Regulators strengthened management of futures and spot markets, bears dominated the market

SHANGHAI, May 25 (SMM)—The State Council of China established a task force to curb unreasonable price increases for commodities in a bid to prevent transmission to consumer prices. As such, SHFE copper prices fell for three consecutive days.

Domestic fundamentals remained as the focus last week. China’s Prime Minister has mentioned overly fast gains in commodity prices for three times this year, triggering panic among bulls. On fundamentals, ample supply of blister copper produced with copper scrap ensured high operating rates at domestic refineries. Domestic copper cathode output hit highs in March and April. However, high copper prices have dampened downstream consumption significantly. End-users stood on the sidelines amid rapid gains in raw material prices. Inventory in Guangdong increased in April and May. Inventory in Shanghai is expected to fall slightly this week. Downstream buyers favoured low-coast secondary resources, keeping copper inventory accumulation in the long run. This will weigh on copper prices.

On the other hand, The Fed meeting minutes unveiled that some officials  were open to discussing reductions in bond purchases raising expectations over higher interest rates. The Fed is likely to gradually reduce quantitative easing. The Chicago PMI in May, the flash US durable goods orders in April and the seasonally adjusted existing home sales in April are due for this week. Market concerns are likely to ease if the data is upbeat.

Prices have fallen below the 20-day moving average, and will test support from the 40-day and 60-day moving average this week. SHFE copper prices are expected to move between 70,000-74,000/mt this week, and LME copper will trade between $9,600-10,150/mt.

The contango of the SHFE next-month contract over the SHFE front-month contract stood at around 150 yuan/mt on Friday, narrower from 200 yuan/mt on Thursday. Inventory declined as SHFE copper prices fell for three days in a row, and this is expected to bolster spot quotes. Trades under long-term contracts are expected to shrink this week, limiting gains in spot quotes. Spot discounts are expected to stand at 180-70 yuan/mt on the back of downstream purchases.