SMM Copper Market Daily Review (2015-9-28)

SHANGHAI, Sept. 29 (SMM) –SHE 1512 copper opened at RMB 38,780/mt on Monday. Negative Chinese industrial value-added data encouraged investors to raise bearish bets aggressively, pushing the most active contract down to RMB 38,620/mt. Short positions surged over 6,500 lots, sending the red metal to an intraday low of RMB 38,120/mt. Finally, October copper on the SHFE ended down RMB 650/mt or 1.67% at RMB 38,170/mt. Positions for the contract were up 19,208 to 205,684. The short selling was reported in precious metals, base metals and industrial products, while crude oil and the US dollar index held largely stable. The decline was possibly due to optimism over the US dollar before the release of US non-farm payrolls later this week. Pre-holiday risk aversion was partly responsible for the slump. 

Spot copper in Shanghai traded at discounts of RMB 70-20/mt over SHFE 1510 copper contract on Monday. Standard-quality copper traded at RMB 38,740-38,840/mt and RMB 38,760-38,860/mt for high-quality copper. Sellers scrambled to sell before the week-long holiday, but there were only a small number of processors hunting for cheap goods. In the afternoon, trading activity died down, and most deals closed at RMB 38,700-38,880/mt.   

SMM’s latest survey of market players in domestic copper industry reveals the following results: 

55% of them expect LME copper to consolidate between USD 5,000-5,050/mt this week and SHFE 1512 copper to hold stable at RMB 38,000-38,800/mt. Many investors should exit in the last two trading days before the week-long holiday, which will ease volatility in SHFE copper. The US dollar and crude oil prices stabilized. Better-than expected US recovery and falling number of drilling platforms in the US underpinned crude oil prices. In the absence of Chinese investors during the Chinese holiday, overseas investors will be cautious, thus keeping LME copper range-bound.      

Another 27% see LME copper fall below USD 5,000/mt and SHFE 1512 copper fall below RMB 38,000/mt. US Fed Chairwoman Janet Yellen hinted at possible rate hike later this year last week. US Q2 GDP growth was unexpectedly revised up to 3.9%. It will only be a matter of time before these events give a strong boost to the US dollar index. US ADP report, jobless rate and non-farm payrolls will be released later this year. Should the results prove positive, the US dollar index will rise. Caixin’s flash China manufacturing PMI hit a new low in September. China’s railway shipments fell sharply on a YoY basis January-August. These data reflect sluggishness in Chinese economy. Stimulus measures introduced earlier by the Chinese government failed to yield much fruit in the manufacturing sector. Currencies of Malaysia, Singapore and Indonesia began depreciating after sharp devaluation of currencies of Russia and Brazil. These will send ripple waves to commodity market. Copper stocks in China’s bonded zones reportedly fell to over three year low. Traders withdrew the red metal from China’s warehouses to capitalize on higher prices in overseas market. Supply was ample in China’s spot market, while downstream demand was weak, causing spot discounts to keep widening. In the week ending Sept. 22, net short positions for COMEX copper were 13,250, snapping five consecutive weeks of declines and doubled from the previous week, versus 12% drop in long positions. 

The rest 18% are bullish that LME copper will climb to USD 5,080/mt and SHFE 1512 copper will return above RMB 39,000/mt. September and October are traditional high-demand period for copper consumption. Volatility eased in Chinese stock market, which will ease market concerns. China’s NDRC stated that China is able to achieve 7% GDP growth target this year. In order to fulfill the target, the central government will introduce measures to boost consumption and investment.