SMM Weekly Review and Forecast (Oct 26-30)

SHANGHAI, Nov. 3 (SMM) -- According to calculation of the National Bureau of Statistics of China, fixed-asset investment contributed 7.3% to GDP growth in the first three quarters, and domestic demand contributed 4%, while exports negatively contributed 3.4%. Investment has become a major driving force for the economic growth.

    Copper

    SHFE copper prices tracked lower over the past week, and spot discounts narrowed to the negative RMB 200- negative RMB 100/mt range as a result. Currently, imports are stable, and operating rates at domestic copper smelters are high, leading to ample supply in domestic markets. As falling copper prices depressed buying interest, a wait-and-see attitude made overall transactions lackluster. 

    In other news, a recent SMM survey showed operating rates at domestic copper semis producers remained stable during October, but trend for expected orders for the next two months is pointing downward. 

    Aluminum

    Last week, SHFE three-month aluminum contract prices stood above RMB 15,000/mt, following slow, but continuous price increases, but spot oversupply resulted in strong resistance at RMB 15,500/mt. Constant increases in domestic spot market inventories and slight aluminum price increases left spot transactions lower.

    SMM is cautiously optimistic towards LME aluminum price movements for the remainder of 2009. The rebound of the US dollar index over this past week was short-term, and remains on a downward track. In this context, base metals will continue their strong performance for the foreseeable future. 

    Next week, SMM believes LME aluminum prices will continue to test USD 2,000/mt, and SHFE aluminum prices may hit RMB 15,500/mt from strong support from LME aluminum or other base metals.

    Lead

    SMM lifted lead prices by RMB 100/mt to RMB 15,800-16,000/mt in order to pick up market trading sentiment. Fluctuating LME lead prices made downstream producers cautious with regard to purchases, leading to traded prices below RMB 15,800/mt, and deals were largely done in the RMB 15,700-15,750/mt range. Whether the dull market sentiment will be improved in November depends on direction of macro economic news.

    Zinc

    SHFE zinc prices followed the LME zinc trends, hitting a new high of RMB 17,415/mt, but fell back along with profit-taking. 

    Last week, the average weekly price of #0 zinc was RMB 16,435/mt in the Shanghai market, up RMB 620/mt or 3.9% from a week earlier. Transactions were sparse when spot prices were above RMB 16,600/mt. SHFE zinc prices generally stood above RMB 17,200/mt. Downstream purchases were stimulated only on Thursday and Friday when zinc prices weakened.  

    A small volume of imported zinc entered the spot market over the past week, with goods mainly from Australia, Japan and Kazakhstan. The price spread between domestic and imported goods, or between imported goods with various brands differed from the previous level, and SMM believes this was related with ordering and arrival time of imported goods.

    Tin

    In spot tin markets, prices for major brands remained firmed over the past week, supported by high offers by Yunnan Tin Group. Due to limited volume of well-known brand products, traders lowered prices, weighing on the market, and made profits through trading unknown tin ingot, and downstream purchases expanded as a result. On Thursday when LME tin prices plunged, sentiment in holding goods faltered and interest in goods sales improved, although major tin producers made no price adjustments.

    However, downstream producers stood out of market at the end of the month, resulting in depressed market transactions. Long and short positions were locked in a struggle following persistently sluggish consumption and higher raw material prices. If no solid news is available, market supply and demand is expected to remain balance as a whole, and tin prices will generally stabilize.

    Nickel

    The price spread between domestic and foreign markets narrowed. On October 26th, Jinchuan Group lowered nickel ex-works prices by RMB 4,000/mt, to RMB 132,000/mt, due to strong sales pressure in domestic spot markets. Market trading sentiment improved from a week earlier, but overall transactions remained modest. Trades early in the week were made for arbitrage gains, and later downstream producers entered the market to buy raw materials, but overall trading sentiment was still low. 

    The price spread between goods from Jinchuan Group and imported goods was generally around RMB 1,000/mt, and overall trading sentiment was low. 

    NPI supply in China's domestic markets remains ample, and is a major reason behind the price gap between domestic and foreign markets. Compared with LME nickel prices, domestic nickel prices will remain soft, with prices expected to fluctuate in the RMB 125,000-130,000/mt range next week. Technically, the US dollar index remains on a downward track, with pressure increasing after hitting the 40-day average moving, and there is higher possibility that the US dollar index will return to a downward trend, and this will support base metal prices in the near future.  

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