SMM Copper Market Daily Review (2015-10-19)

SHANGHAI, Oct. 20 (SMM) – SHFE copper moved below the moving average on Monday due to the poor reading of China’s GDP and dipped to RMB 39,250/mt before ending at RMB 39,380/mt, down 470/mt or 1.18%. Trading volumes grew modestly by 5,744 lots and positions edged up 3,044.

SHFE copper dropped slightly on Monday due to poor reading of China’s GDP. Cargo holders attempted to held modest premiums in the morning but this was not accepted by buyers. And delivered goods flowed into market, growing spot supply. Sellers rushed to lower their offers, narrowing spot premiums quickly. Spot copper returned to discounts near noon. Speculators and downstream buyers stayed out of market.

Spot copper traded between discounts of RMB 60/mt and premiums of RMB 10/mt on Monday in Shanghai, versus RMB 39,430-39,570/mt for standard-quality copper and RMB 39,460-39,650/mt for high-quality copper.

SMM survey shows that 60% market players expect LME copper to move between USD 5,220-5,320/mt this week and SHFE 1512 copper to range between RMB 39,300 -40,000/mt. Technically, both LME and SHFE copper moves between moving averages. In the week ending October 16, LME copper inventories slumped 12,275 mt to 292,950 mt, far below this year’s average figure of 315,242 mt and hitting a fresh low since February 12. During the same period, SHFE copper inventories came at 170,349 mt, up 17,415 mt on the weekly basis, the 10th rise in eleven months and recording a new high since May 15 this year. When combined with recent growth in China’s imports, this signals that LME copper inventories are flowing into Chinese market, support copper prices.

25% respondents see LME copper to test USD 5,150/mt this week and SHFE 1512 copper to test RMB 39,000/mt. Recent released economic data from US are mixed but markets still remain confident in US economy. Nonetheless, US central bank and government sold off its treasury securities in August, triggering worries about US economy growth. This may curb US dollar index.

Markets will focus on the ECB interest rate decision on Thursday and expect further monetary easing in the next months. The most possible case is that the ECB holds dovish attitude and announces in December its QE program will extend to when. Then, the ECB will upgrade its forecast for economy growth in Q4 in euro zone. In the following months, the ECB will try to achieve its inflation target and thus EUR should fall further. As a whole, relatively strong dollar will weigh down copper prices.

Spot supply will gradually grow in China with delivered goods flowing into market. Spot copper will remain in discounts. Besides, some cargo holders will be active in selling near late October, containing copper prices.

15% investors point out that LME copper will increase to USD 5,350/mt this week and SHFE copper will break above RMB 40,200/mt. Net short positions declined 5,407 to 6,141 during the week ending October 13. China’s Q3 GDP fell below 7 for the first time, boosting the case for more stimulus measures, which will support copper prices.

Chinese stock post rallies after Chiba’s week-long holiday. SSE Composite Index has surged above 3,400 and GEI also stabilized at 2,400 at present. What’s more, trading volumes gradually grow in Shanghai and Shenzhen stock market. Markets expect copper mines to cut 500,000 mt, support copper prices.