SMM Copper Market Daily Review (2015-4-13)

SHANGHAI, Apr. 14 (SMM) – The most active SHFE copper contract railed to rise above RMB 43,700/mt during Monday’s daytime trading and closed at RMB 43,680/mt, up RMB 300/mt. Positions in the most active contract grew 1,286, and trading volumes increased 82,046 lots. Resistance at RMB 44,000/mt remains strong, but support at lower levels is also solid.

Spot copper was offered at premiums of RMB 40-100/mt to SHFE 1504 copper contract on Monday. Prices are RMB 43,700-43,780/mt for standard-quality copper and RMB 43,720-43,820/mt for high-quality copper.

Speculators sold at high prices after SHFE copper prices edged higher, pushing up copper supply, in turn dragging down spot premiums. However, some large traders refrained from selling and offered high prices. Intermediaries sourced goods at lows, but supply of cheaper goods was limited. Downstream buyers mostly watched from the sidelines.

SMM’s latest survey indicates that only 8% of industry insiders are bearish about copper prices this week, expecting LME copper to fall slightly to USD 5,950/mt and SHFE copper at RMB 42,800/mt. CFTC reported a 1,532 decline in long positions for the week ending April. Besides, China’s foreign trade data turned out disappointing in March, triggering concerns over the country’s economic growth. The low SHFE/LME copper price ratio and falling spot premiums for imported copper lately caused copper stocks piled up in bonded zones, which will pressure copper prices.

In other news, China's second largest financial guarantor Hebei Financing Investment has reportedly has lost its ability to guarantee nearly RMB 50 billion worth of loans, worrying nearly 50 other financial institutions. The company has suspended its guarantee business. Resultant concerns over the spread of risk in financial system may impact financial market in the short term.

Technical indicators also pointed to risk in copper market after SHFE copper prices failing to break above RMB 44,000/mt.

36% of industry insiders expect copper prices to remain range-bound this week, with LME copper between USD 5,970-6,080/mt and SHFE copper moving at RMB 43,000-44,000/mt.

The declined trading volumes lately reflected that hedge funds are losing interest in commodity markets. Meanwhile, the impact of US dollar on base metals is easing due to a potential delay in Fed’s interest rate hike. In addition, LME copper positions held high around 380,000, with both long and short positions staying up, which may leave LME copper in a narrow trading range.

In China, the rally in stock market was not a result of bright performance from listed firms, meaning the increase in Chinese shares may slow down once the effect from favorable policies waned. Thus, China’s stock market will lend limited support to copper prices.

The remaining 56% of market players are bullish that LME copper will rise to USD 6,100/mt and SHFE copper will climb above RMB 44,000/mt, citing ample money supply, an upturn in market confidence, and rebounding crude oil.

In China’s copper market, spot premiums tend to widen after SHFE 1504 copper contract expires with cargo holders holding prices firm and large trade houses sourcing goods actively. Besides, consumption is expected to improve after downstream production recovers. These factors are believed to drive a rebound in copper prices.