SHANGHAI, Jul. 22 (SMM) – The most active SHFE 1409 copper contract dipped to a low of RMB 49,190/mt after starting last Friday at RMB 49,580/mt. Prices for the contract later erased some losses to close down RMB 550/mt at RMB 49,370/mt, boosted by bargain-hunting. During the night session, trading volumes for the most active contract were around 220,000 lot, and positions gained by 10,204 lots.
On Monday, SHFE copper prices advanced to as high as RMB 49,650/mt, and finished down RMB 370/mt, or 0.74% at RMB 49,540/mt. Trading volumes for the SHFE 1409 copper contract added by 78,232 lots, and positions fell by 4,684 lots.
In the Shanghai physical market, copper was offered Monday between a RMB 120/mt discount and a RMB 30/mt premium over the SHFE 1408 copper contract. Traded prices were RMB 49,730-49,850/mt for standard-quality copper and RMB 49,800-49,930/mt for high-quality copper. SHFE copper prices fell sharply on Monday, while physical copper prices also dropped below the RMB 50,000/mt mark. In response, large quantities of copper for arbitrage and deliverable goods flowed out, significantly increasing market supply. Premiums for physical copper narrowed and look set to fall further in the short term. Hydro-copper was quoted at a RMB 170/mt discount by the midday. After LME copper price sank below the USD 7,000/mt mark, middlemen barely entered the market on fears that prices may fall. Downstream producers were relatively cautious buying, with sluggish trading activity on Monday.
Although SHFE copper prices steadied during the afternoon trading session, most cargo holders continued to move goods at higher discounts. Physical copper was offered largely at a RMB 20-120/mt discount and traded at RMB 49,720-49,900/mt. Some middlemen entered the market to buy low-priced goods, but trading activity remained sluggish on Monday.
SMM’s latest survey shows 43% of participants in copper industry believe LME copper will fall below USD 6,950/mt and SHFE copper prices will test support at RMB 49,000/mt this week. The crash of Malaysia Airlines passenger plane will continue to dampen trading activity. In China, most investors are buying zinc while selling copper, placing great downward pressure on copper prices. Furthermore, the potential default of China’s construction firm Huatong Road & Bridge Group also deals a blow to China’s market.
Technically, both LME and SHFE copper dropped below the 20-day moving average, leaving prices under resistance. In China’s physical copper market, hedged goods started flowing into the market after copper prices fell below RMB 50,000/mt, with oversupply pressure mounting. Meanwhile, demand downstream shows no substantial improvement. In this context, copper discounts expanded, which will add to a drag on SHFE copper prices.
The remaining 57% of industry insiders expect LME copper to hover at USD 7,000/mt and SHFE copper to remain stable at RMB 49,500/mt. These players are optimistic about the US durable goods orders and China’s PMI due out this week. In addition, US shares are still on the way up despite recent negative news, which is believed to lend support to commodity markets. The US dollar index mainly hovering around the 5-day moving average lately may also leave copper prices in the current trading range.