SHANGHAI, Mar. 8 (SMM) – SMM survey finds that 50% Chinese copper producers see LME copper to grow to USD 5,020-5,060/mt this week and SHFE 1605 copper to rise to RMB 38,200-39,000/mt.
Crude oil prices registered a gain of 4.73% last weekend and moved above USD 36/bbl, a reflection of longs’ strength gathering. US dollar index will likely fall back with heavy pressure at 98. After the RRR cut by the PBOC, the central bank conducts a 7-day RMB 70 billion reserve repurchase operation since March 3 with bid rate steady at 2.25%. This mirrors loose policies unchanged in credit loan market. Besides, the boom in domestic property and ferrous metal markets will also be extended to commodity market.
And oversupply pressure is expected to ease with reduction in imports. Cargo holders will hold back sales due to strong expectation for traditional peak-demand season. Operating rates at Chinese copper producers picked up after 2016 Chinese New Year holiday from the same period in 2015. The positive orders support the coming peak-demand season.
42% respondents expect copper prices to move in current range this week with LME copper at USD 4,880-5,020/mt and SHFE 1605 copper at RMB 37,200-38,200/mt. Bullish sentiment continues in overall market following continuous gains and markets continue digesting positive effect from NPC & CPPCC. Consequently, any sharp fall in impossible. Besides, longs exited market after SHFE copper growing above RMB 39,000/mt on Monday. And shorts attempt to enter market by sell-offs. Hence, little upside room is in sight for copper prices.
It should also be warned that copper inventories on SHFE and LME are diverging in the past several months. LME copper inventories have extended losses since autumn in 2015 and registered a 11-losing streak to a 14-month low while SHFE inventories headed for gains since the end of August 2015 and have doubled to a record high at present. As of March 4, LME copper inventories were at 186,700 mt and 305,106 mt for HSFE inventories. The diverging trend in LME and SHFE copper inventories will throw copper prices in a range after rallying by 14%.
The remaining 8% market players are bearish towards copper prices this week. Technical indicators show signs of downturn. Moreover, net short positions on COMEX increased modestly by 1,669 to 24,616, based on CFTC report. The supply-side reform mainly target steel and coal industries and little involves nonferrous metal industry, leaving downside room for nonferrous metals. Spot discounts gradually shrink in market due to hedging demand instead of due to rigid demand while downstream buyers are still unwilling to enter market owing to current high prices. Once demand fails to pick up in the traditional peak-demand season, copper prices will face downward pressure.