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SMM Daily Review - 2010/2/23 Base Metals Market
Feb 24,2010 10:14CST
smm insight

SHANGHAI, Feb. 24 (SMM) --

SHFE 1006 copper contract prices slipped after opening at RMB 58,960/mt, and kept moving between RMB 58,400-58,600/mt in the morning, but moved higher in the afternoon following recovering domestic A-shares markets, with prices finally ending at RMB 59,050/mt.

In the spot market, discounts did not narrow yesterday despite of falling copper prices, and spot discounts were RMB 200-300/mt in the morning session, and then expanded to the range of RMB 250-350/mt after 11:00 in view of weak spot consumption. Mainstream traded prices for standard-grade copper were RMB 57,900-58,050/mt, while traded prices for high-grade copper were RMB 58,000-58,150/mt.

China's central bank raised the deposit reserve ratio, while the US Federal Reserve lifted the discount lending rate prior to the Chinese New Year holiday, generating domestic market concerns over the tightening of monetary policy. In addition, copper prices experienced significant growth during the holiday, resulting in limited purchasing interest by downstream consumers during the first two trading days after the holiday. Meanwhile, downstream producers mainly consumed existing raw material inventories recently due to uncertain copper prices, resulting in lukewarm trading sentiment in the spot market. Market players were optimistic toward the US economic recovery and Chinese consumption, and long players will continue to push up copper prices, but copper prices will continue to fluctuate widely before the actual consumption becomes clear due to market concerns over monetary policy adjustment and sovereign debt crisis.

SHFE aluminum prices opened at RMB 16,995/mt yesterday, and climbed to RMB 17,085/mt after opening, but later slipped with the absence of strong purchases. SHFE aluminum prices stood above RMB 17,000/mt again in the afternoon positively affected by rebounding stock markets, with prices ending at RMB 17,015/mt, down RMB 35/mt compared with the previous trading day, or down 0.21%, with a clear situation of strong LME aluminum prices and weak SHFE aluminum prices. Technically, SHFE three-month contract aluminum prices moved around 5-day moving average, leaving signs of fluctuating. Total positions increased by 12,548 lots, and transactions remained sluggish.

Spot market remained weak, and aluminum inventories increased significantly, and market consumption recovered slowly, with traded prices showing signs of declining. However, market players remained optimistic toward market outlook, and recent mixed economic news will allow SHFE aluminum prices to fluctuate narrowly this week.

Lead prices in domestic spot market didn't rise robustly along with LME lead prices on the second trading day after the Chinese New Year Holiday, while prices continued to decline just like Monday's performance, with traded prices falling in the RMB 16,200-16,300/mt range. As LME lead prices rose excessively during the Chinese New Year Holiday, stock replenishment interest from domestic downstream consumers were low. In this context, inquires were not brisk in the market, and deals were mainly reached between traders. There were not many orders from end-users, and buying interest of lead ingots was not strong. Upstream producers were in a dilemma due to the falling domestic/LME lead price ratio, and some companies still kept offers firm at RMB 16,500/mt. It is expected that trading sentiment will be gradually warm in the following three trading days.

Yesterday, SHFE zinc prices opened at RMB 18,690/mt in the morning session, but long players in metals market were cautious due to weak performance of domestic A-shares market, and overall trading sentiment was lackluster. SHFE three-month contract zinc prices regained since noon in view of improving domestic A-shares market, with prices finally ending at RMB 18,775/mt, and positions increased by 4,000 lots. However, SHFE zinc prices moved higher positively affected by LME zinc prices in the afternoon, but spot zinc prices climbed at a much slower pace.

Yesterday, #0 zinc was traded at RMB 18,200-18,250/mt in the Shanghai market, with discounts at RMB 450-500/mt against SHFE 1005 zinc contract, while discounts for #0 zinc expanded to RMB 500-550/mt against SHFE 1005 zinc contract in the afternoon following rising SHFE zinc prices, with limited deals made at RMB 18,250/mt. In general, downstream purchase interest was relatively low, and SMM predicts downstream buying interest will improve after March, when operating rates at downstream producers increase. At present, the pre-holiday short-covering purchases remain the major driving force for zinc prices, and zinc prices will face great upward pressure in the short term. Domestic zinc prices will consolidate in the near future after zinc prices experienced significant increases.

On Monday, LME tin prices continued on upward track and met resistance at USD 17,150/mt due to rise of US dollar, with prices closing at USD 17,100/mt. On Tuesday, LME tin prices struggled around USD 16,900/mt in the morning session and exceeded 5-day moving average to stand above USD 17,200/m along with LME copper prices in the afternoon session.

Supply was still slightly tight in the spot market. Since labor shortage occurred at labor-intensive companies in Guangdong, it is expected in the market that production at downstream electronics industries may be positive. In this context, cargo-holders were reluctant to move goods and smelters all kept offers firm. Some offers as high as RMB 140,000/mt were also heard in the market, but downstream companies were unwilling to accept offers at RMB 136,500-137,500/mt as it still takes time to consume the previous inventories. On Tuesday, trading volumes didn’t increase just like that of on Monday, and trading sentiment was still sluggish. Tin prices in the spot market are unlikely to fluctuate widely in the near term since demand and supply is sluggish.  

On February 22nd, LME nickel prices opened at USD 20,600/mt and closed at USD 20,475/mt, with highest level at USD 20,750/mt and lowest level at USD 20,400/mt. Nickel prices slid slightly after consecutive growth. On February 23rd, LME nickel prices opened at USD 20,400/mt in the morning session, and prices later climbed to test USD 20,700/mt and continued to stand above 5-day moving average supported by decline of USD dollar.

In the Shanghai nickel market, traders' interest to move goods was high due to ample supply in the market. 0ffers were high in the morning session, but gradually lowered in the afternoon session due to strong performance of LME nickel prices. Arbitrage investors entered into the spot market to make purchase, and some downstream producers also entered market to make purchase to keep normal production. In this context, overall trading volumes increased significantly compared with the level on Monday. Traded prices of imported nickel were at RMB 152,000/mt, and traded prices of nickel from Jinchuan Group were in the RMB 152,500-153,000/mt. Nickel from Jinchuan Group were traded at RMB 156,000/mt in Guangdong region, with few transactions.

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


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