SMM Weekly Review and Forecast (Apr 26-30)

SHANGHAI, May 4 (SMM) -- The global renowned rating agency cut credit rating of the Portugal and the Greece, causing significant drop of euro and boosting US dollar up, with US dollar index reaching 82.71 on April 28th. In this context, the US stock and commodity prices both dropped significantly on April 27th. The US Federal Reserve announced on April 29th that the benchmark interest rate shall remain between 0-0.25% after a conventional interest rate meeting held by Federal Open Market Committee. This move pushed up US stock markets, and commodity markets rebounded after declining as a result. SMMI fell by 2.87% on a weekly basis due to release of a series of real estate regulations by Chinese Government and the further expanding impact from debt crisis in euro zone. SMMI. Cu led the decline by 3.53% last week, and SMMI. Ni ranked second place and fell by 3.39%. The fact that more severe issues triggered by sovereign debt crisis in Europe continue to linger, combined by China Government's efforts to control real estate industry will continue to dampen long position sentiment in commodity market in the short term.

Copper

SHFE copper prices opened low on Wednesday after LME copper prices slumped on Tuesday.  However, bargain hunting at RMB 58,000/mt helped support domestic copper prices. Spot discounts narrowed, mainly between negative RMB 100-0/mt. although supply of imported goods was negatively affected by the unfavorable SHFE/LME copper price ratio, overall supply was sufficient from previously imports and stable domestic production. Market transactions on Wednesday and Thursday were brisk along with falling copper prices and the approach of the Nay Day holiday.

Instead of boosting copper prices, China's strong copper imports created market concerns over existing high inventories in bonded areas. Recent moves by China's Central Government to curb property speculation triggered market fears over demand, making copper prices more sensitive to negative financial news. 

The debt issue in Europe will not fade away soon, and copper prices will face downward pressure in the short term as a result. The US government will announce GDP data for 1Q on Friday, and is expected to boost market confidence, in stark contrast to Europe. SMM believes copper prices will rebound after sharp declines, but any upward momentum will be dampened by the ongoing debt issue. SMM expects LME copper prices to fluctuate at USD 7,500/mt in the short term.

Aluminum

SHFE aluminum prices fell at a much slower pace over the past week (April 26-30), with SHFE three-month aluminum prices finding strong support at RMB 15,700/mt, later advancing to above RMB 16,000/mt. Spot aluminum prices fell below RMB 16,000/mt following SHFE aluminum price moves. Narrowing spot discounts and the acceptance of lower prices by downstream consumers resulted in relatively bullish market sentiment.

Domestic market fundamentals should experience no significant changes after the May Day holiday, and SHFE aluminum prices will continue to track other base metals trends. SMM predicts SHFE three-month aluminum contract prices will move between RMB 16,200-16,500/mt in the coming week, while spot aluminum prices will move around RMB 16,000/mt.
 
Lead

Domestic lead prices fell slower than LME lead prices.  Compared with previously strong performance of other base metals, limited gains of LME lead prices boosted confidence, keeping large volumes of goods from entering domestic lead markets for arbitrage trading and helped keep traded prices remain between RMB 15,600-15,850/mt. However, wild price fluctuations in the LME lead market added to market uncertainties, resulting in cautious trading sentiment. Overall trading sentiment was lackluster.

Zinc

SHFE zinc prices opened significantly lower on Wednesday due to the negative news in China and overseas. SHFE three-month zinc contract prices tested RMB 18,000/mt mark, with prices falling close to the daily price limits. A statement released by the US Federal Reserve after its interest rate meeting on Thursday helped ease investor concerns over the sovereign debt crisis in Europe. Meanwhile, positions of SHFE 1008 zinc contract were growing before the May Day holiday, and SHFE zinc prices moved closely around the RMB 18,500/mt mark.
 
As to spot markets, the wait-and-see sentiment dominated the market over the past week negatively affected by falling stock and futures markets except for Tuesday, when transactions were bullish. Weekly traded prices for #0 zinc were RMB 18,077/mt in Shanghai, down RMB 135/mt from a week earlier. However, market players were pessimistic toward the post- May Day holiday market outlook, since large and medium-sized domestic smelters were unwilling to move goods at prices below RMB 18,000/mt, and speculator purchasing interest grew at lower price levels. In addition, high inventory pressure and sufficient market supply are keeping zinc prices from moving higher, so zinc prices will likely remain at current levels.

Tin

In the Shanghai tin spot market, many smelters gradually lowered offers affected by significantly decline of LME tin prices last week, but Yunnan Tin group continued to keep offers firm at RMB 153,000/mt. Up to last Friday, mainstream traded prices of major brand tin were between RMB 143,500-144,500/mt and mainstream traded prices of unknown brand tin were between RMB 142,500-143,500/mt. Overall trading sentiment was relatively soft and purchasing interest was low last week, and downstream purchasers were waiting for prices to drop further as LME tin prices haven't stabilized yet. Although smelters lowered offers to certain extend at present, traded prices were still lower than import costs in spot market. Traders had difficulty in replenishing stocks at low prices and some middleman were reluctant to move goods as they hold limited goods on hands, but some cargo holders also stated that they had difficulty in moving goods due to sluggish downstream demand. Goods scheduled to arrive at Shanghai during May may be negatively affected due to railway transportation limit during the Shanghai world expo, but the impact will be limited given the recent soft downstream demand.

Nickel

Nickel spot prices declined after initially advancing last week, with prices stabilizing around RMB 191,000/mt early in the week, but falling to between RMB 183,000-184,000/mt as LME nickel prices fell sharply on Wednesday. Spot prices gradually stabilized and even rebounded to RMB 185,000/mt last Thursday after LME nickel prices moderated. Transactions were relatively soft in spot markets, and the price decline made arbitrage traders adopt a wait-and-see attitude. Traders dominated market transactions and only few downstream consumers making purchases last Thursday. Supply of goods was relatively stable and goods were mainly from Jinchuan Group.

Ex-works prices from Taigang Stainless Steel were flat last Tuesday.  LME nickel prices fell significantly last week, also dragging down stainless steel prices and dampening market sentiment to a degree, but most market participants remain optimistic. Stainless steel inventories ceased to grow and have begun to stabilize, while shipments from stainless steel produces have been slow. In addition, traded prices continued to be below current import costs, which will help support stainless steel prices to certain extend.

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

 
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