SHANGHAI, Jan. 25 (SMM) -- Last week, speculative funds for risk-avoidance continued to flow into the US market, helping push up the US dollar, and weighing on commodities prices. Meanwhile, both stock and futures markets plunged due to market concerns over China's move to tighten credit lending, with SMMI down 1.48% over the past week. SMMI.Sn, which has shown strong performance a week earlier, experienced the largest drop of 2.67% last week, while SMMI.Zn reported a fluctuation range of 3.55%. In addition, SMMI.Ni rose by 1.05%, since Jinchuan Group has raised nickel ex-works prices constantly.
Following the Central Bank's unexpected increase in the deposit requirement ratio two weeks ago, rumors of credit tightening in China over the past week jolted global stocks and commodity markets. Weak economic data in the Europe and risk hedging helped the US dollar index climb above its previous high of 78.449, with signs of moving upward, and changes in policies in financial and currency markets dominated price trends of commodities. Last week, LME copper prices moved downward, while SHFE copper market showed a relatively strong performance. Lower prices stimulated buying interest, but the market reported a growing wait-and-see attitude while copper prices continued to undergo corrections. Spot discounts expanded to between negative RMB 300-100/mt.
Domestic output of refined copper was still high. China's refined copper output was 417.5 kt, up 28.10% YoY. The improved SHFE/LME copper price ratio caused imports in bonded areas to enter the market, creating ample market supply.
According to China Customs, China's imports of refined copper were 244 kt, up 15.36% YoY, and up 25.53% MoM.
Orders received by downstream producers are lower due to the colder weather and the approach of the Chinese New Year holiday. Coupled with falling copper prices, downstream producers also became cautious with regard to purchases.
In the week of January 25th -29th, SMM believes LME copper prices will test USD 7,160/mt, while SHFE copper prices test RMB 58,000/mt. However, price declines in China's domestic market will stimulate stock replenishment before the Chinese New Year holiday, helping support domestic copper prices. Downstream purchasing volumes will depend on the market sentiment and confidence, and particular attention should be paid to the possibility that a rebound in apparent consumption for refined copper will help offset rising inventories of copper semis.
China's copper semis output was 1.01 million mt in December, up 36.90% YoY, and up 9.6% MoM. YTD output was 9.8 million mt in 2009, up 22.20% from a year earlier.
According to SMM sources, finished product stocks at some domestic copper semis producers are high, which will affect demand for refined copper in the future.
Last week, China released macro-economic data for 2009 showing economic recovery and inflationary expectations both intensifying. In response, China's Central Bank took measures to curb money supply before the data was released, but the uncertainty behind any new government policies depressed upward momentum of base metals and drove down aluminum prices. SHFE three-month contract aluminum prices moved narrowly between RMB 17,300-17,800/mt after transitioning into a new contract month, but then fell below the previous support level of RMB 17,300/mt on Friday. The declines in positions and weak trading sentiment were signs of market uncertainty. Overall trading sentiment was lukewarm in domestic spot aluminum markets, with demand weakening as the Chinese New Year holiday nears.
Uncertainty with regard to future macro-economic or monetary policy remains the major factor behind aluminum price trends over the past week. Although electric power supplies are holding stable at the moment, close attention should still be given to the issue. SMM predicts aluminum prices will continue to fluctuate prior to the Chinese New Year holiday if no additional positive news is reported. Aluminum prices previously experienced limited growth, so any possible downward movement in aluminum prices should be limited. In general, SMM predicts SHFE three-month contract aluminum prices will receive strong support at RMB 17,000/mt, with prices expected to move in the RMB 17,000-17,800/mt range in the near term.
In domestic markets, metals prices began falling, especially on Thursday and Friday, when zinc prices declined further due to market rumors that the Chinese government will tighten credit lending and that China's central bank may increase interest rates in 2010. Meanwhile, the significantly weakening domesitc stock markets also generated market pessimistic sentiment. Closing prices for SHFE 1005 zinc contract moved in the RMB 19,930-21,145/mt range over the past week, with the lowest level at RMB 19,700/mt on Friday, the record low since December 24th, 2009.
In the spot markets, although a number of downstream proudcers believe zinc prices between RMB 19,500-20,000/mt were attractive, the weak performance of SHFE zinc prices heavily depressed downward purchasing interest, and trading sentiment failed to become brisk even when #0 zinc prices were as low as RMB 19,500/mt on Friday afternoon. Average traded prices for #0 zinc were RMB 20,023/mt over the past week, down RMB 407%, or down 2.0%, compared with a week earlier. Smelters held low interest in selling goods with zinc prices below RMB 20,000/mt, with market supply mianly zinc ingot for delivery.
Liquidity concerns dominated lead price trends and market sentiment over the past week. China's Central Government's move to control credit, along with unfavorable European economic data, helped the US dollar strengthen. On Wednesday, LME lead prices tumbled to USD 2,300/mt, down from USD 2,450/mt, with declines in positions also reported. Following news of possible new banking regulations in the US, LME lead prices fell to as low as USD 2,220/mt.
Domestic lead prices moved between RMB 16,600-16,900/mt this past week, with more pressure felt at the high end. Overall trading volume failed to improve significantly on a weekly basis. Domestic lead prices were slow to fall while LME lead prices weakened due to the following two reasons. First, prices of unknown branded products followed broad price trends and moved higher due to rising costs. Second, weak demand from lead-acid battery producers before the Chinese New Year holiday dampened demand for lead, generating only low buying interest at low-end prices. Even as prices fell, purchasing interest did not improve.
According to SMM sources on January 22nd, domestic lead prices fell for two consecutive days, and downstream producers remained on the sidelines, waiting for more price declines. On January 22nd, well-known branded products were traded near RMB 16,500/mt, while traded prices of unknown products were around RMB 16,350/mt, with smaller price gap between the two.
Market supply was ample due to new arrivals of imported nickel and goods from Jinchuan Group over the past week. Downstream purchase interest was stronger, with Jinchuan Group raising nickel ex-works prices by RMB 2,000/mt, to RMB 141,000/mt on January 18th, further improving trading sentiment in nickel markets. However, Jinchuan Group again raised nickel ex-works prices by RMB 4,000/mt, to RMB 145,000/mt, on January 20th, with traders preferring to stay out of the market since prices were high and supply was sufficient. In addition, higher prices created incentives for cargo-holders to sell off goods on January 21st, pushing down spot nickel prices. In this context, offers for imported nickel were reported between RMB 14,300-143,500/mt, but actual deals were only made in the RMB 141,000-142,500/mt range. The constant declines in nickel prices helped improve downstream buying interest, with trading volumes setting new records.
According to the latest data, stainless steel inventories were 195.4 kt in Wuxi, up 10 kt, or 5.36%. Inventories include 12.7 kt of #200 stainless steel, 149.1 kt of #300 stainless steel, and 33.6 kt of #400 stainless steel. Stainless steel inventories grew increasingly, exerting huge pressure on stainless steel market.
Demand for stainless steel has been recovering since June 2009 due to prices increases of stainless steel, with capacity utilization rate remaining high at large stainless steel mills. Monthly output at large mills between June and September was above 500 kt, but output declined during 4Q due to annual maintenance. With the global economic climate expected to improve further during 2010, demand of stainless steel will grow, with monthly output expected to remain above 500 kt. However, February output will be lower due to the impact of the Chinese New Year holiday. Stainless steel mills told that they received orders from traders who made purchases ahead of schedule, but demand from end consumers didn't report further improvement. As stainless steel prices advanced along with strong nickel prices recently, traders also increased their orders. However, these orders were not really consumed by downstream companies in time, but were piled in stocks. Therefore, inventories of stainless steel continued to grow, still exerting huge pressure on market in the future.
Last week, triggered by the news on Wednesday that many Chinese banks will restrict new loans for the remaining of January, many investors believed that China would adopt tight monetary policy, causing LME base metal prices to decline. LME tin prices continued to experienced corrections and moved narrowly, with highest level at USD 18,220/mt and the lowest level at USD 17,600/mt. Last Friday, LME tin prices moved below 10-day moving average, showing weak performance. Last Thursday, LME tin inventories were 27.325 kt, up 260 mt on a weekly basis.
Last week, as supply of unknown brand goods increased in domestic market and as tin prices in the Shanghai market lacked support from LME tin prices, mainstream prices in the Shanghai market dropped quickly. Ex-works prices of goods from Yunnan Tin group, Yunnan Chengfeng Non-Ferrous Metals Co., Ltd and Danzhou Jinhai Tin Industry all fell to RMB 145, 000/mt. Last Friday, traded prices of unknown brand goods were in the RMB 136,000-137,000/mt range. However, downstream producers still adopted a wait-and-see attitude and postponed purchasing plan as they believed prices would continue to fall, causing sluggish trading sentiment. Cargo-holders who had major brand goods on hands were extremely unwilling to move goods for the expectation of prices rebound in the future. Generally speaking, supply and demand was both sluggish in the Shanghai tin market, and trading sentiment was sluggish, with transactions mainly made by unknown brand goods from Nanshan Tin Solder Co, Ltd and Pinggui Mining Bureau.
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