SHANGHAI, Feb. 1 (SMM) -- Last week, as market was still concerned over tight liquid flow that might be adopted by China, and as US dollar experienced strong performance at the same time, investors withdrew their funds from the market, and prices of commodities slumped. Last week, SMMI declined by 5.48%. Zinc experienced the worst performance, with SMMI.Zn declined by 9.66%, almost falling back to the very early level where it began to climb. SMMI.Cu, SMMI.Al and SMMI.Pb all dropped by more than 5%. Last week, LME nickel prices experienced relatively firm performance, with SMM.Ni climbed slightly by 0.35%, and nickel is the only product that reported growth last week.
Commodity markets felt downward pressure following credit tightening measures in China and proposed banking regulations in the US, with liquidity-driven base metals markets responding quickly. In addition, the US December manufacturing data and the November factory order index were both revised down, while existing and new home sales in the US were lower than expected, all combining to intensifying concerns towards the US economic recovery. In this context, LME copper prices fell below the previous support level of USD 7,166/mt, a sign of intensified expectations of price declines.
Strong copper prices in December 2009 were due mainly to a loose monetary environment, higher expectations of economic recovery in the US and EU, as well as the sustainability of strong demand in China. At present, the possibility of credit tightening and the steady growth of LME copper inventories are unfavorable factors for copper prices. CBI believes LME copper prices will move in the USD 6,800-7,000/mt range in the coming week.
Spot discounts remained in the Shanghai copper market, with discounts reported in the negative RMB 250-50/mt in earlier week. Spot discounts became smaller on Thursday when copper prices plunged, with levels narrowing to negative RMB 150-positive RMB 100/mt. Plunging copper prices stimulated some buying interest, with transactions improved. However, a strong wait-and-see attitude remained in the market due to weak copper prices recently, waiting for a clear market trend.
SHFE aluminum prices also experienced marked declines, moving below the 5-day moving average line and stabilizing slightly above RMB 17,000/mt, with prices finally falling to RMB 16,000/mt by the weekend. Positions remained high, with short sentiment remaining strong. However, price declines failed to stimulate buying activity, with most fabricators preferring to stay out of the market in view of weak demand and an uncertain market outlook.
A steady stream of negative economic news has recently depressed base metals prices. Whether or not aluminum prices rebound remains unknown, given the global economy and recent credit tightening in China. Aluminum inventories have grown due to weak demand prior to the Chinese New Year holiday, as well as from steady supply. In general, aluminum prices will not likely rebound based on levels of speculative funds, trends in commodity markets, as well as poor market fundamentals. SMM predicts aluminum prices will continue to fluctuate in the week of February 1-5, with LME aluminum prices testing the support level of USD 2,100/mt. SHFE three-month contract aluminum prices stabilized at RMB 16,000/mt on Friday, with profit-taking by limited short positions reported, but prices expected to continue to consolidate at this level in the week of February 1-5.
Last week, LME lead market remained on its downward track, with prices closing down for eight consecutive days due to credit tightening measures in China, and proposals for more banking regulations in the US. Declines in LME lead prices exceeded 9% over the four trading days since January 22nd, and fell as low as USD 2,000/mt. Some market analysts believed the US Federal Reserve might raise interest rates, and coupled with S&P’s decision to downgrade Japan’s credit rating, the US dollar strengthened, depressing base metals markets.
Domestic lead prices tracked falling LME lead prices, dropping below RMB 16,000/mt in the middle of the week. However, downstream producers were still waiting for further price declines, leading to low trading activity. Lead producers were also reluctant to move goods at lower market prices and maintained prices above RMB 16,000/mt, adding to sluggish trading sentiment.
SHFE zinc prices tracked LME zinc price trends, also turning in the weakest performance among base metals. SHFE three-month contract zinc prices fell from RMB 20,000/mt, to RMB 17,550/mt, and have fallen to the daily trading limit on Thursday and Friday in succession, with the cumulative drop reaching 12.3%, and falling to price levels from mid-November 2009. As a result, market confidence was depressed and spot trading sentiment weakened as well, and downstream buying interest declined sharply in response.
In the week of January 25-29, average traded prices for #0 zinc were RMB 18,600/mt in the Shanghai market, down 7 percentage points from a week earlier. Spot market improved slightly until Friday morning when SHFE zinc prices got support temporarily at RMB 18,000/mt. However, SHFE zinc prices were depressed heavily by short positions again, generating market concerns. Although downstream enterprises had plans to replenish stocks prior to the Chinese New Year holiday, they will remain cautious with regard to purchases before zinc prices show signs of stabilizing.
Zinc smelters were unwilling to move goods in view of slumps in zinc prices recently, helping increasing inventories at smelters. However, most smelters have plans to sell zinc ingot after the Chinese New Year holiday, and traders also have plans to build up stocks at lower prices and sell goods after the holiday. In general, spot trading volumes were limited.
Last week, (January 22- January 28) as dollar rebounded, base metal prices dropped drastically. LME tin prices also fluctuated on downward track and close at USD 17,450/mt on Thursday. Last week, LME tin prices reached the highest level at USD 18,100/mt and touched the lowest level at USD 17,450/mt, with weekly average price at USD 17,761/mt, down USD 363/mt from a week earlier. LME tin inventories were 27,740 mt, up 415 mt from a week earlier.
In general, trading sentiment was sluggish last week in the Shanghai tin market. Tin prices were constantly declined, and only stabilized on Friday (January 29th). Downstream companies mainly adopted a wait-and-see attitude when prices were on downward track as they were waiting for more favorable prices in the future. Traders reported that daily trading volumes were very low. Meanwhile, most traders who replenish stocks with higher prices previously were reluctant to move goods at present since it was difficult for them to replenish stock with low prices currently. On Friday, traders reported that some downstream companies made purchase in order to meet production demand before the Chinese New Year holiday when prices stabilized on Friday, so trading volumes increased slightly. Average weekly price tin prices were RMB 138,750/mt, down RMB 3,650/mt compared with previous week. Supply and demand was sluggish in the market.
Last week, LME nickel prices fluctuated downward from USD 18,900/mt. LME nickel inventories grew by 1,116 mt, to 163,704 mt on January 27th, a new record high. Lower than expected new home sales in the US also dampened confidence in commodity markets, and JP Morgan Chase and other institutions expected that investment pace in China will be slow before the Chinese New Year holiday. In this context, LME nickel prices should continue to undergo corrections. In addition, a sharp drop in shares in the Shanghai stock market triggered concerns over tight monetary policy in global financial markets, and the US dollar continued to strengthen. As a result, LME copper and LME nickel prices continued to fall.
New arrivals of goods in the Shanghai spot market were approximately 600 mt last week, with goods mainly from Jinchuan Group. However, the supply of goods gradually tightened as prices fell. Traded prices for imported nickel were in the RMB 138,500 -143,000/mt range, and prices for nickel from Jinchuan Group were in the RMB 140,000-143,000/mt range. Traders restricted supply as prices fell, as they were reluctant to sell given the difficulty of replenishing stocks. Transactions on last Tuesday were brisk as Jinchuan Group had not yet cut nickel prices, but most market participants stayed on the sidelines on Thursday as prices fell toward the weekend.
Last week, settlement prices at Taiyuan I/S Company were flat with the previous week’s level, with prices at RMB 23,120/mt for #304 cold-rolled stainless steel and RMB 21,620/mt for #304 hot-rolled stainless steel. Last week, prices in stainless steel market gradually declined slightly. With the approaching of the Chinese New Year holiday, many downstream stainless steel mills almost completed stock replenishment, and trading sentiment was sluggish as wait-and-see sentiment expanded in the market during the period when stainless steel prices were not stable recently. With regard to private stainless steel mills, some small companies told that they will halt production and be off on holiday earlier. Since current inventories levels were high, production halt shall have limited negative impact on sales as inventories will meet clients' demand completely.
Based on output data from stainless steel mills, output of crude steel and hot-rolled narrow strip stainless steel at 15 major domestic private stainless steel mills surpassed 3 million mt for the first time. Output included 2.62 million mt of #200 hot-rolled stainless steel, 328.4 kt of #300 hot-rolled stainless steel, and 146.5 kt of #400 hot-rolled stainless steel, setting a record high. Although China will continue to stimulate domestic demand and further improve infrastructures, recovery of demand of stainless steel still takes time. Meanwhile, stainless steel market is also hampered by negative factors like anti-dumping of stainless steel in export market and sluggish demand in overseas market. Stainless steel market will continue to under great pressure, since inventory levels have always been high in Wuxi and output of stainless steel will continue to grow along with production of new capacity in 2010.
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