SMM Copper Market Daily Review (2014-6-23)

SHANGHAI, Jun. 24 (SMM) – Helped by a surge in LME copper prices, the most active SHFE copper contract started last Friday’s night session at RMB 48,690/mt, and then rose to a high of RMB 49,360/mt. Prices for the contract dipped to RMB 48,670/mt at one point and closed up RMB 740/mt at RMB 49,200/mt. During the night session, trading volumes for the most active contract spiked to 160,000 lots, and positions gained by 4,848 lots. Meanwhile, trading volumes for the SHFE 1409 copper contract rose sharply to 100,000 lots.

On Monday, SHFE copper prices continued to track LME copper prices up to RMB 49,610/mt during the afternoon trading session, and ended up RMB 1,090/mt, or 2.25%, at RMB 49,550/mt. Trading volumes for the most active contract added by 124,000 lots, and positions expanded by 1,650 lots. The rising momentum in SHFE copper prices is expected to continue in the near term due to positive technical indicators.

In the Shanghai physical market, copper was offered Monday at a RMB 600-800/mt premium over the SHFE front-month copper contract. Traded prices were RMB 50,550-50,700/mt for standard-quality copper and RMB 50,700-50,800/mt for high-quality copper. Some hedged copper supply was tied up in the futures market after SHFE copper prices surged by around RMB 1,000/mt. The resultant decreasing supply further pushed up physical premiums. As SHFE copper prices extended gains later, middlemen stayed essentially on the sidelines amid sluggish trading activity. Downstream producers regarded copper prices above RMB 50,000/mt as too much high, and cargo holders increased deliveries at high prices, with physical premiums narrowing slightly. Most market participants continued to hold a wait-and-see attitude on Monday, leaving light transactions.

As SHFE copper prices extended gains during the afternoon trading session, physical premiums failed to rise further, with significantly higher deliveries. Copper was largely quoted at a RMB 400-750/mt premium, and traded at RMB 50,520-50,820/mt. Trading activity was extremely sluggish, and cargo holders showed markedly lower willingness to hold prices firm on Monday.

Half of the market players surveyed by SMM this week expect copper prices will rise, as the upbeat data from China released on Monday led to positive anticipation of economic indicators from Europe and the US. As a result, European and US shares are expected to continue climbing, boosting the market confidence. Besides, the US dollar index has been weak after the Fed said it would keep low interest rate for quite some time, and tended to remain weak this week, leaving support to copper prices.

At the meantime, escalating geopolitical crises in Ukraine and Iraq allowed crude oil and gold prices to surged, offering directions to copper prices.

With respect to market fundamentals, LME copper stocks fell below 160,000 mt, with the cash-to-three-month backwardation in LME copper holding at USD 10/mt. SHFE also reported continued decline in copper inventories. In addition, technical indicators showed positive signs.

In China’s physical markets, supply of imported copper declined as Qingdao’s probe into metal financing resulted in a delay in customs declaration, pushing up spot premiums in China. All the factors above are believed to send LME copper prices to a high of USD 6,950/mt, with SHFE copper prices expected to test RMB 49,800/mt.

The other half of industry insiders predict that copper prices will hold steady at current highs. Despite a series of positive news, these respondents say resistance at higher price levels may limit any rises in copper prices.

Moreover, the CFTC report indicates a 9,740-lot increase in net short positions in Comex copper as of June 9, offering little impetus for copper prices to rise further.

As for liquidity conditions, although the interbank rates remained low at mid-year, enterprises will withdraw capital from stock and futures markets, which may exert a drag on copper prices.

These factors, combined with sagging trades in China’s spot copper market arising from high copper prices, lead 50% of industry participants to believe LME copper prices will remain at USD 6,770-6,870/mt, and SHFE copper prices may move between RMB 48,500-49,500/mt this week.