SHANGHAI, Jan. 4 (SMM) -- Recently, Wen Jiabao, the Prime Minister of the State Council, said in an exclusive interview with Xinhua News Agency that to withdraw macro-economic policies too early will likely ruin the efforts made before and reverse economic development. This remarks helped boost market confidence to some extent and drove up financial markets as well. In the mean time, CRB Futures Price Index also advanced to a new high of 285, an indication of optimistic sentiment with regard to consumption of commodities. SMMI increased by 2.13% during last week, with SMMI.Sn experiencing the highest growth rate of 4.17%, and with SMMI.Zn also up 3.2%. In general, nonferrous metal market experienced significant changes in 2009, with SMMI up 45.14%. Copper and zinc showed the strongest performance, with SMMI.Cu and SMMI.Zn up 53.76% and 47.54%, respectively. In addition, SMMI.Ni was up 36.17%, SMMI.Al was up 28.52%, SMMI.Pb was up 27.1%, and SMMI.Sn was up 20.68%.
Recent lead price movements were discussed on the enlarged meeting of Council of China (Shanghai) Lead Industry Research Association held early last week, and SMMI.Pb rose by 1.56% as a result.
While the LME market was closed, SHFE copper market remained strong as SMM predicted, but price gains were above expectations. China A-shares and futures markets both posted gains, supported by remarks by Chinese Premier Wen Jiabao, who stated China would continue to implement a pro-active fiscal policy and moderately loose monetary policy in 2010. SHFE copper prices, influenced by rising zinc prices and a stronger stock market, broke through RMB 58,000/mt. Surging SHFE copper prices exerted pressure on spot markets, with discounts expanding as large as negative RMB 500/mt.
Domestic copper smelters maintained normal production during the last week of 2009. However, smelters became less willing to move goods in view of expanding discounts. Domestic copper goods continued to suffer from imported goods, but supply of imports fell later in the week as the SHFE/LME copper price ratio fell, as well as from an end of move to generate cash by importers at the end of the year. According to a recent SMM survey, operating rates at domestic copper tube producers increased steadily in December. Orders should increase over the short-term since air-conditioner manufacturers have begun to build raw material stocks. Trading sentiment was high after copper prices hit new highs, as well as from stock replenishment prior to the New Year holiday, with market trading volumes expanding as a result.
Copper prices hit several new highs during the last trading week of 2009, exceeding market predictions. SMM expects LME copper market will remain strong, although foreign exchange markets and the US stock market will experience fluctuations during the first trading week of 2010, with prices testing USD 7,400/mt. However, any upward momentum will be limited for a number of reasons. First, labor strike news will continue to provide positive support for copper prices. Workers at Codelco’s Chuquicamata copper mine voted to go on strike from December 31st, which will negatively affect copper output, but will boost copper prices. Second, capital funds weight adjustments will begin in mid-January and the proportion of copper investment will likely to be cut, which will trigger sell-offs and push down prices.
In this context, SMM predicts LME copper prices will move in the USD 7,200-7,400/mt range in the coming week. SHFE copper prices will continue to advance, and may test RMB 60,000/mt.
SHFE aluminum prices rose to new highs, with SHFE three-month contract aluminum prices soaring above RMB 17,000/mt, up from RMB 16,500/mt, with both positions and trading volumes increasing sharply. Overall trading sentiment was lackluster in spot markets due to weak downstream purchase interest as the New Year holiday nears.
Next week will be the first week of 2010, with market players returning from holidays. SHFE aluminum prices will remain strong, but downward pressure will increase after constant price increases, especially before LME aluminum prices break through the USD 2,300/mt level. In this context, SMM predicts SHFE three-month contract aluminum prices will move in the RMB 17,100-17,500/mt range in the coming week, but with downward pressure growing.
Last week, SHFE zinc prices continued to surge, with SHFE three-month contract zinc prices rising 2.58% on Monday, easily breaking through the RMB 20,000/mt barrier. On Wednesday, prices neared RMB 21,000/mt, and finally posted cumulative growth of 4.25% from 25-30 December, the strongest gain among base metals. However, it is worth noting that increases in zinc prices were attributed to speculative funds, with pressure on spot zinc prices rising gradually.
Average weekly prices for spot #0 zinc were RMB 19,950/mt in Shanghai market, up 6.6% compared with a week earlier. However, market players stayed out of the market, since they did not know when zinc prices will fall after rising for nearly one month, and the price range for zinc will inch up every time when zinc prices stabilize with the support from speculative funds. SMM believes SHFE zinc prices will likely decline after large amounts of speculative funds withdraw from the market, but there will be little possibility the speculation will disappear amid ample cash flow, so commodities prices will continue to move higher after corrections.
Domestic lead markets experienced no significant changes in market fundamentals, but low-end prices further consolidated due to support from rising prices of other base metals. Prices for well-known branded products hit RMB 16,000/mt after first stabilizing at RMB 15,700/mt, and prices for low-end lead also climbed above previous price levels of RMB 15,300-15,400/mt. Lead-acid battery producers were taking a wait-and-see attitude at the year end, so rising market prices failed to create enough incentive to purchase. Domestic lead markets generally followed other base metals markets, but market confidence improved, though remained weak.
Last week, LME tin prices remained strong when market reopened after the Christmas holiday. LME tin prices soared to USD 16,850/mt, testing the resistance level at USD 17,000/mt. Later, prices met downward pressure after profit-taking but still received strong support around USD 16,820/mt. Last week, LME inventories remained flat at 26,845 mt.
In the domestic tin market, buying interest in domestic tin market greatly picked up following improved middlemen confidence towards higher prices, soaring LME tin prices, as well as optimistic expectation of economic growth in 2010. In this context, downstream end-users also followed the trend to make purchase. As market demand continued to increase, upstream producers successfully lifted their prices, and tin prices soared to RMB 126,000/mt in three trading days.
The fierce rising price trend was forced to cease temporarily as banks were closed in advance in the afternoon on the last trading day in 2009.
Market rumored that reform of resources tax will be implemented at the beginning of 2010. If this reform comes into effect, prices of tin ore will be definitely advanced. Currently, upstream producers and traders were optimistic of prices when market is open at the beginning of 2010.
In domestic spot markets, Jinchuan Group raised nickel ex-works prices by RMB 3,000/mt, to RMB 138,000/mt, on December 28th, which helped support the low-end market prices to move higher gradually. Jinchuan Group raised nickel prices again by RMB 3,000/mt, to RMB 141,000/mt, on December 30th. Transactions were brisk on Friday, with deals mainly for goods from Jinchuan Group. However, trading sentiment weakened with higher prices, and actual deals were mainly for imported nickel, given higher market offers for domestic nickel following the price increase by Jinchuan Group to RMB 141,000/mt. A number of dealers of goods from Jinchuan Group said goods were tight near the end of the year, but Jinchuan Group will implement 2010 contracts after New Year holiday, helping ease the supply tightness of goods from Jinchuan. However, the gap between import costs and import market prices remained unchanged, leaving lower-priced goods unavailable, and trader costs higher, both which helped limit any downward momentum for spot nickel prices in the short term.
Domestic stainless steel mills will halt production for routine maintenance near the end of the year. Continuous increases in nickel prices is raising buyer concerns over possible future cuts in nickel prices, so they are choosing to purchase on an as-needed basis only. Domestic large steel mills previously planned to purchase a portion of (1.7-1.8%) NPI by the end of the year, but later changed purchase plans, deciding instead to consume existing inventories due to higher offers for NPI.
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