SHANGHAI, Jan. 18 (SMM) - Base metals slumped across the board January 17. SHFE copper closed 2.34% lower due to 890 million yuan selloffs. SMM’s most recent survey of many domestic futures companies finds most analysts see copper prices remain weak before the 2017 Chinese New Year holiday, and any price declines will be limited.
Copper prices fell due to technical factors, said Wang Zairong, guest professor and master tutor of Tianjin University of Commerce and University of Science & Technology Liaoning. Copper prices rose from 44,000 yuan per tonne to 48,000 yuan per tonne recently, with price gains of 4,000 yuan per tonne. LME copper met resistance from $6,000 per tonne. Technical factor will drive longs out of the market after profit-taking.
The US dollar will hover around 100 in the near term. The exchange rate of the yuan against the US dollar saw large numbers of buyers near 7. This means China is attempting to keep the rate below 7, leaving it between 6.7-7. In this scenario, copper and zinc prices will fluctuate in a narrow range, he said.
As domestic copper prices are consolidating at highs, longs will prefer to leave the market after profit-taking. Copper prices will move between 45,000/44,000-50,000 yuan per tonne during January and March, and no big drop will be seen. Copper prices may rise above 50,000 yuan per tonne in 2017.
Longs are suggested to buy around 45,000 yuan per tonne and close position between 48,000-49,000 yuan per tonne, and shorts are suggested to operate vice versa.
Most investors will wait and see before the NPC and CPPCC, with no significant positive or negative factors reported until after the meetings. No dramatic change will be seen after Trump taking office.
Zhao Weiwei from China Investment Futures said any negative effects on commodities from Trump effect will only exist in the medium term. The US dollar has rolled back all gains from Trump’s winning presidential election, and appears to have been oversold. This will weaken investor risk appetite and grow risk aversion. But commodities did not erase all gains from previous expectations of infrastructure construction pushed by Trump as the US dollar fell. In the meantime, after slump in domestic bond market, the People’s Bank of China (PBOC) conducted continuous and small currency injection through open market operation so as to ease year-end cash tightness, improving the market. Nonetheless, with curb in asset price bubble, China’s monetary policy will tighten in the future. And it is still uncertain whether open market operation by the PBOC and new loans will give positive effect on risk appetite, he said.
Base metals fundamentals did not improve, with inventories both at home and abroad continuing growing. The proportion of canceled warrants decreased, and spot prices remained below futures prices. Producers did not build stocks actively during low-demand season. The Baltic Dry Index (BDI) which mostly moves in line with metals continued falling. The latest rebound in base metals prices was due mainly to capital inflows. Commodity market saw net capital outflows this week after two weeks of growth, meaning shorts leaving the market after profit-taking were mainly contributing factor to the rebound. CFTC speculative funds still hold high net longs, reflecting overbought. Net longs increased for the first time in four weeks this week.
Metals prices may fall, which will be subject to risk appetite. Investors should remain reticent in the near term. Shorts may enter the market at highs in the medium term, he said.
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