SMM Copper Market Daily Review (2015-9-7)

SHANGHAI, Sept. 8 (SMM) – SHFE 1511 copper once hit a high of RMB 39,430/mt after opening Monday trading session at RMB 39,080/mt, to close the day at RMB 39,370/mt, up by RMB 310/mt or 0.79%. Trading volumes declined 52,526 lots but positions were up 9,530.

On Monday, spot copper traded between discounts of RMB 50/mt and premiums of RMB 10/mt in Shanghai market. Standard and high-quality copper quoted RMB 39,360-39,460/mt and RMB 39,380-39,480/mt, respectively.

SHFE copper bounced above the 5-day moving average. Cargo holders tried to quote at discounts of RMB 20/mt and premiums of RMB 20/mt early Monday morning,the first trading after China’s 3-day holiday. But traders and downstream buyers were unwilling to enter market. Also, market supply was abundant with most imports arriving. Therefore, spot premiums slid quickly.

Till the second half trading session, spot copper was offered at discounts of RMB 0-30/mt, versus discounts of RMB 30-50/mt for standard-quality copper. Early the week, market activity was limited. Cargo holders were likely to cut offers to excite trades. 

SMM survey shows that 55% market players see LME copper to fluctuate between USD 5,100-5,220/mt this week and SHFE copper to hover between RMB 39,000-39,500/mt. This week is the first week after China’s 3-day holiday, during which LME copper prices were volatile but finally closed almost flat with pre-holiday prices. Macroeconomic indicators from the US are mixed, increasing the uncertainty of US rate hike.

China’s economic figures will come on stream this week, citing trade balance, inflation, consumption and investment. Thus, investors may keep wary. Technically, support emerges at the 10, 20 and 30-day moving averages but meanwhile SHFE copper meets resistance at the 40 and 60-day moving averages. Therefore, copper should fluctuate in current ranges this week.

27% industrial insiders see LME copper to break above USD 5,250/mt and test USD 5,400/mt and SHFE copper to test resistance at RMB 40,000/mt this week. The latest CFTC report reveals that net short positions on the COMEX total 20,390 in the week ending Sept. 1 and have declined for 3 straight weeks. Besides, influences from stock market weaken for commodity prices and exchange rate of Chinese yuan stabilizes, improving market sentiment.

According to bidding requirements of State Grid Corporation of China, a large number of goods will be delivered in November and December. Hence, copper producers may increase production in September. Markets expect domestic consumption in Q4 to improve over Q3. Copper output in Chile posted a drop in July and LME copper inventories in Asia also show sighs of decreasing. LME copper stocks fell 3,525 mt on Monday.  High Yanghan copper premiums will also help decline LME copper inventories. Those factors, combined with State Gird’s investment of RMB 300 billion and news of production cut, will lend support to copper prices.

The rest 18% point out that LME copper will fall to USD 5,080/mt this week and SHFE copper will retreat to RMB 38,500/mt. China’s PMI for August hit a 3-year low, meaning a soft economy. Besides, markets expect China’s PPI to be downbeat. Operating rate at domestic producers, surveyed by SMM, extends losses and many producers hold negative outlook towards orders in September. Some large domestic copper smelters conduct maintenance but high SHFE/LME copper price ratio lures a large amount of imports flow into China. This inverts spot premiums to discounts in Shanghai. Once US Fed raises interest rate, US dollar index will go higher, depressing commodity prices.