SMM Copper Market Daily Review (2015-2-9)

SHANGHAI, Feb. 10 (SMM) –SHFE most-active copper contract opened at RMB 41,400/mt during night session last Friday, and climbed rapidly to RMB 41,600/mt. Later, however, the higher US dollar index weighed down copper prices and the April-delivery copper ended at RMB 41,300/mt, down RMB 20/mt. Trading volumes of the most active contract were around 270,000 lots, and positions decreased 7,126.

During the daytime on Monday, SHFE copper fell rapidly by RMB 400/mt and started rebounding after falling below RMB 41,040/mt. The prices closed at RMB 41,260/mt, down by RMB 60/mt, or 0.15%. Volumes declined 80,000 lots, and positions fell 25,328 to 341,890. Positions of SHFE 1505 copper contract increased 16,288 to 207,948.

Spot copper was quoted at discounts of RMB 10-100/mt to the SHFE 1502 copper contract in Shanghai early this Monday. Standard- and high-quality copper sold for RMB 41,160-41,280/mt and RMB 41,200-41,340/mt, respectively.

Cargo holders were eager to sell after SHFE copper prices fell, expanding spot discounts to RMB 50-100/mt at one time. Some downstream buyers completing stockpiling went bargain-hunting. In the afternoon, prices were RMB 41,220-41,350/mt.

SMM’s most recent survey indicates 60% of industry insiders expect copper prices to move sideways this week, with LME copper trading at USD 5,600-5,750/mt and SHFE copper staying between RMB 40,800-42,000/mt. Investors will liquidate positions to avoid risk during the upcoming Chinese New Year holiday. Positions in SHFE copper have fallen more than 100,000 last week. Technical indicators also pointed to limited change in prices.

20% of industry participants hold that LME copper will break through USD 5,750/mt to challenge USD 5,800/mt and SHFE copper prices will stand above RMB 42,000/mt, citing accommodative policies introduced by major economies and rebounding crude oil prices.

In addition, the latest CFTC report shows a declined in positions in COMEX copper to 40,298 for the week ending February 3, and LME reports an increase in net long positions in copper to 11,811 for the week ending January 30. SHFE copper has also climbed above the 5-day moving average. These will all help with a rally in copper prices.

The remaining 20% remain bearish, noting that LME copper will fall below USD 5,600/mt and SHFE copper will drop to less than RMB 40,800/mt. These players argue that deflationary pressure in the euro zone will leave a weak euro in the near term, driving up the US dollar index. Besides, China’s poor trade data for January reflected sluggish demand in the second largest economy.

As for market fundamentals, closures of copper fabricators for the Chinese New Year holiday will dampen copper demand. Besides, those fabricators still in operation will only buy as needed due to uncertain market outlook and tight cash. LME copper inventories have climbed to 284,450 mt as of last Friday, while SHFE copper stocks have grown 62.8% since last December to 139,396 mt. In China’s spot markets, copper will be offered at discounts to SHFE front-month copper contract given great oversupply pressure.