SHANGHAI, Oct. 27 (SMM) -- The National Bureau of Statistics of China announced a series of economic statistics over the past week. China's gross domestic product grew 7.7% on a yearly basis in the first three quarters of this year, moving closer to the goal of 8% growth for 2009. Supported by positive data and a falling US dollar index, base metal prices moved higher. In this context, SMMI advanced 1.81% during the past week, with SMMI.Cu and SMMI.Zn leading the rising trends, up 2.52% and 2.5%, respectively. Aluminum prices were weaker over the past week due to growing supply and cautious downstream buying interest, with SMMI.Al down 0.1%.
Compared with stronger LME copper trends, SHFE copper prices advanced cautiously. After SHFE copper prices gained, spot discounts expanded to between negative RMB 400/mt and negative RMB 300/mt, as downstream producers took a strong wait-and-see attitude.
China's output of refined copper was 394.8 kt during September, up 20.5% YoY, and up 8.2% MoM. Output set a record high for 2009, a sign that domestic supply would continue to grow. China's output of copper semis was 869.3 kt during September, up 34.3% YoY, and up 2.2% MoM. China's output of copper semis was 2.51 million mt during 3Q, up 30.3% YoY. This significant year-on-year growth in copper semis output serves as a major driving force boosting Chinese demand for copper.
Last week, SHFE aluminum prices were weaker, with prices moving narrowly around the RMB 15,000/mt mark. Since select suppliers increased supply in spot markets following China's National Day holiday, downstream producers opted for a wait-and-see approach to purchasing raw materials, leaving lackluster trading sentiment.
Led by strong LME copper price trends, base metal markets all began to make price breakouts. Support at low-end price levels is strong, but whether or not LME copper prices will track higher remains unknown. In contrast, LME aluminum prices advanced cautiously and unexpected increased in inventories have weighed heavily on prices, but SMM believes LME aluminum prices will continue to test USD 2,000/mt next week. Any upward momentum will likely ease in the future. As for domestic aluminum markets, high domestic spot supply and potential sell-offs by aluminum producers at high price levels are dampening market confidence as prices move towards RMB 15,000/mt. Next week, SHFE aluminum prices will continue to fluctuate narrowly around RMB 15,000/mt unless LME aluminum prices make substantial progress.
Domestic lead markets came to a standstill over the past week, and overall transactions in domestic lead markets were weak. As higher LME lead prices supported domestic lead prices, lead producers kept offers firm and downstream producers were purchasing cautiously. Deals were done mainly in the RMB 15,650-15,700/mt range during the first four trading days of the week. On Thursday, domestic lead prices followed rising LME lead prices, but market outlook remained mixed, discouraging domestic lead prices from rising above RMB 16,000/mt. Sales of high-priced goods were sluggish.
Supported by rising LME zinc prices, SHFE zinc prices climbed above an important resistance level of RMB16,400/mt. Total positions for SHFE three-month contract zinc increased to 200,120 lots from post-holiday level of 138,390 lots, and trading sentiment improved greatly.
However, domestic spot zinc prices failed to follow. The average price of #0 zinc in the Shanghai market was at RMB 15,815/mt, up RMB 295/mt from the previous week. The 2% growth was slower compared with the 5% increase for SHFE three-month contract zinc closing prices on Friday (ending at RMB 15,965-16,780/mt), an indication of soft spot markets.
Depressed by low downstream sentiment, spot prices failed to rise above RMB 16,100/mt, about RMB 600/mt lower than SHFE three-month contract zinc prices. The larger price gap created opportunities for arbitrage activities, and some traders, smelters and even downstream producers entered the market for this purpose, resulting in improved trading sentiment in spot markets. Actually, the number of purchases made by downstream producers for consumption was very limited.
Both traders and end users have been always wary of purchases in view of unclear price trends in LME tin markets. Major producers were depressed amid lackluster markets, and some producers were forced to increase sales below RMB 117,000/mt due to capital and inventory pressure. Trading volume was moderate, and market supply was mainly from Yunnan Tin Group and Yunnan Gejiu Zili Mining & Smelting Company, with deals largely in the RMB 116,500-117,500/mt. Yunnan Tin Group lifted prices to RMB 120,000/mt on higher LME tin prices. However, small possibility exists for further spot price gains due to existing consumption conditions. The rising low-end price is expected to make traded prices slightly higher in the coming week.
The price spread between domestic and foreign markets expanded further as LME nickel prices rose. Jinchuan Group raised nickel ex-works prices by RMB 2,000/mt to RMB 136,000/mt, but this move only added to domestic speculation, with deals done mainly for arbitrage gains. Spot prices failed to rise, and sluggish sales were reported. Domestic spot markets made deals at RMB 134,200/mt on average, up 2.6% from the previous week.
According to the latest data, stainless steel inventories were 206.5 kt in the Wuxi market, up 1.7 kt, or 0.84%. Inventories include 15.7 kt of #200 stainless steel, 152.5 kt of #300 stainless steel, and 38.3 kt of #400 stainless steel. The continuous growth of stainless steel stocks in Wuxi was a sign of strong inventory pressure.
Following the lead of Taiyuan I/S and Zhangjiagang Pohang Stainless Steel Company, Baosteel Stainless Steel Branch also plans to conduct annual maintenance during December. Recently, both large state-owned and private stainless steel mills are reported to have cut production. Meanwhile, stainless steel inventories are continuously growing, a sign that actual downstream demand is still not improving.
According to a SMM survey, present operating rates at domestic small and medium-sized private stainless steel mills have already below 60%, and anti-dumping measures taken by the US and other countries have had a negative impact on China's seamless stainless steel tube industry. Based on a recent survey, SMM predicts China's seamless stainless tube output for 2009 will be 350 kt, and with 35% of total output designated for exports, and approximately 110 kt will be affected. However, stainless steel industry as a whole will be not greatly affected by the depressed seamless stainless tube sector, given the large stainless steel capacity in China.
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