Metals News
SMM Weekly Review and Forecast (Nov 09-13)
smm insight
01:16PM
Dec 7,2009
Source:SMM

SHANGHAI, Nov. 17 (SMM) -- Last week, base metal prices continued to experience fluctuations as any upward momentum was restricted by unimproved fundamentals, and a falling US dollar index also supported the low-end of base metal prices.  SMMI edged down 0.59% over the past week.  By product, SMMI.Cu was down 0.62%, while SMMI.Pb and SMMI.Zn represented limited changes, and SMMI.Ni remained the weakest one, down 2.79%.

    Copper

    SHFE current-month contract copper prices moved in the RMB 50,500-51,000/mt range.  Spot discounts narrowed, with slight premiums reported.  According to data released by the National Bureau of Statistics (NBS), China's output of refined copper hit a new high in October, which was in line with SMM's survey.  Based on a SMM survey, current operating rates at copper smelters are stable, and China's refined copper output for 4Q is expected to remain high.  However, China's copper imports experienced marked declines due to the lower price ratio. 

    Supply of imported goods was limited over the past week since a large amount of imports was already stockpiled in bonded areas.  Operating rates at copper semis producers fell slightly due to a decline in orders for 4Q.  Fluctuating copper prices caused a strong wait-and-see attitude among downstream producers, with most purchasing on an as-needed basis, resulting in low market trading sentiment.  

    According to China Customs, China's imports of unwrought copper and copper semis were 263.1 kt in October, up 21.13% YoY, but down 34.07% MoM, a marked contrast to surprising increases of imports in September. 

    China's falling copper imports will weigh down short-term copper prices, but if domestic imports of refined and scrap copper remain low, the current sluggish SHFE/LME copper price ratio may recover, and purchasing may improve by the Chinese New Year holiday.  SMM believes LME copper prices will fluctuate in the USD 6,400-6,700/mt range in the coming week.  Particular attention should be paid to the impact on copper prices from changes in inventories. 

    Aluminum

    SHFE aluminum prices were weaker than LME aluminum prices, with three-month aluminum contract prices sliding to RMB 15,100/mt from RMB 15,200/mt.  Total positions continued to drop after peaking in late October.  Performance in spot markets was also weak, with continuous declines in traded prices and transactions as well.  With the approach of delivery date, spot discounts were still present at levels at negative RMB 50/mt or greater, a sign of weak spot market sentiment. 

    Current LME aluminum prices have outperformed other base metal prices due to constant declines in inventories and from an expected recovery in consumption as economies continue to strengthen.  However, SHFE aluminum price movements have been weak recently, negatively affected by large supply, uncertainty towards recovery, and sluggish spot transactions. 

    In this context, LME aluminum prices have been stronger than SHFE aluminum prices recently, and this phenomenon will continue for the remainder of 2009.  SMM predicts LME aluminum prices will test USD 2,000/mt in the coming week, and may remain above this level if other base metal prices lend enough support.  SHFE aluminum markets should remain weak, with three-month aluminum contract prices expected to move around RMB 15,300/mt once the new contract month begins.  
   
    Lead

    Domestic support for lead prices at RMB 15,300/mt was gradually eroding, as stagnant LME lead prices depressed supplier confidence in prices remaining firm.  Smelters were cautious with prices at RMB 15,300/mt for well-known brands, while trader confidence weakened, causing the low-end of traded prices to dip to between RMB 15,400/mt and RMB 15,300/mt.  In view of these weak market movements, downstream producers made purchases on an as-needed basis, further weighing down market trading volumes.  As a result, Shanghai and Guangdong reported high stock levels, with bad weather not yet affecting market performance. 

    Zinc

    SHFE zinc prices were stable over the past week, since this was the last trading week before a new contract month begins.  Prices were reported moving in the RMB 16,600-17,000/mt range.  Along with the arrival of delievery date, spot discounts narrowed to negative RMB 300-350/mt from the level of negative RMB 400-450/mt in the previous week. 

    Last week, the average weekly traded price of #0 domestic zinc was RMB 16,443/mt, up RMB 70/mt on a weekly basis.  Although downstream producers purchased goods on an as-needed basis from the unclear market direction or pessimistic outlook, the price level of RMB 16,100-16,200/mt was acceptable to them, an indication that SHFE three-month zinc contract prices have found solid support at RMB 16,500/mt.

    Last week, the SHFE/LME zinc price ratio rose above 7.6, but this level is unfavorable for zinc imports and exports, with few premiums for imported zinc reported.  Supply of imported goods was limited, with goods mainly from Korea and Australia, and a small volume of goods from Russia.

    Tin

    Recently, domestic tin producers kept offers firm in view of higher tin ore prices, despite of production cuts, helping domestic tin prices stay in the RMB 117,500-119,500/mt range for three months.  Sales of unknown brands improved after price cuts amid the depressed market sentiment, and the number of buyers increased as the quality of those unknown producers was able to meet their production demand.  In this context, confidence in holding prices firm for well-known brands was faltering, showing higher interest in selling products, with price offers down to RMB 116,000/mt.  However, falling prices failed to generate buying interest from downstream producers and traders, as the market was still on a downward track.

    SMM believes the price struggle between well-known and unknown brands will continue next week.

    Nickel

    Last week, transactions in general were modest in domestic spot markets as a result of pessimistic trader sentiment.  However, a portion of traders began replenishing stocks as nickel prices edged down, but low-priced goods were unavailable in the market, since cargo-holders were moving goods mainly based on cash flow conditions.  Jinchuan Group cut nickel ex-works prices by RMB 3,000/mt, to RMB 126,000/mt, on November 12th due to downstream pressure, and offers for spot goods from Jinchuan Group fell to RMB 127,000/mt in the afternoon from morning levels of RMB 128,000/mt as a result, but no market response was reported, with a wait-and-see sentiment dominating sentiment among market players.

    Domestic supply remains ample. Domestic stainless steel mills raised production plans for November compared to October output levels.  Although selling prices for stainless steel were down slightly and inventories at steel mills remain high, no production cuts were reported. 

    According to the latest data, stainless steel inventories were 200.6 kt in Wuxi, down 1.1 kt, or 0.56%.  Inventories include 13.3 kt of #200 stainless steel, 148.6 kt of #300 stainless steel, and 38.7 kt of #400 stainless steel.  Total inventories remain above 200 kt, a sign of sluggish market demand.

    Stainless steel market prices were depressed by a weaker LME nickel market, not only posing difficulties for producers in managing production, but squeezing trader profits.  Most market players held a pessimistic view towards outlook.  The stainless steel market with high inventories is expected to remain weak for the remainder of 2009. 

 

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