SMM Copper Market Daily Review (2015-10-12)

SHANGHAI, Oct. 13 (SMM) – SHFE copper stabilized around RMB 40,050/mt during Monday trading session and shot up to RMB 40,290/mt in the afternoon business. The red metal closed the day at RMB 40,150/mt, rising RMB 570/mt or 1.44%. Positions were up 8,504 to 226,810 and trading volumes were around 480,000 lots.

In Shanghai, spot copper settled at discounts of RMB 0-50/mt against SHFE front month contract on Monday, versus RMB 40,080-40,230/mt for standard-quality copper and RMB 40,100-40,230/mt for high-quality copper.

SHFE copper ranged narrowly at highs. SHFE 1510 and 1511 copper spread almost disappeared with the upcoming deliver date. Traders returned to market yesterday, pushing trading up noticeably. Downstream buyers were unwilling to enter market as copper prices were still on the rally track. 

33% investors are optimistic over copper prices and they expect LME copper to break above early September’s USD 5,350/mt this week and SHFE 1512 copper to rise to RMB 40,600/mt. On the macro side, US dollar index fell below 95 on the back of released employment data and weakening expectation for Fed’s rate hike this year. This helps to support crude oil prices and consequently base metal prices get a boost.

The People's Bank of China is expanding a program that allows lenders to borrow from the central bank using loan assets as collateral, to nine more cities and provinces. This is reported as China’s QE by most media. Besides, more pro-growth measures are expected in Q4 following Q3’s poor economic situation, leaving upside room for copper prices.

In terms of supply, copper production cut news come on stream since August due to slack copper prices and other reasons. Glencore’s cut news, domestic delayed capacity and lots of maintenance at smelters tighten spot supply. However, consumption starts to pick up in September. Operating rates at wire & cable makers, downstream top copper consuming sector, turn better thanks to higher investment in power grid. Supply constraints and improved consumption will support copper to rally in October. Additionally, LME copper inventories have slid 12.5% to 303,200 mt since August, favoring copper prices.

67% industrial insiders see LME copper to move in USD 5,200-5,350/mt this week and SHFE copper to hover between RMB 39,500-40,600/mt. LME and SHFE copper prices have approached early September’s level and any further rise will meet resistance. This is because the recent drop in US dollar is merely a short-term result and should US economic data turn better, US dollar will post a rally. This will in turn contain copper prices.  

Refined copper supply remains ample in China and SHFE copper stocks head for growth after China’s National Day holiday. Moreover, trading is left muted, depressing bullish sentiment. Exit of shorts pushes up copper prices currently but a large number of longs stay out of market, which will not support copper to increase persistently.