SHANGHAI, Mar. 29 (SMM) -- The US dollar soared following market concerns over debt issues in some EU countries, resulting in sell-offs on the commodity market. Last week, China's Central Bank collected RMB 213 billion through public market operations, suggesting the Central Bank's continuing move to curb cash flow, weighing down equity market, and base metal prices were depressed in response. Over the past week, SMMI was down 0.3%, with SMMI.AL leading the price declines, down 1.47%, followed by SMMI.Pb, down 1.29%. Copper and nickel prices rebounded when the US dollar index fell back. On Friday, SMMI.Ni edged up 0.77%, and SMMI.Cu was up 0.13%, supported by bargain hunting.
Last week, the credit rating downgrade for Portugal, as well as lingering debt issues in Greece, added to market concerns over the fiscal health of the EU economies. The US dollar index broke through a previous resistance level of 81.3, rising to 82, weighing down base metal prices. LME copper prices moved lower, but declines were limited due to the seasonal high demand period season. Prices fluctuated mainly in the USD 7,300-7,500/mt range.
SHFE copper prices followed LME copper price trends, fluctuating at high levels. Spot copper prices moved between RMB 58,500-59,500/mt, with spot discounts in the negative RMB 350-250/mt range.
Copper prices are expected to continue to fluctuate following a combined effect of ongoing debt crisis, the news of withdrawal of economic stimulus packages as well as possible RMB revaluation, and may experience short-term corrections. However, any downward room will be limited, given the start of the seasonal high demand period for copper.
In China's domestic markets, consumption of existing inventories has depressed domestic demand to a degree. SHFE copper inventories in the week ended March 26 dropped unexpectedly by 13,636 mt to 155,465 mt. Declines on SHFE copper inventories are expected to support copper prices. In addition, SMM's recent survey shows downstream operating rates are increasing, and further improvement is expected in early April. As news from financial markets improves, copper prices will also rise.
SHFE aluminum prices fell in response after LME aluminum prices declined, and SHFE 1006 aluminum contract prices fell below RMB 16,500/mt, a new recent low. Mainstream traded prices slipped gradually from RMB 17,000/mt to RMB 16,300/mt, showing signs of fluctuating lower in the short term, since recent uncertain macro economic outlook depressed commodity markets, and the strengthening US dollar also weighed down aluminum prices, and high LME and SHFE aluminum inventories exerted negative impact on aluminum prices as well.
The upward trend for aluminum prices in 2009 mainly depended on the capital liquidity and optimistic sentiment in market recovery, so aluminum prices will likely fall in the short term under the context of concerns over lending curbs and the shift of market appetite, and SHFE three-month aluminum contract prices will also undergo consolidation in the near term.
Aluminum ingot spot prices found no support at RMB 16,000/mt over the past week, hitting as low as RMB 15,880/mt. SHFE aluminum prices rebounded from the low levels last weekend, helping improve downstream buying interest at lower prices. As a result, trading sentiment was brisk, and aluminum prices increased persistently, with prices again heading for RMB 16,000/mt. Spot aluminum prices are expected to advance to RMB 16,000/mt next week, but any upward momentum for aluminum prices will be limited.
Domestic lead prices fell slower than LME lead prices, with improvements in trading sentiment keeping prices in the RMB 15,250-15,650/mt range. Since prices were below RMB 15,500/mt for most of the week, downstream producers were interested in bargains, though LME lead prices plunged in earlier week. Domestic lead producers made limited sales below RMB 15,500/mt, with most transactions done by traders for arbitrage profits. Domestic lead prices rallied along with rising lead prices on the LME market on Friday, resulting in a wait-and-see attitude once again due to doubt on sustainability of price increases.
The negative correlation between metal prices and the US dollar was evident last week, especially on Wednesday, when metals prices fell as the US dollar index soared to as high as 82.06. SHFE zinc prices tracked LME zinc price trends, with prices mainly moving widely between RMB 18,100-19,100/mt over the past week. It is worth noting that when SHFE zinc prices approach RMB 18,100/mt, short positions will grow and likely keep zinc prices depressed in the short term.
Domestic zinc spot market remained general, and similar to a weekearlier, downstream purchasing interest grew sharply when zinc prices were lower than RMB 18,000/mt, which supported the low-end of zinc price range and limited the downward room for zinc prices. Most domestic zinc smelters maintained relatively high operating rates, but electricity shortages were still a problem in some parts of Sichuan, Yunnan, and Guangxi provinces, with power rationing and production limits still in effect. Last week, average traded prices for Shanghai #0 zinc were RMB 17,931/mt, down RMB 149/mt from a week earlier.
Last week, LME tin prices fluctuated down, affected by strong performance of US dollar. Especially on Wednesday, LME tin prices fell as low as USD 17,200/mt on when US dollar advanced further to exceed the resistance level of 82. Recently, there were no goods news concerning on market fundamentals, but US dollar showed strong momentum to advance further, resulting in fluctuation price trend of LME tin in the short term. Weekly average LME tin prices were 17,580/mt, down USD 1/mt. On Thursday, LME tin inventories were 24,285 mt, up 245 mt.
In the Shanghai tin spot market, tin prices were generally moving down, affected by declining LME tin prices. Up to last Friday, mainstream traded prices of major brand tin were in the RMB 138,500-140,000/mt range, and traded prices of unknown brand tin were in the RMB 136,500-138,000/mt range. Overall trading sentiment was sluggish, while few purchasers entered market last Friday, resulting in relatively brisk transactions on that day. Costs at smelters were still at high levels, while normal productions at some producers were affected by drought south west China, leading to reduced supply of goods. In this context, smelters were reluctant to lower prices. However, downstream demand was not good and LME tin prices declined to some extent, so downstream consumers were all waiting for prices to fall further before making any purchasing plan. With regard to traders, they were also unwilling to move goods as they replenished stocks at high prices previously. In this context, overall trading sentiment was stagnant, and transactions were few in the market.
Domestic cargo-holders continued to move goods, and many traders in the Shanghai spot market have received numerous offers from cargo-holders. Goods with favorable prices continued to enter markets, leading to ample supply. Last week, purchases from downstream consumers were up slightly, mainly due to strong buying interest when prices fell as low as RMB 158,000/mt last Tuesday. However, transactions gradually stabilized and arbitrage traders swooped in when prices stagnated between RMB 159,000-160,000/mt.
According to latest statistics, total inventories of stainless steel in Wuxi were 231.7 kt, up 1.13%, with 13.4 kt of #200 stainless steel, 175.8 kt of #300 stainless steel, and #42.5 kt of #400 stainless steel. Inventories continued to grow and exert pressure on stainless steel market prices.
Offers from Taiyuan I/S remained flat last week, with current prices of RMB 25,120/mt for #304 cold-rolled stainless steel, RMB 23,620/mt for #304 hot-rolled stainless steel, and RMB 12,920/mt for #430 cold-rolled stainless steel.
LME nickel prices have risen steadily to USD 22,500/mt since the end of the Chinese New Year holiday, up 30% compared with USD 17,300/mt before the holiday. Prices of raw materials, such as ferronickel and ferrochrome, also rose significantly from pre-holiday levels, and will negatively impact costs and profits at producers. However, prices for #300 stainless steel were still unchanged, and steel mills were keeping offers flat. This is a sign that sluggish demand from end-users, as well as high stainless steel inventories, is keeping prices from rebounding.
To contact the writer on this report: Angelawang@smm.cn
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