Metals News
SMM Weekly Review and Forecast (Nov. 2-6)
smm insight
Dec 7,2009

SHANGHAI, Nov. 10 (SMM) -- SMMI rallied 0.69% over the past week, following the US dollar index's fluctuation around 76, the US Federal Reserve's decision to leave the interest rate unchanged, and the US stocks' ascent back up through 10,000.  Of major base metals, SMMI.Zn outperformed others, up 2.13%, but the spot price at RMB 16,500/mt generated limited market response.  Other base metals inched down, with SMMI.Ni and SMMI.Pb down 0.97% and 0.64%, respectively. 


    SHFE copper prices experienced smaller fluctuations, as LME copper movements in electronic trading normal trading hours were stable.  Spot discounts dropped slightly to between negative RMB 250/mt and negative RMB 120/mt range, and spot copper prices fluctuated in the RMB 50,100-50,900/mt range.  Domestic copper smelters maintained stable production, with normal supply reported, and supply of imported goods was limited, as the current SHFE/LME copper price ratio was unfavorable for imports.  Supply of scrap copper was stable. 

    As weather in north China turns colder, orders received by cable and wire producers reported slight declines.  Downstream producers were generally wary of purchasing in view of fluctuating copper prices and unclear market trends, with purchases done mainly on an as-needed basis, leaving market trading sentiment low.


    Domestic aluminum markets showed stable performance, with SHFE three-month contract aluminum prices stabilizing at RMB 15,000/mt, and moving narrowly around RMB 15,200/mt.  Low positions and trading volumes were an indication of low market sentiment.  Traded prices in domestic spot markets fell slightly from the soft performance in futures market and unchanged market fundamentals.  Spot discounts remained high, and overall transactions were moderate.

    Upward momentum for LME aluminum prices will begin to wane.  The global economic recovery and declines in LME aluminum inventory are not boosting market confidence, causing LME aluminum prices to stabilize and find support at USD 1,900/mt.  However, SMM believes there is a small possibility LME aluminum prices will rise above USD 2,000/mt if there is no substantial increases in LME copper other base metal prices.  SHFE aluminum prices will move around RMB 15,200/mt next week.  Although the Central Government will likely announce the latest adjustment for electricity power prices next week, SMM believes any positive impact on aluminum prices will be limited, and that SHFE aluminum prices will unlikely break through RMB 15,500/mt.


    Domestic lead prices had no support to push above RMB 16,000/mt along with fluctuating LME lead prices.  Domestic producers kept prices flat at RMB 15,700/mt and were generally optimistic towards commodity markets, but still were keeping inventories low to generate more cash.  Downstream producers were in a strong position in negotiating prices, with deals done at RMB 15,600/mt.  They were also less than eager to increase purchase volumes, preferring to keep current raw material inventories sufficient for a single week's consumption.  After experiencing over a month of stagnant market performance, traders entered the market late in the week and sold goods for cash at prices near RMB 15,550/mt.  Market players were concerned whether or not domestic lead prices would rise above RMB 16,000/mt in the short term, but were confident of support at RMB 15,500/mt.


    SHFE zinc prices fluctuated between RMB 16,400-17,045/mt range over the past week, since no upward momentum helped prices make breakthroughs.

    Domestic spot zinc markets remained weaker than SHFE zinc markets, but spot discounts were generally between 400-450/mt, down significantly when compared to the general level of RMB 600/mt and peak of RMB 800/mt from two weeks ago.  These discounts were an indication that falling zinc prices did stimulate downstream purchasing interest. 
The narrowed spot discounts were also due to firmer prices set by domestic zinc producers.

    The average traded price of #0 zinc in the Shanghai market was RMB 16,373/mt, down RMB 62/mt from a week earlier.  Falling supply of #1 zinc also caused the price spread between #1 and #0 zinc to narrow to RMB 20-30/mt from the previous level of RMB 50/mt.


    Prices for major domestic tin brands were firm in the RMB 117,000-119,000/mt along with strengthened LME tin prices.  Tin prices for well-known brands remained stable, although downstream producers were not eager to purchase goods in earlier November.  Market transactions were mainly unknown-brand goods, with traded prices in the RMB 115,000-116,000/mt range.  Domestic tin prices will remain unchanged as a whole unless LME tin prices make further progress. 


    Earlier this past week, Jinchuan Group lowered nickel ex-works prices by RMB 3,000/mt to RMB 129,000/mt, and spot prices stabilized at RMB 130,000/mt.  The price gap between imports and goods from Jinchuan Group was RMB 500/mt.  Sales of low-priced goods were good in earlier week.  Falling prices on Monday attracted much buying interest in replenishing goods, with purchasing prices between RMB 129,000-129,500/mt, and a portion of end-users also purchased on a limited basis.  Supply of domestic goods was ample, while the availability of low-priced imported goods was limited.  On Wednesday, goods from Jinchuan Group flowed into east and south China, increasing market supply, and overall trading volumes were up slightly.  However, trading sentiment waned on Thursday when spot prices fell. 

    According to SMM data, China's NPI output was 872 kt during 3Q, up 18.3% on a quarterly basis, and equivalent to 29.7 kt of nickel after conversion, also up 20%.  Products from blast furnaces accounted for 89% of total output, while products from electric arc furnaces accounted for the remaining 11%.  Products from blast furnaces accounted for 63% of total output after conversion to nickel, while products from electric arc furnaces accounted for the remaining 37%.

    China's NPI output during 3Q set a new high for 2009, with stainless steel mills and limited alloy plants in China the main customers.  These mills are purchasing more NPI and less nickel, which is having a strong negative impact on nickel consumption in domestic markets, and is a major reason behind the price spread between domestic and foreign market prices.  In addition, NPI producers are still holding back a portion of inventories, increasing strong downward pressure on domestic nickel prices. 

    Total output at Taigang Stainless Steel Company, Baosteel Stainless Steel Branch, Lianzhong Stainless Steel Corporation, Zhangjiagang Pohang Stainless Steel Company, and Jiuquan I/S Stainless Steel Branch is expected to reach 520 kt during November. 


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