33% China Copper Smelters See Gains for Copper Prices This Week, SMM Survey

SHANGHAI, Jul. 12 (SMM) – SMM survey indicates that 33% Chinese copper producers anticipate that LME copper will break through USD 4,780/mt this week and SHFE 1609 copper will grow above RMB 37,200/mt.

China’s CPI for June increased 1.9% while PPI dropped 2.6%, both on the yearly basis. This mirrors declines in industrial deflation and weakening expectation for inflation. Markets expect additional easing policies to be released to increase market liquidity. Market expectation for  further depreciation in Chinese yuan grows, hurt by British pound with recovery in US labor market and UK’s leave from EU. The devaluation of yuan will boost outbound shipments of copper in China, bolstering overseas demand.

CFTC report shows that net short positions of Comex copper totaled 19,469 as of the week ending July 5 with shorts falling over 3,000. Net long positions of LME copper grew more than 2,000 to 33,284 as of the week ending July 1. Commodity prices rose across the board in China on Monday, with coke up by 1.75%, coking coal up 2.64%, iron ore up 1.30% and rebar up1.25%. This lends support to nonferrous metal prices. A total of RMB 62.14 million flowed into SHFE copper market, of which RMB 56.25 million was injected to SHFE 1609 copper contract. Technical indicators are also positive.

39% investors expect copper prices to remain at current levels this week with LME copper between USD 4,680-4,780/mt and SHFE 1609 copper at RMB 36,500-37,200/mt. US nonfarm payrolls for June recorded a 8-month high and US dollar thus moved higher. But the Federal funds rate futures signal small possibility of a rate hike within 2016, which will boost copper prices. Technical indicators are mixed for both LME and SHFE copper. A bag of economic figures will come under spotlight this week, including China’s trade, retail data for June and Q2 GDP, BoE’s rate decision meeting, US Beige Book and Q2 economic figures.  

28% respondents see LME copper to fall below USD 4,680/mt this week and SHFE 1609 copper to drop below the 20-day moving average. US dollar may grow further thanks to the upbeat nonfarm payrolls for June, which will depress base metal prices. US crude oil quoted around USD 45/bbl on Monday and crude oil may head for losses in the short run due to output growth in Nigeria and the OPEC in June. Copper concentrate TC stays steady at USD 100-105/mt and smelters are active in producing, who already completed maintenance in H1. Thus, domestic copper output should post big rises in July. Orders at downstream copper processors started falling in late June and orders for low and medium-voltage wire & cable is falling. Enameled wire orders also slip from auto and home appliance sectors.

Large air-conditioner producers plan 10% cut in output in July. Spot premiums/discounts continue falling and SHFE near-month copper contracts outperform SHFE far-month copper contracts, which may expand spot discounts further. Cargo holders will rush to sell for cash while downstream purchase is limited. Downstream demand should weaken further in Q3. LME copper stocks jumped 34,150 mt in two straight days last week and grew another 2,5000 mt yesterday, imposing pressure on copper prices. Technical side are also negative for copper prices in the foreseeable future.