SMM Copper Market Daily Review (2014-8-11)

SHANGHAI, Aug. 12 (SMM) – The most active SHFE 1410 copper contract started last Friday’s night session at RMB 49,750/mt, meeting resistance at the RMB 50,000/mt mark, and closed up RMB 60/mt at RMB 49,850/mt. During the night session, trading volumes for the most active contract fell slightly to around 90,000 lots, and positions gained by 3,654 lots.

On Monday, SHFE copper prices rose initially to an intraday high of RMB 50,120/mt, but then hovered largely around RMB 50,000/mt due to profit-taking. The price of the red metal fell at the tail of the trading to finish up RMB 100/mt, or 0.2%, at RMB 49,890/mt. Trading volumes for the SHFE 1410 copper contract shed by 75,350 lots, and positions contracted by 3,340 lots. SHFE copper prices are expected to trade in ranges for the near term.

In the Shanghai physical market, copper was largely offered Monday between a RMB 30/mt discount and a RMB 40/mt premium over the SHFE 1408 copper contract. Traded prices were RMB 50,420-50,460/mt for standard-quality copper and RMB 50,460-50,520/mt for high-quality copper. After SHFE copper prices rebounded, the price gap between the SHFE 1408 and 1409 copper contracts remained at around RMB 200/mt, giving cargo holders an incentive to convert inventories into cash. The price of high-quality copper traded at a significantly lower premium, but that of standard-quality copper held firm. Most middlemen entered the market to hunt for bargains, while downstream producers bought only to need on Monday, leaving trading modest.

As SHFE copper prices fell slightly during the afternoon trading session, physical copper was largely offered between a RMB 30/mt discount and a RMB 50/mt premium and traded lower at RMB 50,380-50,480/mt. Some traders entered the market following a slide in copper prices, but overall trading activity remained light on Monday.

23% of market players surveyed by SMM are optimistic that LME copper prices will stand above USD 7,050/mt and SHFE copper will climb above RMB 50,200/mt. Upbeat data from China boosted market confidence and investors are also optimistic about economic figures to be released in the US. In addition, US stocks are expected to stabilize after sharp falls. China’s stock markets rallied on Monday helped by positive news. These, combined with a series of government announcements pertaining to stimulus measures, are believed to bolster copper prices.

67% of industry insiders are cautious, noting that LME copper prices will remain between USD 6,980-7,050/mt, and SHFE copper prices will be RMB 49,800-50,200/mt. LME copper prices were struggling between short-term moving averages, and investors were still selling at highs and buying on dips, which will limit moving range for copper prices.

In China’s physical copper market, the price gap between 1408 and 1409 copper contracts is expected to narrow before the expiration of the August-delivery contract, and cargo holders will try to offer prices close to SHFE 1408 copper contract prices. However, downstream buyers will be unwilling to purchase. In this context, many investors believe copper prices will be trapped in the current range.

10% of market players expect copper prices to fall, with LME copper prices testing a low of USD 6,950/mt and SHFE copper prices down to RMB 49,700/mt. These players based their opinions on escalating geopolitical crisis which will exert a drag on copper prices.