SMM Copper Market Daily Review (2015-9-14)

SHANGHAI, Sept. 15 (SMM) – During Monday trading session, SHFE 1511 copper once grew to RMB 41,200/mt but later dropped to RMB 40,700/mt due to weak sentiment and the unsteady movement in Chinese stock market. The contract finally closed down RMB 510/mt or 1.24% at RMB 40,620/mt. Trading volumes were around 500,000 lots.

 On Monday, spot copper was offered between discounts of RMB 30/mt and premiums of RMB 20/mt in Shanghai. Standard-quality copper traded at RMB 40,900-41,120/mt, versus RMB 40,920-41,150/mt for high-quality copper.

SHFE copper fell back after meeting resistance on Monday. Traders hesitated to give their offers. Spot supply decreased. Price gap between standard and high-quality almost disappeared, leaving limited profits for traders. Thus, those traders did not enter market. Downstream producers purchased for immediate consumption, leaving transactions quiet in market.

SMM survey showed that 62% market players expect LME copper to fluctuate between USD 5,300-5,400/mt this week and SHFE copper between RMB 40,000-41,350/mt. Markets focus on US Fed meeting on Friday and whether Fed will raise interest rate in Sept. stays uncertain. Additionally, China’s economic data for August come on stream recently. On the one hand, investors show concerns over a slowdown in China’s economy. On the other hand, they expect more pro-growth measures in China.

Approximately 24% industrial insiders see LME copper to fall below USD 5,300/mt this week and SHFE copper below RMB 40,000/mt. The recent growth in copper prices is contributed mainly by a cut in copper mines, expectation for Sept.-Oct. peak demand season and a rise in China’s grid investment. Howecer, capacity cut by Glencore may meanwhile depress copper ore costs to USD 1.65/pound (RMB 27,000/mt), still above international average cost. This may leave downside room for copper prices.

China’s Jan.-Aug. investment in real estate totaled RMB 6,106. 3 billion, slipping 0.8 percentage point from Jan.-Jul. Inventories of commodity houses remain huge, dragging down new demand for investment. Moreover, few companies are bullish towards the Sept.-Oct. peak demand season, according to latest survey by SMM. Also, the CFTC report shows that net short positions again post a rise on the COMEX during the week ending Sept. 8. This means that SHFE copper will retest support at RMB 40,000/mt this week.

The rest 14 respondents note that LME copper will increase above USD 5,400/mt this week and SHFE copper will test resistance at RMB 42,000/mt. In China, some projects do not come online as expected. Dongying Fangyuan Nonferrous Metals puts no crude copper capacity online due to cash shortage. Actual new capacity being put online at Fujian Zijin Copper is below forecast. Crude copper output at Henan Zhongyuan Gold Refinery is delayed for 3 months. Some companies, including Fujian Zijin Copper, Jinlong Copper, Jiangxi Copper Corporation and Jinchuan Group, undertake maintenance. As a result, a total of over 40,000 mt of copper production will be cut, support copper prices.

LME cash-to-three month contango has grew to USD 23/mt from USD 12/mt since Sept. 9. Besides, LME copper stocks have slipped for 2 weeks, decreasing 1,125 mt to 340,875 mt on Monday. Spot discounts gradually invert to premiums in China and transactions tend to be active. An improvement in demand for copper concentrate from downstream producers and traders will help boost copper prices. As such, copper prices will be set for rise this week.