SMM Copper Market Daily Review (2014-10-27)

SHANGHAI, Oct. 28 (SMM) – The most active SHFE 1501 copper contract started last Friday’s night session at RMB 47,430/mt, meeting resistance at RMB 47,500/mt. The price of the red metal slipped to RMB 47,200/mt, and ended down RMB 30/mt at RMB 47,250/mt. During the night session, trading volumes for the most active contract totaled some 130,000 lots, and positions added by 3,090 lots.

SHFE copper dipped as low as RMB 46,980/mt, and finished down RMB 230/mt, or 0.49%, at RMB 47,050/mt. Trading volumes for the SHFE 1501 copper contract expanded by 25,408 lots, and positions increased by 28,886 lots.

Physical copper in Shanghai was quoted Monday between a RMB 60/mt discount and a RMB 20/mt premium. Traded prices were RMB 47,800-47,860/mt for standard-quality copper and RMB 47,820-47,920/mt for high-quality copper.

As SHFE copper leveled off on Monday, cargo holders ramped up sales to increase cash flows, leaving abundant supply in the market. After the SHFE/LME copper price ratio fell, hydro-copper cargo holders refrained from selling at high discounts, capping downside room in physical discounts. As a result, the prices of different copper brands are essentially the same. Middlemen barely entered the market due to liquidity shortfalls, while downstream producers bought only to need in light volumes, leaving trading activity quiet on Monday.

As SHFE copper slipped further during the afternoon trading session, physical copper was quoted between a RMB 50/mt discount and a RMB 10/mt premium, and traded lower at RMB 47,750-47,830/mt. The market was in oversupply on Monday, with rare inquiries reported.

41% of market players polled by SMM believe LME copper will remain in the USD 6,600-6,700/mt range and SHFE copper will still move between RMB 46,800-47,500/mt this week.

Although the US dollar index met resistance at 86, support at 85.3 is solid. Meanwhile, copper trades in China will remain modest, but the lower SHFE/LME copper price ratio may undermine interest in importing activities.

Technically, LME copper still lacks impetus to rebound, while support at lower levels has strengthened, so the prices may remain range-bound.

44% of industry insiders surveyed by SMM expect LME copper to fall to USD 6,580/mt and SHFE copper to drop to RMB 46,500-46,800/mt this week.

The European Central Bank conducted stress test on 30 top banks in the euro zone, and 25  failed to pass the test. The test result raised anticipation that the central bank will impose more easing policies, presaging a weaker euro.

In China, 12 new stocks will start trading this week, and RMB 700 billion are expected to be frozen, placing pressure on the market. In addition, China’s refined copper output hit a new high this year, while the September imports also posted noticeable increase. On the demand side, home sales and housing starts both declined, and growth of electric power investment for the whole year will be slower than expected. These negative factors, combined with tight finances by the end of the month which will prompt cargo holders to step up selling, will exert a drag on copper prices.

The remaining 15% of investors, however, are still optimistic, arguing that bright data from the US will bolster copper prices. The US housing and job data were reported upbeat, allowing the Dow to close up 2.6% last week, and the Nasdaq ended 5.3% higher. The S&P 500 posted a 4.1% rise.

Furthermore, China’s railway investment will accelerate in the final quarter of the year so that it will achieve its railway construction and investment goals this year. Thus, some believe copper demand will be buoyed. As a result, a few investors predict LME copper will rise above USD 6,700/mt and SHFE copper will advance to RMB 47,500-47,800/mt.