SHANGHAI, Apr. 22 (SMM) – With the lack of guidance from LME copper prices, SHFE copper prices started last Friday’s night session at RMB 46,330/mt, and then rose to a high of RMB 46,410/mt. The red metal dipped as low as RMB 46,190/mt and finished down RMB 90/mt at RMB 46,360/mt. Traded volumes stood at around 70,000 lots, while positions were barely changed. As trading remained suspended Monday on the London Metal Exchange, SHFE copper prices recouped early losses to touch a high of RMB 46,830/mt, and closed up RMB 170/mt, or 0.37%, at RMB 46,620 /mt. Traded volumes shed by 47,872 lots, while positions lost by 5,288 lots. SHFE copper prices have found solid support at the 20-day moving average on Monday and are expected to trend higher Tuesday after LME copper prices resume trading.
In the Shanghai physical market, copper was offered Monday at a premium of RMB 800-920/mt over the nearby SHFE copper contract. Traded prices were RMB 48,100-48,200/mt for standard-quality copper and RMB 48,140-48,300/mt for high-quality copper. Trading remained suspended Monday on the London Metal Exchange. Physical supply was still limited, with prices for high-quality copper held firm and premiums up further. As SHFE copper prices staged a rally by the midday, copper premiums narrowed, but were still elevated. Downstream producers barely entered the market after restocking last Friday, while middlemen mostly conducted short-term trading, with sluggish trading activity. Physical premiums are expected to rise as high as around RMB 1,000/mt since tight supply has yet fully improved. As SHFE copper prices stayed in range-bound trading during the afternoon session, a small decrease in copper supply sent premiums for standard-quality copper up a touch and even close to those for high-quality copper. Physical copper was offered mostly at a premium of RMB 830-920/mt over the nearby SHFE contract, with traded prices between RMB 48,200-48,300/mt. Hydro-copper producers discounted goods subsequently on sluggish consumption, with premiums narrowing to RMB 720-800/mt. Premiums are expected to remain high since copper supply shortage has yet fully improved.
SMM’s latest survey reveals that 60% of industry insiders expect LME copper prices to remain stable at USD 6,600-6,720/mt this week and the most active SHFE copper contract to trade between RMB 46,200-46,800/mt. The eurozone periphery countries will have to pay more than EUR 130 billion this year just to meet the interest payments of their mounting debts, according to foreign media. The figures, calculated from this month’s IMF World Economic Outlook database show that the debt servicing burden of the eurozone periphery accounts for almost EUR 0.1 in every euro of revenues received by the governments. However, the European Central Bank is unlikely to introduce further easing measures against low inflation, which may leave the euro directionless, limiting volatility of the US dollar.
In China, delivered goods will enter the physical markets, and so will imported copper since the SHFE/LME copper price ratio is recovering, easing tightness in the market. Thus, spot premiums are expected to narrow, giving less support to SHFE copper prices. Against such backdrop, copper prices are believed to move sideways this week.
25% of market players are optimistic, anticipating that LME copper prices will break through USD 6,700/mt and SHFE copper will stand above RMB 47,000/mt. These players based their opinions on improving data from the US, including durable goods orders and housing indicators, which reflected a US recovery from the weather-related decline. Meanwhile, the US stock prices are also showing strong momentum after breaking above technical resistance.
Both LME and SHFE reported continued falls in copper stocks. Premiums for LME cash contracts over three-month prices were seen between December 10 last year and April 4 this year, and hit a high of USD 72/mt. The backwardation was again witnessed on April 16 and rose to USD 14/mt from USD 6/mt in only two days, which may leave LME copper well-anchored. Moreover, Yangshan copper premiums also rose to USD 100/mt lately supported by declining LME copper stocks, which in turn pushed spot premiums in China’s copper markets to a high last seen in May 2009. Some market players expect the high spot premiums to help bolster SHFE copper prices.
15% of industry participants are bearish on copper prices, noting that LME copper prices will lose their ground at USD 6,600/mt and SHFE copper prices may test support at RMB 46,000/mt. Risk appetite returned with influence from the Ukrainian crisis receding, causing gold and crude oil prices to fall.
Technically, LME copper prices may face downside risk after several failed attempts to cross above USD 6,700/mt.
In China, the Shanghai Composite Index slumped Monday as the China Securities Regulatory Commission announced a list of 28 companies that have disclosed their IPO plans. Besides, holdings in the SHFE current-month copper contract remained around 80,000 lots, foreshadowing a possible short squeeze of SHFE 1405 copper contract. In response, speculators were actively selling distant-month contracts and buying near-month contracts, placing great pressure on SHFE 1408 copper contract. Thus, some investors expect copper prices to pull back this week.