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SMM Daily Review - 2010/5/18 Base Metals Market
May 19,2010 10:16CST
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SHANGHAI, May 19 (SMM) --
China's A-shares market fell at first, then rose, with a daily increase of 1.36%, despite of failure to return above 2,600 points. SHFE copper prices fluctuated at low levels in the morning trade, and rebounded in late business, supported by LME copper market and financial markets. In the morning business, SHFE August delivery copper prices found support at RMB 52,000/mt, and erased most losses in the afternoon trade, and with prices closing at RMB 53,720/mt after a session high of RMB 53,940/mt, down 1%. Positions for SHFE August delivery copper contract fell 2,944 lots, with turnover rate at 335.13%, a sign of brisk trading, and with trading value exceeding RMB 173.2 billion. On Tuesday, forward month copper contracts became weaker than near-term copper contracts again, an indication that short positions remain dominant, and short covering may happen in the short term, leaving possibilities for copper prices to rebound technically after price declines were seen overdone. However, the depressed sentiment in financial markets will continue to negatively affect copper market, with short-term fluctuations expected.

In the spot market, premiums were between positive RMB 250~350/mt in the morning trade after SHFE copper prices weakened more than 3%. Of those, premiums for standard-quality copper were in the positive RMB 250~300/mt, trading between RMB 52,900~53,050/mt; premiums for high-quality copper were between positive RMB 300-350/mt, with deals done in the RMB 53,000~53,200/mt range. Spot premiums fell to positive RMB 50~250/mt in the afternoon business following price rebounds on the SHFE copper market, with traded prices rallying to RMB 53,500~53,900/mt. Inquiries from downstream producers increased on Tuesday as copper prices neared to this year's low, but actual trading volumes were limited. Selling volumes of domestic goods fell, as lower prices squeezed profits. Supply of imported copper was limited, as the SHFE/LME copper price ratio failed to improve greatly, near around 8.0. Trading sentiment in the afternoon business saw no improvement, though rising stocks markets supported price rebounds on the SHFE copper market, suggesting a strong bearish sentiment. However, market inquiries improved further, and the price ratio rose, but cargo-holders showed unwillingness to move goods, reducing market supply.

SMM believes SHFE copper prices will test RMB 55,000/mt on Wednesday if China's A-shares market stabilizes. Whether or not bullish sentiment on the SHFE copper market will re-emerge depends on news from financial markets and LME copper market.

SHFE aluminum prices opened lower yesterday, and SHFE 1008 aluminum contract prices dipped to as low as RMB 14,900/mt after opening at RMB 15,170/mt, and showed sluggish performance in the morning session. LME aluminum prices rebounded slightly in the afternoon, and the Shanghai Composite Index picked up as well, both stimulating SHFE aluminum prices to move higher, with the highest prices reported at RMB 15,260/mt. SHFE aluminum prices finally ended at RMB 15,225/mt, down RMB 55/mt, or down 0.36%.

Spot market was stable, and spot prices remained slightly higher than or flat at SHFE aluminum prices after transitioning into a new contract month. Downstream producers purchased on an as-needed basis, and market players had no interest in building stocks at lower prices, with general trading sentiment reported. Aluminum prices rebounded slightly following other base metals and stock markets yesterday, but both market fundamentals and LME aluminum prices reported no significant improvement, so any upward room or momentum for aluminum prices will be limited in the future, and special attention should be paid to the US dollar trends and financial market trends.     

Domestic lead prices fell further with dropping LME lead prices, and offers were heard at RMB 14,500/mt, with the low-end at RMB 14,400/mt. Downstream producers generally entered the market for purchases when prices were low during the first four months of the year, especially when LME lead prices showed signs of rising. However, domestic downstream producers were cautious with regard to purchases on Tuesday in view of sharp declines both in domestic and LME lead markets, despite of lower prices.     

SHFE zinc prices continued to open lower yesterday, and SHFE current-month zinc contract prices dipped to a new low of RMB 14,820/mt since August 2009 depressed by short positions immediately after opening, and SHFE three-month zinc contract prices also fell below RMB 15,500/mt rapidly, with a panic market sentiment growing as a result. Domestic A-shares, especially real estate stocks rebounded at noon, helping zinc prices to regain lost ground gradually, and SHFE 1008 zinc contract prices finally closed at RMB 15,700/mt, down 3.89%, with the lowest prices reported at RMB 15,230/mt, and a drop of 6.76% was near the daily downside limit. Positions of SHFE 1008 zinc contract declined by more than 10,000 lots, an indication of the withdrawal of some investors and the growing wait-and-see sentiment. However, the growth of short positions was still higher than that of long positions based on the distribution of positions, signaling any zinc price increases still lack clear market direction in the short term.

The growing wait-and-see sentiment also increased difficulties in spot transactions. #0 zinc was traded between RMB 15,000-15,100/mt in Shanghai yesterday, with spot discounts moving around RMB 300/mt against SHFE 1008 zinc contract prices. Traded prices climbed gradually to a range of RMB 15,300-15,350/mt in the afternoon as SHFE zinc prices advanced, with spot discounts expanding to RMB 350/mt against SHFE 1008 zinc contract prices, and downstream consumers adopted a cautious attitude toward purchases. Spot zinc prices remained above RMB 16,000/mt in north China yesterday, with prices much higher than that in east China, and this situation has caused a portion of goods in east China to flow into north China, but overall spot transactions were modest. Zinc prices experienced significant declines since the start of 2Q, and SMM believes zinc prices will show relatively rational performance on their upward track during 3Q, and special focus should be put on the support level of RMB 15,000/mt for zinc prices in the short term.   

The euro fell to four-year low against the dollar, which weighed on global financial and metal markets. In this context, LME tin prices closed at USD 17,100/mt on May 17th, down USD 325/mt from a day earlier, which is below all moving averages. Daily trading volumes were 210 lots and positions were 20,103 lots. A strong risk aversion sentiment was prevailing in the market. On May 18th. LME tin prices opened high at USD 17,300/mt and then climbed as high as USD 17,400/mt along with the advance of LME copper prices, but price later fell to USD 17,250/mt and fluctuated narrowly at that level.

China's A share market fell sharply by 5.1% on May 17th, leading to complete collapse of market confidence. In this context, the overall SHFE and spot markets were sluggish. Market sentiment between upstream producers and downstream producers was in a stalemate in spot market, and a slight drop of price failed to stimulate purchasing interest. Spot prices were supported by limited demand in the market, with prices of major brand tin between RMB 142,500-143,000/mt and prices of unknown brand tin around RMB 142,000/mt.

LME nickel prices opened at USD 21,600/mt and closed at USD 20,700/mt on May 17th, with highest price at USD 21,650/mt and lowest price at USD 20,460/mt. Daily trading volumes were 3,277 lots and positions were 95,526 lots. On May 18th, LME nickel prices opened at USD 20,700/mt and fluctuated narrowly to test USD 21,000/mt during the Asian trading period. As the EU crisis is expanding, market sentiment is relatively pessimistic.

In the Shanghai nickel spot market, as Jinchuan Group cut ex-works prices by RMB 10,000/mt to RMB 166,000/mt in the morning session, offers in the morning session slipped accordingly and traded prices were between RMB 165,000-165,500/mt. Since LME nickel prices fluctuated narrowly during the Asian trading period, the low end spot prices haven't advanced at all. Some arbitrage traders moved some goods, and transactions were still dominated by traders. There were few enquiries in the morning session, but end-users adopted a wait-and-see attitude affected by the price cut from Jinchuan Group. Few stainless steel mills may limit production, and market sentient was not optimistic.

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


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