LIVE FUTURES REPORT 08/12: Renewed supply concerns prop up SHFE copper prices

The most-traded February copper contract on the SHFE stood at 51,450 yuan ($7,774) per tonne as of 10.19am Shanghai time, up by 240 yuan from the previous session’s close, with around 139,000 lots having changed hands.

Trading has been more active compared with roughly the same time on Thursday, indicating that the previous weakness in copper prices has attracted more dip buying.

The LME three-month copper price continued to rebound on Thursday, closing up by $14 at $6,564 per tonne. But the gains were slight in comparison to the 3% plunge witnessed on Tuesday.

“While the underlying fundamentals remain supportive and supply disruptions will limit downside risks, our current view remains that the market is still comfortably supplied because the recent run-up has released fresh supplies,” Metal Bulletin analyst James Moore said.

“As such we expect the theme of choppy, largely sideways trade to continue while the market absorbs some selling and adjusts to the already high price while dips attract bargain-hunting,” Moore added.

In supply news, Tongling Nonferrous Metals Group, China’s second largest copper producer, will close part of its operations to ease pollution over the coming winter. This renewed market concerns regarding potential supply tightness, giving some support to prices.

“Tongling Nonferrous Metals Group is idling nearly 30% of its smelting capacity (approximately 800,000 tonnes)… This has thrown a spanner in the works for the current negotiations for treatment and refining charges that smelters pass onto miners. As yet the annual fees have not been set,” ANZ Research said on Friday.

Further support for copper prices came from positive Chinese data released earlier this morning.

China’s trade surplus expanded to reach 263.6 billion yuan in November, which bested expectations for a surplus of 231 billion yuan. Yuan-denominated exports were up by 10.3% year on year compared with an expected 2.0% increase, while imports rose by 15.6% in the same comparison, against a projected 12.5% gain. The better-than-expected reading has boosted market sentiment.

Nickel rebounds but remains vulnerable

• The SHFE May nickel contract price rallied 1,270 yuan to 88,680 yuan per tonne.
• LME nickel stocks further dipped a net 588 tonnes to 377,844 tonnes on Thursday.
• “Shanghai nickel premiums have risen amid a positive arbitrage, and these firm premiums have lent some support to nickel prices,” an analyst from Shanghai said.
• Full-plate nickel premiums on a cif Shanghai basis rose to $280-300 per tonne on Tuesday, up from $270-290 per tonne a week earlier, while Shanghai-bonded warehouse premiums increased to $290-310 per tonne, from $290-300 per tonne in the prior week, according to Metal Bulletin’s most recent assessment.
• The nickel market remains vulnerable, however, with some expressing pessimism towards the metal’s price outlook.
• “LME nickel stocks have dropped continuously recently, and those outflows are very likely to find their way to China as quite a few bills of lading have been issued against Chinese ports. More refined nickel supply could reverse any rally,” the analyst added.

Base metals prices diverge

• The SHFE February aluminium contract price was little changed at 14,210 yuan per tonne, up by just 5 yuan from the previous session’s close.
• The SHFE February zinc contract price dipped 170 yuan to 24,325 yuan per tonne.
• The SHFE January lead contract price fell 175 yuan to 18,505 yuan per tonne
• The SHFE January tin contract price eased 110 yuan to 139,590 yuan per tonne.

Currency moves and data releases

• The dollar index continues to strengthen, reaching a more than two-week high of 93.87 earlier in the session. The index was up by 0.07% at 93.85 as of 10.31am Shanghai time.
• In other commodities, the Brent crude oil spot price rose by 0.03% to $62.07 per barrel while the Texas light sweet crude oil spot price inched up by 0.07% to $56.59.
• In equities, the Shanghai Composite was up by 0.16% to 3,277.19.
• In data on Thursday, US-based employers announced 35,038 job cuts in November – up 30% from the same month last year, while US unemployment claims came in slightly below expectations at 236,000.
• The economic agenda is busy today with UK manufacturing production, goods trade balance, construction output, consumer inflation expectations and industrial production. US data also out today includes monthly average hourly earnings, non-farm employment change, unemployment rate, preliminary University of Michigan consumer sentiment and inflation expectations and final wholesale inventories.
• In addition, investors will also be keeping an eye on China’s consumer price index and producer price index which are due at around 02.30am Shanghai time on Saturday.