SHANGHAI, Jun. 10 (SMM) – SHFE copper prices started last Friday’s night session lower at RMB 47,820/mt, and later recovered some losses to finish down RMB 250/mt at RMB 47,960/mt. During the night session, traded volumes for the most active contract surged to around 220,000 lots, while positions gained slightly by 518 lots.
On Monday, SHFE copper prices fell to test support at RMB 47,220/mt after hovering briefly at RMB 47,800/mt, and closed down RMB 840/mt, or 1.74%, at RMB 47,370/mt. Traded volumes for the most active contract added by 303,000 lots, while positions totaled 11,604 lots.
In the Shanghai physical market, copper was offered Monday at a RMB 120-300/mt premium over the SHFE front-month copper contract. Traded prices were RMB 48,630-49,150 for standard-quality copper and RMB 48,680-49,250/mt for high-quality copper. Market players were immersed in a bearish sentiment as SHFE copper prices were declining. Cargo holders ramped up deliveries, with physical premiums down sharply and the price gap for the same copper brand reaching around RMB 150/mt. Premiums for hydro-copper were quoted at less than RMB 100/mt by the midday.
As a result, middlemen showed lower willingness to enter the market, while downstream producers curtailed purchases fearing that prices will fall further. A higher proportion of imported copper was found in the market, with supply significantly exceeding demand, leaving trading muted on Monday. Quotations for copper premiums will face difficulties in hovering above RMB 200/mt in afternoon trading. Cargo holders will mostly sell off goods to generate cash.
After prices for the SHFE front-month copper contract slumped during the afternoon trading session, cargo holders further lowered physical premiums on a broad panic. Copper was largely quoted at a RMB 50-150/mt premium and traded lower in the RMB 48,300-48,900/mt range. Trading activity at downstream producers was sluggish on Monday.
No industry participants are bullish towards this week’s copper price trends, according to the most recent SMM survey. 70% of the respondents believed LME copper prices will fall below USD 6,600/mt and test USD 6,560/mt, and the most active SHFE copper contract will test support at RMB 46,300/mt. The ongoing investigation at the Chinese port of Qingdao has caused Chinese banks to tighten financing, with Qingdao, Guangdong and Shanghai now significantly affected. Holders of imported copper were thus panicked into selling, putting outsized oversupply pressure in China’s copper market.
The cash-to-three-month backwardation in LME copper narrowed from last week’s USD 50/mt to the current USD 3/mt, and Yangshan copper premiums also dropped noticeably to about USD 70/mt, lending little support to copper prices. Short positions in LME and SHFE copper also increased.
CFTC report showed that long positions in COMEX copper posted its largest fall in a month, since hedge funds were concerned about softening demand from China and Europe and a supply glut in copper market.
In physical copper market, influx of imported copper and narrowing copper premiums ahead of the delivery date will allow few arbitrage opportunities. The tight cash flows at the mid-year point and bearish market outlook will dampen buying interest as well, adding to pressure on copper prices.
A monthly decline in China’s copper imports heightened worries about China’s copper demand. These factors above, combined with negative technical indicators, are expected to send copper prices lower.
The remaining 30% of industry insiders expect LME three-month copper to trade at USD 6,650-6,750/mt and August-delivery SHFE copper at RMB 46,800-47,800/mt, virtually flat with last week.
Despite a series of negative factors out lately, the upbeat economic signposts reported from the US, including nonfarm payroll figures and jobless rate, pushed US stock prices to new highs and shoring up market confidence. In addition, the European Central Bank’s interest rate cut also helped appease the market.
In China, market players expected CPI to grow faster at 2.6% in May due to rising pork prices and carry-over factor, while decline in PPI is expected to narrow markedly. In physical markets, downstream buyers will cut purchases with the onset of low demand season. The combination of these factors leads some market players to predict that copper prices will hold steady this week.