, given the disappointing PMI reported earlier. In addition, Chinese copper smelters stepped up exports and the SHFE/LME copper price ratio prevented imported copper from entering China’s domestic markets, driving bonded copper stocks to rise above 800,000 mt and pushing down premiums for imported copper. However, considerable goods may flow into Chinese markets with only limited amount to be exported or re-exported from bonded zone, which will create oversupply pressure and exert a drag on prices. The combination of the above factors may trap copper prices in the current trading band.

63% of market players surveyed by SMM expected a rebound in copper prices this week, holding that LME copper prices will stand above USD 6,700/mt and SHFE copper prices will test a high of RMB 47,000/mt. Despite the weaker-than-expected non-farm payrolls, other indicators, including initial jobless claims turned out upbeat.

Bloomberg reported last week the European Central Bank has simulated a EUR 1 trillion bond purchasing program to ward off deflation. But the news was denied by the ECB and ECB officials’ remarks also cooled expectations for further monetary easing. The euro thus climbed, driving down the US dollar, which will lend support to copper prices.

In China, SHFE reported further declines in copper stocks. SHFE copper stocks have fallen by 34,950 mt in a month. In physical markets, operating rates at downstream buyers recovered some after the traditional boom season set in, helping spot premiums over the SHFE current-month copper contract prices to hold up. These factors allowed a majority of industry participants to believe copper prices will bounce back this week.

Nevertheless, 6% of industry insiders are still pessimistic, believing that LME copper prices will fall below USD 6,600/mt and SHFE copper prices may test support at RMB 46,000/mt. Investors had expected to People’s Bank of China to slightly loosen liquidity control against the slower growth, but since commercial banks are required to hand over reserves this month and since the PBOC proceeded with bond repurchases, money supply will still tighten. This may be exacerbated by the resumption of IPO and preference shares, boding ill for stock and futures markets.

Technical indicators for both LME and SHFE copper were also negative, increasing downside risk of copper prices.