50% China Copper Smelters Expect Declines for Copper Prices This Week, SMM Surveys

SHANGHAI, Aug. 23 (SMM) – 50% Chinese copper smelters surveyed by SMM see LME copper to fall below USD 4,750/mt this week and SHFE 1610 copper to drop below RMB 37,000/mt.

LME Copper to Stay Firm Next Week, SMM Expects

Dudley, the President of Federal Reserve Bank of New York, noted that US employment growth was robust recently and US Fed Deputy President also indicated a rate hike in 2016, which sent US dollar index up to 95. This will impose pressure on base metals. British Prime Minister announced to start EU exit procedure in April 2017 and British pound thus hit the largest single-day drop in two consecutive weeks last Friday.   

Most Asian stock market indices were trading lower on August 22 with the Shanghai Composite index down 0.45% at 3,094.10, Shenzhen Composite index down 0.77% at 10788.67 and Hang Seng index down 0.1% at 22914.32. This reflects that global sluggish economy negatively affects investors’ confidence and business operation. International Bureau of Statistics reported that world’s refined copper output totaled 722,000 mt in July, up 9.6% YoY and 36,000 mt MoM, stimulated by rising copper prices in the month. LME copper stocks increased by 18,750 mt on August 22, the largest single-day growth since July 6, following a rise of 7,925 mt last Wednesday. LME copper stocks will still see in-bound shipments later, boosting worries about oversupply. LME copper slipped below the 60-day moving average on August 22.

36% respondents expect LME copper to maintain at USD 4,750-4,820/mt this week and SHFE 1610 copper at RMB 37,000-37,500/mt. The PBOC withdrew RMB 20 billion net cash from market, the third net withdraw from market in three straight days. Most Shanghai interbank offered rates registered growth. CFTC report showed that long positions of Comex copper totaled 61,208 as of the week ending August 16 and 66,282 for short positions with net short positions of 5,074, a reflection of investors’ low interest in most actively-traded copper contract. Positions of SHFE copper dropped from 810,000 to 500,000 since early June and this mirrored tepid market enthusiasm.

Saudi Arabia suggested again to hold an oil output freeze meeting between OPEC members and non-OPEC members in September. But the success probability is very small. Also, major oil producers recently rushed to grow output, including Saudi Arabia, Iran and Irap. The number of rigs drilling for oil in the US rose by 10 in the week ending August 19, rising for eight weeks in a row. As such, crude oil may hover at USD 45-50/bbl in the short term. Technical side showed mixed direction for both LME and SHFE copper.   

The rest 14% market players predict that LME copper will break through USD 4,820/mt this week and SHFE 1610 copper will grow above RMB 37,500/mt. Credit ratings agency Moody's changed base metal outlook from negative to stable and base metals will not drop sharply in the mid-term. The recent steady base metal prices were mainly contributed by economic growth in China. Demand is expected to improve in September and October, which will give rising strength to copper prices. Poor reading of China’s economic figures in July boosts expectation for easing policies. And the NDRC has indicated the PBOC to cut RRR for several times.

Japan’s Central Bank announced possibility of fresh easing measures in September. Japanese yen once broke through 100 last week with weaker-than-expected loose policies. Thus, Japan may loosen policies further. SHFE copper stocks declined 6,850 mt last week, due to domestic large smelters, including Xiangguang Copper, exporting refined copper and copper semis in a large amount. The unwrought copper and copper semis in China jumped 401.6% to 75,022 mt at the end of July, easing concerns over domestic oversupply. The central parity rate of Chinese yuan was 6.6652 against US dollar on August 22, with Chinese yuan depreciating 441 basis points. This may lead to SHFE copper more resistant to declines than LME copper.