SMM Daily Review - 2010/1/27 Base Metals Market

SHANGHAI, Jan. 28 (SMM) --
Copper
On January 26th, LME copper prices weakened, down USD 70/mt, and LME copper inventories grew 175 mt to 533,575 mt. On January 27th, SHFE copper market dropped further after a lower open. The May-delivery copper contract on the SHFE market opened at RMB 59,550/mt, and ended at RMB 59,530/mt, down RMB 240/mt or -0.40% from a day earlier. Spot discounts were reported at negative RMB 250-100/mt in the morning, with lackluster transactions. Trading volume improved to some extent after 11:00 am when copper prices experienced a round of rebounds. However, sellers showed limited interest in moving goods in view of continuing spot discounts. In the afternoon business, SHFE copper prices fell further, causing spot discounts to expand to the negative RMB 300-150/mt. downstream producers represented low buying interest due to weak copper prices, resulting in low trading sentiment for the day.

Market concerns towards liquidity tightening remain, and with a series of uncertainty financial news existing. In this context, SMM believes copper prices will show weak performance in the short term, with LME copper prices expected to test the previous level of USD 7,166/mt for support. 
 
Aluminum
SHFE 1005 aluminum contract opened at RMB 17,200/mt in the morning session, but moved lower to RMB 17,090/mt following falling stock markets. Meanwhile, the benchmark Shanghai Composite Index fell below 3,000 points. SHFE aluminum prices moved narrowly, and were restricted by 5-day moving average line of RMB 17,250/mt, with prices ending at RMB 17,155/mt, down RMB 110/mt, or down 0.64%. Technically, SHFE three-month contract aluminum prices moved below 5-day moving average line, showing signs of falling.

Spot aluminum markets were sluggish, with spot discounts remaining above RMB 100/mt. A portion of traders were willing to move goods, with offers down gradually. Spot aluminum prices remained on a downward track even when SHFE aluminum prices rebounded in the morning session, and mainstream traded prices moved in the RMB 16,640-16,680/mt range. Aluminum prices remained weak in view of lending curbs, weak consumption, relatively high aluminum inventories held by traders, and overall trading sentiment was sluggish as a result.

Zinc
SHFE three-month contract zinc prices fluctuated narrowly around RMB 19,500/mt in the morning session. Later, SHFE zinc prices advanced gradually after China’s stocks stood firm at 3,000 points, with the highest level at RMB 19,645/mt. In response, prices for #0 zinc climbed to RMB 19,000/mt from RMB 18,900/mt in the Shanghai market, but the wait-and-see sentiment still dominated downstream buyers. Meanwhile, downstream buyers remained cautious about current SHFE zinc prices, resulting in general spot trading sentiment.

In other news, downstream manufacturers will replenish stocks after SHFE zinc prices stabilize, leaving little possibility that downstream producers will purchase large amounts of goods for stocks in the short term. Technically, long positions increased by nearly 9,000 lots, while short positions of SHFE three-month zinc contract declined by 5,000 lots. However, SHFE zinc prices still moved below 5-day moving average, showing signs of falling. Special attention should be paid to the support received by SHFE three-month contract zinc prices at RMB 19,000/mt during the last two trading days of this week.

Lead
In the Shanghai lead market, mainstream traded prices dropped below RMB 16,000/mt. well-known branded products were traded in the RMB 15,850-15,950/mt range, while traded prices of unknown branded goods were around RMB 15,850/mt. Overall trading volume remained limited due to weak downstream consumption, and market was looking for support at RMB 15,500/mt.

Lead producers in Henan province showed low interest in selling products at the existing prices, with deals mainly done in the RMB 16,200-16,300/mt, indicating lead producers still insisted the price.

Nickel
On Tuesday night (January 26th), LME nickel closed at USD 18,020/mt with highest level at USD 18,300/mt and lowest level at USD 17,750/mt, and prices climbed slightly by USD 25/mt. Global stock market plunged, weighing on commodity prices. On Wednesday, LME nickel fluctuated narrowly and fell below USD 18,000/mt for two times. LME nickel prices dropped in the morning session and rebounded in the afternoon session, with prices moving in the USD 18,000-18,100/mt range. Market views were divided towards nickel prices trend, and LME nickel prices will continue to experience corrections.

Trading sentiment was slightly sluggish in the Shanghai nickel market on Wednesday. More and more traders adopted a wait-and-see attitude as Jinchuan Group was still unwilling to cut prices. On Wednesday, traded prices of imported nickel were in the RMB 139,000-141,000/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 140,000-141,000/mt range, but some traders were unwilling to move goods when traded prices gradually climbed along with rebound of LME nickel prices in the afternoon session. In general, supply of goods were relatively ample in the market, but few end users entered into the market to make purchases, with trading volumes declined significantly from the previous day.

Tin
It was rumored in the market that several commercial banks with higher reserve requirement ratio should freeze the corresponding liquidity on Tuesday, tight monetary policy depressing stock market again and US dollar rebounding, with prices of base metals dropping On Tuesday night (January 26). Only LME tin prices climbed slightly, reaching the highest level at USD 18,100/mt and closing at USD 17,950/mt. On Wednesday, LME tin prices stood above 5-day moving average and climbed further, testing the supporting level of USD 18,000/mt

In the Shanghai tin market, tin prices continued to fall, but the decline range narrowed. Ex-works prices of goods from Yunnan Tin group dropped to RMB 141,000/mt. Trading sentiment was still sluggish, with traded prices of goods from Yunnan Tin group in the RMB 136,500-138,000/mt range and traded prices of unknown brand tin in the RMB 135,500-136,000/mt range. Cargo-holders were very reluctant to move goods at current price levels, and traders told that price cut from smelters exerted limited impact on the market as trading volumes of goods from Yunnan Tin group were quiet small. Downstream consumers still adopted a wait-and-see attitude and they planned to make purchase when prices further stabilize in the future.

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

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