SMM Daily Review - 2010/5/7 Base Metals Market

SHANGHAI, May 10 (SMM) --

Copper
On Friday, SHFE copper market remained on a downward track. The most active copper contract, the August delivery contract moved below RMB 55,500/mt, with short positions dominating the market. In the afternoon trade, SHFE August delivery copper fell below RMB 55,000/mt following further declines on China A-shares market, and ended at RMB 54,540/mt after dropping as low as RMB 54,430/mt at the end of trading, down 4.05%. Positions were up 7,218 lots, with turnover rate at 273.96%, and total positions exceeded 212,000 lots, with trading value at RMB 159.8 billion, and both positions and trading volume were higher than the previous trading day. SHFE current month copper ended at RMB 54,650/mt, down 3.43%, leaving the phenomenon of strong nearby-month contract and weak forward-month contract unchanged.

In the spot market, premiums in the morning business were between positive RMB 100-200/mt. The SHFE/LME copper price ratio in the morning remains around 8.1, and the strong bearish sentiment depressed selling interest of goods for arbitraging, reducing spot supply slightly compared with the previous trading day. Coupled with cautious attitude among downstream producers and traders in view of continuing price declines, transactions were done in the RMB 55,200-55,450/mt range. Spot copper prices in the afternoon business fell below RMB 55,000/mt due to further declines on the SHFE copper market, down to between RMB 54,600-54,800/mt, triggering some buying interest.

Based on data tallied by Shanghai Futures Exchange, copper inventories were down 8,301 mt during the week, a sign of higher purchasing interest at lower prices, and also indicated that downstream demand still existed, which was in line with SMM’s survey of high operating rates at downstream producers. The SHFE/LME copper price ratio fell to 7.9 after SHFE copper price accelerated its declines in the afternoon trade.

SMM believes copper prices will rebound technically, but the strong bearish sentiment will limit the upward momentum, which will intensify market fluctuations. 

Aluminum
SHFE aluminum prices opened low and moved lower on May 7th, with prices mainly moving around RMB 15,500/mt. SHFE 1007 aluminum contract prices closed at RMB 15,475/mt, and positions declined by 6,794 lots to around 100,000 lots. Technical indicators show SHFE aluminum prices will remain on a downward track. SHFE current-month aluminum contract prices closed at RMB 15,150/mt, lower than the RMB 15,200/mt mark. Technical indicators show the pessimistic sentiment still dominated the market, with selling pressure remaining strong.

In the spot market, traded prices fell rapidly following SHFE aluminum prices, with spot discounts ranging from RMB 30/mt to RMB 0/mt. Spot deals were made between RMB 15,310-15,320/mt in the morning, with prices standing above RMB 15,300/mt reluctantly. Suppliers were unwilling to move goods for two reasons. First, traders reported relatively high inventory costs, with losses expected to grow sharply following plunging aluminum prices. Second, the pessimism depressed downstream buying interest at lower prices, and downstream consumers were very prudent toward purchases before aluminum prices stabilized. Spot aluminum offers have fallen to a range of RMB 15,200-15,250/mt in the afternoon following falling SHFE aluminum prices.

Aluminum prices are expected to test the support level of RMB 15,000/mt next week (May 10-14). However, CHALCO and other state-owned large aluminum producers will be reluctant to move goods at lower prices as aluminum prices fall to approach production cost range, and aluminum prices will experience fluctuations in response. Meanwhile, the rising electricity prices and higher costs will both help support aluminum prices.   

Lead
Depressed by falling LME lead market overnight, domestic lead prices were down by more than RMB 100/mt, and traded prices in the Shanghai market fell to the RMB 15,100-15,200/mt range due to sales pressure from a large volume of goods for arbitraging. Lead producers moved goods at relatively higher levels, with deals around RMB 15,400/mt.

Domestic lead prices found support at RMB 15,200/mt in late March when base metals prices fell across the board following the credit ratings cuts in some European countries. The round of price declines on the base metals market, resulting from deteriorating debt issues in the Europe, is expected to be larger than the previous one. Market players believe the support at RMB 15,000/mt for domestic lead prices will be weak, and domestic lead prices will likely weaken to RMB 14,800-14,900/mt seen in earlier February.

Zinc
As the European and the US stock stocks plunged on May 6th, SHFE zinc prices opened lower in the morning, and later fell rapidly to the daily price limits negatively affected by the strong short momentum and the outflow of long-players, but SHFE 1008 zinc contract prices generally moved around RMB 17,000/mt. As domestic A-shares markets continued to slide in the afternoon, SHFE zinc prices fell again to the daily price limits, with SHFE 1008 zinc contract prices remaining at the daily price limits until the market was closed, and finally SHFE zinc prices closed at RMB 16,835/mt.

Spot traded prices for #0 zinc were RMB 16,400-16,500/mt in Shanghai, with prices reaching a yearly low in 2010 (the lowest prices for #0 zinc were RMB 16,600/mt on February 5th). In this context, market divergence with regard to zinc price outlook intensified. However, downstream consumers and traders were still purchasing goods in order to build up stocks despite of their pessimism toward future zinc prices when zinc prices were below RMB 17,000/mt. In this context, the purchases at lower prices will give strong support to zinc prices once LME zinc prices stabilize, and special attention should be paid to the next support level of RMB 16,000/mt for zinc prices.  

Tin
On May 6th, LME tin prices closed at USD 17,600/mt, down USD 25/mt from a day earlier, with highest price at USD 17,750/mt and lowest price at USD 17,350/mt. Daily trading volumes were 342 lots and positions were 19,506 lots. On May 7th, LME tin prices opened at USD 17,450/mt, and continued to extend yesterday decline, with prices reaching as low as USD 17,000/mt by 16:00. Decline pace became slower on May 6th, which is mainly attributed to increased buying at low prices, but the concern over European debt crisis as well as demand from China still haunted the market. In this context, base metal prices shall still have room to fall further, and close attention should be paid whether or not prices can stand above the supporting level at USD 17,200.

In the Shanghai tin spot market, the sluggish market sentiment extended. Mainstream traded prices of brand name tin were between RMB 143,000-144,000/mt and unknown brand tin were between RMB 142,000-142,600/mt. Purchasing interest was extremely sluggish in the market. Although offers quoted by smelters lowered to certain extent, spot selling prices were still slightly lower than importing costs. With strong short position sentiment, traders dare not take the risk to replenish stock, and supplying volumes of goods were relatively low in the market. 

Nickel
On May 6th, LME nickel prices opened at USD 22,015/mt and closed at USD 21,850/mt, with highest price at USD 22,900/mt and lowest price at USD 20,450/mt. Daily trading volumes were 4,810 lots and positions were 96,100 lots. On May 7th, LME nickel prices extended yesterday decline, with prices opening at USD 21,800/mt and exceeding USD 21,850/mt after fluctuating upward on a narrow range. Market players bore a strong short position sentiment.

In the Shanghai nickel spot market, traded prices of nickel from Jinchuan Group were between RMB 170,000-171,000/mt and domestic/LME nickel prices ratio became positive after a sharp drop of LME nickel prices. Offers in the Shanghai nickel market were mixed and few low-priced goods appeared in the morning session, but mainstream traded prices were around RMB 170,000/mt. Some arbitrage traders moved goods after profit-taking and previous inventories flowed into the market. Traders still dominated market transactions, and there were relatively few end-users in the market.

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

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