SHANGHAI, Dec. 1 (SMM) -- Bullish sentiment dominated domestic base metal markets over the past week, supported by a 15-month low of the US dollar index, soaring gold prices, as well as rising base metal prices in international markets. However, a falling A-share stock market in China put a drag on rising base metal prices. Last week, SMMI.Pb outperformed other base metals, up 2.45%. SMMI.Zn advanced as high as 1.72% from strong long positions, but finally closed up at 0.29%. SMMI.Cu and SMMI.Ni dropped 0.42% and 0.39%, respectively, after firstly rising 1.49% and 1.18%.
SHFE copper prices weakened due to falling stock markets in China, as a result of new stricter regulatory measures from the China Banking Regulatory Commission, but sentiment remains bullish in copper markets. Growing positions signaled strong long sentiment. In this context, trading sentiment in spot markets improved as well. Traders became unwilling to sell goods, while downstream buying interest was high, narrowing discounts to RMB 150/mt.
Output at large domestic copper smelters remained stable, but some small and medium-size copper smelters, with scrap copper as a raw material, reported raw material supply tightness due to rising scrap copper prices. If higher scrap copper prices continue, output at those smelters will be negatively affected. Scrap copper markets will likely report shortages as supply tightens.
November is traditionally a peak demand period copper tube producers, with orders from air-conditioner producers replenishing stocks expected to meet expectations. Downstream producers' acceptance of higher-priced goods improved market sentiment.
LME copper prices successfully climbed above USD 7,000/mt over the past week, and further consolidation will be necessary at this price level in order create momentum to test USD 7,200/mt. The London gold market and the US stock markets will likely fall back after hitting new highs, and the US dollar index is expected to rebound after falling to a new low of 74.2.
In this context, SMM believes LME copper prices will continue to move around USD 7,000/mt next week, fluctuating between USD 6,800-7,100/mt.
Earlier in the week, SHFE aluminum prices rallied, adding to previous gains, but falling prices for China A-share stocks dampened market confidence. SHFE three-month aluminum prices fell to RMB 15,600/mt after hitting RMB 15,800/mt, with spot discounts expanding to over RMB 200/mt. Transactions improved slightly over the past week, but downstream demand remains weak.
Over the past two weeks, both LME and domestic aluminum prices have advanced to some extent, matching gains of other base metals. Base metal markets should experience brief corrections as the US dollar index is expected to rebound. LME aluminum prices will continue to fluctuate at current levels due to weak fundamentals.
SMM predicts LME aluminum prices will continue to move around USD 2,050/mt. SHFE three-month aluminum prices have remained at RMB 15,500/mt, but downstream producers are not likely to accept spot aluminum prices of RMB 15,200/mt.
Traded prices in domestic lead markets rose to between RMB 15,950-16,100/mt, supported by a larger price spread between LME and domestic lead prices, and from higher raw material prices. However, domestic lead prices met resistance at RMB 16,000, since smelters are now facing flow pressures at the end of the year, and due to lower inventories. Sales at lead-acid battery producers were also depressed, leading them to purchase goods cautiously in an effort to control costs. Prices had not upward momentum and transactions over the past week were mainly for low-priced goods.
Supported by strong capital funds, domestic base metal markets advanced. SHFE three-month zinc stood firm at RMB 18,000/mt, hitting several highs, but prices fell back on Friday when a huge amount of funds withdrew from the market, with prices generally moving in the RMB 17,600-18,800/mt range. Spot transactions were smooth amid bullish market sentiment. Spot discounts narrowed to RMB 500/mt from RMB 800/mt.
The average traded price of #0 zinc price was RMB 17,614/mt, up RMB 625/mt or 3.7% from a week earlier. Spot prices accelerated increases from bullish market sentiment. It is worth noting that downstream production is gradually recovering, and export orders of zinc alloy for die casting have improved significantly. Utilization rates in the zinc-plating industry have increased along with recovery in steel prices. Although some sectors enter a low demand period by the end of the year, with cautious attitude towards purchases, downstream buying activity has greatly improved, boosted by brisk market sentiment.
Tin prices in the Shanghai market made no substantial progress over the past week. Prices of well-known tin products were lower, to attract buying interest, and prices for unknown products remained little changed due to unavailability of new goods, narrowing the price spread between the two. Downstream demand remains weak, as downstream producers showed no purchasing interest by the end of the year.
December is coming next week. Both tin producers and traders are now facing higher cash flow pressure at the end of the year. SMM believes tin prices will not likely remain stable once supply increases.
Transactions in domestic spot markets improved on November 20th. Many traders entered the market when imported nickel prices dropped to RMB 126,500/mt, and some end-users also made purchases at this price level. However, spot price was generally at RMB 127,000/mt over the past week, squeezing profits for traders, and leaving transactions between traders weak as a result. There was virtually no price spread between imported nickel and goods from Jinchuan Group, and supply of low-priced goods imported from Russia was very limited due to the unfavorable domestic/LME nickel price ratio. Most traders with goods on hand adopt a wait-and-see attitude as long as they have no cash flow problems. In addition, a portion of traders made deals by electronic trading in Wuxi, helping raise spot transactions.
According to the latest data, stainless steel inventories were 185.4 kt in Wuxi, down 15.2 kt, or 7.58%. Inventories include 12.5 kt of #200 stainless steel, 138.7 kt of #300 stainless steel, and 34.2 kt of #400 stainless steel. Although total inventories were lower, market pressure remains strong since major domestic stainless steel mills were operating at almost full capacity. Downstream demand remained sluggish, creating the strong possibility that inventories will increase again.
According to China Customs, Taigang Stainless Steel Company has exported 22.9 kt of stainless steel plate and coil in October, up 23.12% MoM, setting a new export high for 2009. YTD exports to Vietnam and South Korea reported positive growth on a yearly basis, while exports to other countries or regions were down by more than 50%, an indication of weak demand. In general, SMM takes a cautious view with regard to China's exports of stainless steel.
Stainless steel prices have risen for ten consecutive trading days, with offers for cold-rolled stainless steel (grade 304) climbing to RMB 20,500/mt, up from the previous level of RMB 18,500/mt, and with a growth rate more than 10%.
Spot stainless steel prices will continue to rebound in the near future, improving trader sentiment. However, as costs for spot goods ranged from RMB 20,500/mt to RMB 22,500/mt in the market, higher spot stainless steel prices at RMB 20,500/mt will help increase sell-off activity. In this context, stainless steel market price will likely fall in the short term if there is no positive news, since domestic demand remains weak, and traders are not eager to enter the market in view of high inventories, and as well as due to cash flow pressure by the end of the year.
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