SMM Copper Market Daily Review (2014-6-3)

SHANGHAI, Jun 4 (SMM) – The night session was suspended last Friday due to the Dragon Boat Festival holiday. SHFE copper prices started significantly higher at RMB 48,730/mt on Tuesday, aided by a rebound in LME copper prices, but later fell after briefly touching a high of RMB 48,890/mt. The red metal hovered narrowly around RMB 48,650/mt during the afternoon trading session and closed up RMB 230/mt, or 0.47%, at RMB 48,690/mt. Traded volumes for the most active SHFE copper contract decreased 190,000 lots, while positions shed 2,672 lots on Tuesday.

In the Shanghai physical market, copper was quoted Tuesday at a RMB 260-380/mt premium over the SHFE front-month copper contract. Traded prices were RMB 50,000-50,050/mt for standard-quality copper and RMB 50,060-50,160/mt for high-quality copper. Proportions of imported copper fell in the market after the northeastern Chinese port of Qingdao halted shipments of aluminum and copper due to an investigation by authorities. Some cargo holders of imported copper rushed to generate cash by cutting premiums slightly, while speculators expressed lower buying interest. Meanwhile, downstream producers largely stayed on the sidelines after physical copper prices rebounded above RMB 50,000/mt on Tuesday.

After SHFE copper prices stopped declining during the afternoon trading session, some speculators entered the market to purchase goods, with high-quality copper brands gaining their favor. Meanwhile, downstream producers took the buy-the-dips strategy, and standard-quality copper supply decreased. Physical copper was largely quoted at a RMB 300-400/mt premium and traded between RMB 50,030-50,200/mt.

SMM’s latest survey showed 24% of industry insiders remain bullish towards this week’s copper prices, saying that LME copper prices may rise above USD 6,950/mt, and SHFE copper prices will stand above RMB 49,000/mt. Optimism about non-farm payroll figures and jobless data, as well as positive manufacturing PMI in China are behind their forecast.

In addition, although market showed lukewarm reaction to PBOC’s statement about RRR cuts for some qualified rural banks, the news is believed to benefit copper market for the long run.

The CFTC report indicated that speculators cut net short positions in copper to 5,593 lots for the week ending May 20. LME copper stocks continued to fall below 170,000 mt, while the ratio of canceled warehouse receipts remained above 40%, indicating limited physical copper supply. The combination of these factors led some industry participants to believe copper prices will rise this week.

52% of the respondents expect copper prices to move sideways this week, partly considering the mixed technical indicators. As to macroeconomic front, despite favorable news about China’s monetary policies and improving manufacturing PMI in May, China’s stock market failed to stage a strong rally on June’s first trading day, leaving limited support to copper prices.

In China’s money market, interest rate moved lower on Tuesday after the news about RRR cuts for selected banks. Besides, RMB 23 billion of 3-year Central Bank Bills are due to mature today, and the PBOC suspended open market operation yesterday. The resultant ample money supply may boost dip-buying, but selling pressures will also exist, trapping copper prices in the current trading band.

In China’s physical copper market, buyers will hold back after spot prices rise above RMB 50,000/mt. In this context, most market players surveyed expect LME copper prices to move between USD 6,850-6,950/mt and SHFE copper prices to consolidate within the RMB 48,200-49,200/mt range.

The remaining 24% of market players, however, are pessimistic. As the euro zone manufacturing grew more slowly than expected in May and anticipation rose that the ECB would introduce further stimulus at this week’s policy meeting, the euro weakened, driving a rebound in the US dollar index, which will weigh down commodities.

At the meant time, reports on the suspension of shipments at China’s Qingdao port caused Yangshan copper premiums to fall by USD 17.5/mt on Tuesday, the biggest single-day loss since March 2013. The resultant panic and concerns over copper financing deals will leave cargo holders in a rush to sell, pushing up supply in copper market, and in turn dragging down copper prices. Thus, some industry insiders predict LME copper prices will fall to USD 6,850/mt and SHFE copper prices will test support at RMB 48,200/mt.