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    Several Good News Support Cooper Price

    Date:2015-03-20

    In recent period, the financial market focuses on the trends of the American and Chinese economic policy. Although the prospect of the Chinese real economy was weak this year, the leadership emphasized “stable growth” again, the monetary policy is loose and the investment in capital construction is expected to be implemented. After the Fed meeting on interest rates, the U.S. dollar index dropped sharply, influencing bulk commodities. In the supply and demand game during the traditional peak period, copper prices will enter a new round of direction selection. The rebound goal is RMB 43,000/ton and RMB 45,000/ton.

    The Fed “is Actually a Pigeon Like an Eagle”, the Commodities Rebound

    On the early morning of Mar. 19th (Beijing Time), the results of Fed meeting on interest rates in March were issued. No word of “patience” was emphasized in this Fed statement. The interest rate anticipation scatter gram provided by Fed officers changed dramatically, and the prospect of the American economy dropped. Janet Yellen’s ambiguous attitude shook up the financial market’s expectation on raising interest rates in June. U.S. dollar index dropped to 96.928 and reached the lowest level since Mar. 9th, and the prices of bulk commodities rebounded. 

    In fact, the word of “patience” was deleted in this statement, which was expected by the market. However, the dramatically changed interest rate anticipation scatter gram provided by Fed officers was unexpected, reflecting that the attitude of Fed officers “is actually a pigeon like an eagle” in recent period. Compared with the scatter gram issued in Sep. 2014, median FFR dropped from 1.375% to 0.625% by the end of 2015 and 2.875% to 1.875% by the end of 2016.

    Certainly, Fed Chairman Janet Yellen made a statement and reaffirmed that the rise of interest rates will be subject to economic data. Fed has not so much impetus to raise interest rates based on the lower expectation on the future economic development and the prospect of inflation. It is predicted that to raise interest rates in September will be a more pragmatic and stable choice in view of most of Fed officers’ prudent attitude on raising interest rates. Under this background, it is estimated that U.S. dollar index will maintain high level, thus the commodities including copper can obtain more opportunities for maintenance and counterattack.

    The Chinese Economic Prospect is Weak and the Favorable Policy is Expected 

    2015 NPC & CPPCC sessions ended with complete success in the middle of Mar. 2015. The two topics—“promoting the reform” and “stabilizing growth” of the Chinese economy were discussed. Although China lowers economic growth target to 7%, Premier Li Keqiang emphasized the attitude of “Withstand Downward Pressure, Maintain Steady Growth” and reaffirmed that the government has realized the severe economic situation and reserved policy space.

    Based on the speech of the Chinese leadership and the actions of People’s Bank of China since March, the future monetary policy probably becomes loose. More favorable policies will be issued successively in the second quarter so as to hedge against the downside risk of the real economy, and the needs in the fields such as real estate will maintain stable. With regard to the financial market risks including local government bonds, the management layer strives to strengthen management and control, with minimum guarantee effect to the commodities including copper.

    Although the center of copper price is gradually shifted down in recent years, it may rebound and even retract in the downward process. In view of the high concentration of domestic copper industry, the supply pressure of stock copper will be relieved to a large extent and the supply and demand of stock copper will be improved in a short term due to the centralized repair and production limitation of domestic large smelting plants. During the two sessions, the high-level leadership mentioned environmental protection and control, thus the increasing possibility of centralized repair of domestic nonferrous metals mines and smelting enterprises will provide support for the supply and demand of domestic copper market.

    The Supply of Stock Copper Exceeds Demand, Supply and Demand Game in Peak Season

    From the point of view of supply and demand, the domestic stock copper market presents the pattern that supply exceeds demand this year. The domestic output of refined copper during Jan.-Feb. increased to 245,000 tons, up by 2.6%, the supply of smelting enterprises is stable, but the growth of downstream consumption is weak. The copper inventory of SHFE exceeded 24 tons in the middle of March, increasing by more than 100% compared with that in the beginning of the year. The copper inventory of LME also increased to more than 340,000 tons, and the possibility of “premium” reduced due to the fast increase of inventory. Both the long side and short side of copper market had scruples, and copper price went up and down in a short term.

    Based on the historical data, the difference between futures and spot prices of copper market tend to increase and the price of stock copper will rise during Mar.-May after low level during Jan.-Feb., the difference between futures and spot prices becomes the highest and will drop quickly during May-Jul. This historical law reflects the universal meaning of the return of price difference. In the traditional peak season during Mar.-May, the supply and demand game is more beneficial to the long side, which is one of important factors for support of copper prices.

    In the supply and demand game during the traditional peak season, the results of Fed meeting and the expected Chinese policy provide the rebound opportunities for low copper prices. The first objective of SHFE is RMB 43,000/ton, and then will rise to RMB 45,000/ton. The long side can make an investment after the stable support of RMB 41,000/ton.

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