FOCUS - SHFE copper open interest falls for fifth week, fund interest wanes

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 22/08/2016 - Open interest in the copper contracts on the Shanghai Futures Exchange fell for a fifth straight week last week while fund and investor interest in the metal wanes.

Open interest has slipped by 20 percent or 130,730 positions over the past month to 526,682 positions on Friday. It slipped further to 514,360 positions at Monday's close.

Copper's weak fundamentals - ample supply and weak demand - are the main reason for the lack of interest from funds, market participants said. 

"There is no good reason to speculate in copper now because its fundamentals are not strong with production remaining high," an analyst at a Beijing-based futures brokerage said.

Treatment charges for copper concentrates remain high enough to entice Chinese smelters to continue producing, with Chinese refined copper production rising 9.6 percent year-on-year to 722,000 tonnes in July.  This took output to 4.75 million tonnes in the first seven months of the year, up 7.9 percent from the same period of last year.

China's copper ore and concentrate imports, meanwhile, surged 46.4 percent year-on-year to 1.38 million tonnes in July, taking year-to-date imports to 9.41 million tonnes, which up 36.1 percent year-on-year. Strong imports suggest that refined copper output will remain high for the rest of the year, sources said. 

But copper demand is weak during the current off-peak season of June-August and analysts expect softer demand in the second half after power grid investment in the country was concentrated in the first half of this year.

"Funds like a good reason to go long but copper's fundamentals do not offer support, unlike nickel," a Shanghai-based trader said.

Nickel and zinc are seen as having the strongest fundamentals among the base metals - the former due to potential disruptions to nickel ore production and exports from the Philippines and the latter faces tightening global concentrate supply - and are therefore preferred by funds, sources said.

The copper market lacks a focus point, prompting funds to continue to leave the market and leading to quiet trading conditions for the metal, Ruida Futures said in a report on Friday.

Consequently, SHFE copper could remain range-bound with limited upside potential till the end of the year, sources said.

"We'll see how the forthcoming September-October peak demand period pans out. That could give SHFE copper some support," the analyst said. "But I’m thinking 39,000-plus yuan should be the highest SHFE copper can go this year."

If SHFE copper fails to break resistance at 37,600 yuan per tonne, further downside can be expected, Beijing-based Galaxy Resources said on Monday.

SHFE copper prices had trended higher between November last year and mid-July this year, rising almost 20 percent during this period. But since mid-July the metal has been rangebound with a slight bias to the downside.

In contrast, the SHFE nickel and zinc contracts have surged around 35 percent and 50 percent respectively since November last year. 

The most active SHFE October copper contract finished at 37,140 yuan on Monday, down 250 yuan on Friday’s close.


(Editing by Mark Shaw)



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