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SMM Daily Review - 2010/1/26 Base Metals Market
Jan 27,2010 10:17CST
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SHANGHAI, Jan. 27 (SMM) --
On Tuesday, the May-delivery copper contract on the SHFE market opened highly at RMB 60,430/mt, but moved lower due to a falling A-shares market, with prices finally closing at 59,210/mt, down 0.80%. Spot discounts remained in the market, with morning levels for high-quality copper at negative RMB 100-80/mt, and negative RMB 150-200/mt for standard-quality copper, and negative RMB 300/mt for hydro-copper. Supply of imported copper was ample.

After 10:50 am, spot discounts expanded further, though SHFE copper prices fell, a sign of strong wait-and-see attitude among downstream producers, with low buying interest reported. In the afternoon business, copper prices continued to fall, and market transactions weakened further.

SMM believes copper prices will show weak performance in the short term, given the continuing negative impact on the market from tightening credit concerns and soft spot consumption. However, copper prices will remain stronger than other base metals, since LME copper prices have not dropped below the previous support level of USD 7,166/mt.

Yesterday, SHFE three-month contract aluminum prices opened at RMB 17,360/mt in the morning session, and later climbed to RMB 17,400/mt, but then slipped all the way following dropping positions. SHFE three-month contract aluminum prices even slumped at closing following SHFE zinc price trends, with prices ending at RMB 17,115/mt, with an intraday drop of RMB 185/mt or 1.07%. SHFE aluminum prices experienced larger declines than SHFE copper prices, with sluggish demand from end-users serving as one major reason. Technically, SHFE three-month contract aluminum prices moved below 5-day moving average line, showing signs of fluctuating lower, but will receive support at 30-day moving average.

The sluggish sentiment in futures market also affected spot aluminum market negatively. Meanwhile, a limited number of downstream producers will shut down for the Chinese New Year holiday in advance due to colder weather, greatly reducing aluminum consumption. In the context, spot discounts remained at RMB 100/mt, with spot offers at RMB 17,780/mt in the morning session. Traders were willing to move goods, and the falling SHFE aluminum prices caused spot traded prices to fall straightly, with traded prices moving between RMB 17,720-17,750/mt in the afternoon. In general, overall trading sentiment was lackluster.

SHFE zinc prices opened high, but the plunged domestic A-share stock markets heavily dampened the long sentiment in SHFE zinc market. Short positions of SHFE 1005 zinc contract increased by 16,437 lots, and all major SHFE zinc contracts slumped, with the lowest level at RMB 19,330/mt, falling below 60-day moving average line. SHFE zinc prices closed at RMB 19,390/mt finally, down 2.83%, leading base metals prices declines.

In the spot zinc market, market sentiment weakened due to plunged futures market. #0 zinc was traded around RMB 19,200/mt in the morning in the Shanghai market, but offers for #0 zinc fell to RMB 19,000/mt in the afternoon in view of continuous declines in SHFE zinc prices, and offers for a portion of zinc ingot were even below RMB 19,000/mt. However, the pessimistic market sentiment helped limit the overall trading volumes. SMM believes SHFE zinc prices will fall at a slower pace if LME zinc prices get support at USD 2,300/mt after testing repeatedly yesterday. Technically, all major technical indicators of SHFE three-month zinc contract show signs of weakening. 

Traded prices in the Shanghai lead market were mixed on Tuesday. Well-known branded products traded in the RMB 16,100-16,300/mt, while traded prices of unknown branded products were near RMB 16,000/mt. Offers were heard below RMB 16,000/mt. Downstream producers continued to stand on the sidelines, with low buying interest. Lead producers were reluctant to offer goods at lower prices, keeping existing prices firm. Deals in Henan province were mainly down in the RMB 16,300-16,500/mt range, and overall trading volume was limited.

On Monday (January 25), LME nickel prices closed at USD 18,190/mt, touching the lowest level at USD 18,125/mt and reaching the highest level at USD 18,538/mt. Tightened monetary policy made investors begin to doubt that whether supply and demand could support prices or not. On Tuesday, LME nickel prices dropped quickly, with prices moving at USD 18,000/mt in the morning session but quickly falling below USD 18,000/mt in the afternoon session. It is believed in the market that prices will still experience corrections in the future.

Transactions were brisk in the Shanghai nickel market on Tuesday. Traders were waiting for Jinchuan Group to cut nickel prices in the morning session, and few traders made offers and prices were mixed in the market. Prices of imported nickel were in the RMB 140,000-141,500/mt range, and mainstream traded prices of imported nickel were in the RMB 140,000-140,500/mt range. Traded prices of goods from Jinchuan group were in the RMB 141,000 -141,500/mt range. Supply of goods was relatively ample in the market and end users entered into the market to make purchases, causing trading volumes to climb significantly compared with the previous day.

On Monday night (January 25th), LME tin prices opened at USD 17,700/mt and closed with slight gains of USD 200/mt, as investors took the opportunity to increase buying when prices were at low levels. Depressed by rebound of US dollar, LME tin prices fluctuated between the 10-day moving average and 20-day moving average on Tuesday. KDJ indictors were on downward track, showing weak performance technically. Currently, LME tin prices continued to fluctuate at high levels and price performance will not be optimistic in the short term.

In the Shanghai tin market, tin prices fluctuated narrowly. Goods from Yunnan Tin group were mainly traded around RMB 138,000/mt with few transactions, and unknown brand tin was mainly traded around RMB 136,000/mt. Market trading sentiment was stagnated. On one hand, traders were expecting price increases in the future and were very reluctant to move goods with very few trading volumes. On the other hand, there were more inquiries but fewer transactions from downstream consumers as they believed that prices would fall further. In summary, overall trading sentiment was quiet sluggish.

To contact the writer on this report: angelawang@smm.cn


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