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SMM Daily Review - 2010/2/8 Base Metals Market
Feb 9,2010 09:43CST
SMM Insight

SHANGHAI, Feb. 9 (SMM) --
On Monday, the May delivery copper contract prices on the SHFE market surprisingly opened highly at RMB 52,420/mt despite of falling LME copper prices, and reached as high as RMB 53,280/mt in several minutes after opening, but with moderate movements reported for the whole trading day. SHFE May delivery copper contract generally moved around RMB 52,600/mt for the day, with prices finally closing at RMB 52,560/mt.

Since the SHFE/LME copper price ratio increased above 8.1, offers of imported copper in the spot market were brisk, with discounts for imported standard-quality copper reported at around negative RMB 100/mt. Due to supply tightness of domestic goods, especially goods from Jiangxi Copper, premiums were heard in the positive RMB 100-150/mt, and premiums for other high-quality domestic goods were at RMB 0-positive RMB 50/mt. Before the end of morning trade, falling trends on the SHFE copper market improved spot premiums, with mainstream traded prices in the RMB 52,300-52,600/mt.

Market trading activities are expected to come to an end during the second half of this week, since market players will leave for Chinese New Year holiday. Coupled with relatively low copper prices, downstream producers showed high buying interest on Monday, with expanding trading volumes.

SHFE copper prices stabilized following the start of afternoon business, and so premiums for high-quality domestic goods were at positive RMB 80-100/mt, and standard-quality domestic products were at RMB 0/mt, and imported standard-quality copper reported discounts at negative RMB 20/mt, flat with morning levels. Traded prices were in the RMB 52,500-52,700/mt, with slight increases at the low end. Although market players are not very clear about LME copper market movements during the Chinese New Year holiday, strong buying interest was stimulated when copper prices are around RMB 52,000/mt for production during the holiday. The strong trading sentiment is expected to remain before Wednesday.

Yesterday, SHFE 1005 aluminum contract prices opened at RMB 16,300/mt positively affected by strong copper prices, but later faced resistance at the 5-day moving average line of RMB 16,400/mt. Market confidence did not recover completely, and trading volumes declined again to below 200,000 lots. SHFE aluminum prices slipped to RMB 16,200/mt, but advanced slightly before closing, with prices finally ending at RMB 16,305/mt, up RMB 80/mt or 0.49% compared with the previous trading day. Technically, SHFE 1005 aluminum contract prices moved below 5-day moving average line.

Spot market was neutral, and market consumption waned after downstream producers shut down for holiday, and most consumers preferred to stay out of the market, while traders held an optimistic views on market outlook, and their inventories were very limited, creating the incentives of traders to purchase goods, and market supply became tight as a result. In general, overall market sentiment was lukewarm.

Small price gap emerged between prices of goods circulating in the market and ex-works prices offered by smelters. Lead prices in the Shanghai market were on a steady rising trend, with deals generally made in the RMB 15,300-15,400/mt range. Due to stabilizing LME lead prices, select downstream producers chose this opportunity to make purchases before the holiday. However, domestic lead producers, with smooth sales reported especially those in Henan province, were reluctant to move goods at lower prices due to low inventory pressure, resulting in lackluster trading sentiment.

For market outlook, 60% of market players believe that LME lead prices are expected to advance during the holiday, and there is small possibility that domestic lead prices will weaken after the holiday.

Yesterday, SHFE zinc prices opened high unexpectedly after opening high following SHFE copper prices on the first trading day of this week, raising mixed views on market outlook. Whether or not SHFE zinc prices find support at RMB 17,000/mt remains unknown, but SHFE 1005 zinc contract prices have received support at RMB 17,000/mt currently. SHFE 1005 zinc contract prices opened at RMB 17,105/mt, and finally closed at RMB 17,180/mt, with the highest level at RMB 17,500/mt.

#0 zinc was mainly traded between RMB 16,800-16,900/mt in the Shanghai market, in line with SMM zinc prices, but overall trading sentiment was sluggish, with downstream purchases limited, since a portion of downstream producers planed to shut down for the holiday, and most of them have finished purchases last week, as the Chinese New Year holiday nears. In this context, market sentiment was neutral this week, and SMM predicts zinc prices will fluctuate narrowly during this week in view of waning market sentiment. 

Panic sentiment further expanded and aggravated as debt crisis in Euro zone continued to deteriorate, and LME tin prices fell sharply by USD 1,000/mt and closed at USD 15,050/mt last Friday as confidence of economic recovery was depressed. Current LME tin price level almost fell back to the level where prices began to climb from the early of December 2009. US dollar further advanced to surpass 80.5 last Friday, but met strong resistance at this level. It is expected that any upward momentum of US dollar will be weak in the short term, and US dollar is expected to fluctuate on downward track, which will support performances of LME tin prices.

In the Shanghai tin market, tin prices continued to fall after dropping below RMB 135,000/mt, affected by downward price trend of LME tin prices. On Monday, overall trading sentiment was sluggish, with tin from Yunnan Tin group traded in the RMB 134,000-134,500/mt range, tin from Yunnan Chengfeng Non-ferrous Metals traded at RMB 133,000-133,500/mt range, and tin from Nanshan Tin Solder traded at RMB 133,000/mt. Downstream companies reduced purchasing volumes with the approaching of Chinese New Year Holiday. Tin price on electronic trading experienced lukewarm performance on daytime, further weighed on pessimistic market expectation. The weak price performance in the Shanghai tin market in the last trading week before the Chinese New Year holiday will be hard to reverse.

On February 5th, LME nickel prices opened at USD 17,700 and closed at USD 17,100, with highest level at USD 17,830 and lowest level at USD 17,020. US dollar continued to climb, weighing on base metal prices to fall sharply. LME nickel prices fell to test USD 17,000/mt. On Monday, LME nickel prices opened at USD 17,105/mt, and fell to test around USD 17,250/mt after climbing to USD 17,400/mt.

In the Shanghai nickel market, tight supply of goods was eased to certain extend as Jinchuan Group cut ex-works prices by RMB 5,000/mt to RMB 140,000/mt. However, offers of imported nickel were not lower than RMB 140,000/mt, and price spread between imported nickel and nickel from Jinchuan Group was between RMB 500-1, 000/mt range. Affected by significant decline trend of LME nickel prices, many traders believed that nickel prices had already touched the bottom line and will rebound in the future, and they expected that supply of goods will be added after the Chinese New Year Holiday. Offers of imported nickel were in the RMB 140,000-140,500/mt range, with traded prices in the RMB 140,000-140,500/mt range. Offers of nickel from Jinchuan Group were in the RMB 141,000-141,500/mt range, with mainstream traded prices at RMB 141,000/mt. Since nickel prices have already declined sharply, many traders believe nickel price trend will be optimistic after the Chinese New Year Holiday

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


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