SMM Copper Market Daily Review (2015-9-21)

SHANGHAI, Sept. 22 (SMM) – Market sentiment remained slack on Monday and Chinese A-shares opened lower. Thus, SHFE copper trended lower following LME copper during Monday trading session. It was reportedly that Glencore faced financial problems, fueling worries about sell-offs of nonferrous metals by Glencore. In response, SHFE copper fell below RMB 40,000/mt and touched a low of RMB 39,850/mt. Later, market sentiment eased. SHFE copper drifted higher to challenge RMB 40,370/mt in response to crude oil prices and Chinese A-shares before ending at RMB 40,340/mt, falling RMB 580/mt or 1.42%. Positions dropped 10,304 to 184,728 and trading volumes were around 650,000 lots.

In Shanghai, spot copper traded between discounts of RMB 10/mt and premiums of RMB 60/mt on Monday, versus RMB 40,020-40,200/mt for standard-quality copper and RMB 40,050-40,250/mt for high-quality copper.

SHFE copper fluctuated at lows on Monday. Cargo holders tries to step up spot premiums early this day but market supply increased with hedged goods entering market. Traders and downstream producers were still bearish and stayed out of market. Then offers for hydro-copper dropped quickly. During the second trading session, standard-quality copper was offered at premiums of 0-20/mt, versus premiums of RMB 30-50/mt for high-quality copper. Traders and downstream buyers were willing to purchase with prices below RMB 40,000/mt. Oversupply gradually widened spot discounts.

A total of 30% industrial insiders are bullish toward copper prices and they expect LME copper to return above USD 5,350/mt this week and SHFE copper to grow above RMB 40,700/mt. Mercuria Energy Group expressed that growth in refined copper supply should be slower than demand following Glencore’s cut news. Also, markets expect China’s investment in infrastructure will rebound a lot in H2 and investment in power grid will help to increase copper consumption.

Besides, global copper inventories have decreased. Demand for copper may increase in Q4 with loose monetary policies. China’s caixin manufacturing PMI for September is predicted to rise 0.3 percentage points, supporting the expectation for a turnaround in demand in September and October. This will strengthen market confidence. Meanwhile, CFTC reported that net short positions have dropped for 5 straight weeks to 4,041, reflecting weakened bearish sentiment.

35% investors see LME copper to fall below USD 5,200/mt this week and SHFE copper to slip to RMB 39,500/mt. Expectation for US interest rate hike late this year continues to boost. Speech of Benoît Coeuré, executive board member of the European Central Bank indicated that the ECB may release more easing measures to depress euro. Greece's left-wing Syriza party won the general election and this means that Greece will launch more deflation policies. This, coupled with Greece debt crisis, will weigh down commodity prices.

It was reportedly that Glencore faced financial problems, fueling worries about sell-offs of nonferrous metals by Glencore. In China’s spot market, copper discounts appeared again on Monday due to ample supply. Cargo holders will rush to sell late this month but downstream buyers showed little interest.  

The rest 35% industrial insiders believe that LME copper will move between USD 5,200-5,350/mt this week and SHFE lead should range between RMB 39,700-40,700/mt. US dollar moved in a tight range on Monday. Decrease in US crude oil stocks exceeds expectation but concerns over OPEC’s no cut in production and a slowdown in global economy remain. Technically, US crude oil futures prices move between the 20 and 60-day moving averages and temporarily show no signs to break out any one of them.

In China’s sot market, operating rates at downstream producers should pick up and those producers will buy refined copper at lows. But meanwhile they refuse to accept high offers from sellers. Imported copper grew to 262,700 mt in August, offsetting the impact from maintenance at domestic smelters and depressing spot premiums. But high Yangshan premiums will lure more imports to flow into domestic market, supporting LME copper prices. As such, copper prices will fluctuate between moving averages.