Copper Prices to Fluctuate Rangebound This Week, Upward Room for Spot Premiums to be Limited

Copper prices fell before rising last week. LME copper prices dipped to the $9,200/mt mark at one point amid a sharp rebound in the US dollar. After obtaining support, prices broke through $9,500/mt on Friday and reached a high of $9,550/mt lastly seen in August. The fluctuation range of SHFE copper was less than 1,000 yuan/mt. Prices moved in a tight range of 68,500-69,500 yuan/mt in the first four trading days of the week. On Friday, prices surged to 70,200 yuan/mt amid strong LME copper and the exit of bears.

From a macro perspective, the European Central Bank unexpectedly announced the tapering of its bond purchases at the interest rate meeting last week. The US dollar index fell amid a strong euro. In addition, liquidity in the domestic capital market has been relatively ample since September. Informal financing topped expectations and the month-on-month growth was noticeable. As such, the overall performance of commodities has picked up. If there is no tapering at the Fed's interest rate meeting in September, base metals prices are expected to maintain a stable trend without much fluctuation on the macro level. The market will focus on the annualised August CPI from the United States before seasonal adjustment this week, and US retail sales data in August.

From a fundamental point of view, the contradiction is still concentrated on the copper scrap sector. The arrivals of the environmental protection inspection team has affected smelting operation at a smelter in central China. Stronger demand for copper scrap has tightened the overall supply. Although there has been a large inflow of imported copper into the domestic market from bonded zones for four consecutive weeks, domestic market did not see significant stock accumulation. With the substitution of copper scrap by copper cathode, domestic consumption unexpectedly stabilised. However, a large amount of imported copper will arrive from late September as cargoes continue to flow out of LME Asian warehouses. This will further weigh on domestic spot quotes. 

Copper prices will continue to fluctuate rangebound in the short term. SHFE copper prices are expected to move between 68,500-71,000/mt this week, and LME copper will trade between $9,250-9,650/mt.

In the domestic spot markets, spot premiums could hardly rise significantly this week amid copper prices above 70,000 yuan/mt and the guidance of the price spread between the SHFE front-month and next-month contracts. But the purchase for monthly long-term orders and expectations of stockpiling ahead of Mid-Autumn Festival  and the National Day holidays will bolster spot premiums. Spot premiums are expected to fluctuate in a narrow range of 50-120 yuan/mt this week.