SHANGHAI, May 24 (SMM) -- Germany temporarily banned naked short selling and naked credit-default swaps of euro-area government bonds. The ban also applied to naked short selling in shares of 10 banks and insures. This move was intended to ease the fear for European debt crisis, but further exacerbated the crisis. In this context, the euro faced sell-offs and the US dollar climbed to a yearly high of 87.46. China's A-shares market fluctuated widely last week (May 14-May 21), and SMMI extended declines slightly by 1.45% under the context that other neighboring markets were unstable. Last week, SMMI. Zn led the decline by 4.65% and spot zinc prices failed to stand above RMB 15,000/mt and SMMI. Pb ranked second decline pace by 2.71%. However, copper prices ceased to decline and began to stay stable last week, with SMM. Cu only slipped by 0.7%.
Earlier this week, SHFE copper prices were lower as LME copper prices fell, but later moved higher due to support from domestic stocks markets, with prices solid at RMB 52,000/mt and moving toward RMB 54,000/mt. Positions on the SHFE and LME market both dropped, with declines more evident on the LME market, a sigh of profit taking, helping copper prices rebound from low levels.
Spot premiums surged to around positive RMB 400/mt following supply tightness after prices dived, and with many cargo-holders unwilling to sell goods. Last week, the SHFE/LME copper price ratio move above 8.0, creating incentives for imports. Strong interest for imports was reported, resulting in high premiums for imported goods. Market replenishment by imported goods now available due to a more favorable price ratio helped ease supply tightness. Falling copper prices depressed confidence at downstream producers, who are now opting instead to consume previously stock-piled raw materials, restricting spot trading volumes.
Significant copper price declines in both SHFE and LME markets over the past week triggered profit taking and bargain hunting, but eventually helping copper prices stabilize. In the short term, LME copper prices are expected to stabilize at USD 6,500/mt and test the 10-day moving average of USD 6,800/mt. SMM predicts SHFE copper prices will fluctuate between RMB 54,000-55,000/mt, and believes copper prices have fallen too much and are poised to rebound. However, volatile financial news, concerns over the economic recovery in Europe, as well as the approach of a seasonal low demand period, will all weigh down copper prices and will limit the size and sustainability of any rebound.
SHFE 1008 aluminum contract prices dipped to test support at RMB 15,000/mt, following LME aluminum price trends after transitioning into a new contract month. Positions fell further, and transactions were sluggish as well. Downstream resistance of higher prices was still strong in spot markets. Downstream buyers adopted a wait-and-see attitude after aluminum prices rebounded slightly, while traders were keeping offers firm. Spot aluminum prices were flat at SHFE current-month aluminum contract prices, and overall transactions were stable.
Domestic consumption was modest, but the commissioning of new aluminum capacity will cause more uncertainty with regard to future aluminum prices. In this context, aluminum prices will unlikely rise given weak overall market fundamentals and bearish financial markets, and with SHFE aluminum prices still testing the low-end of the current price range. In general, SMM predicts LME aluminum prices will struggle at USD 2,000/mt in the coming week (May 24-28), while SHFE three-month aluminum contract prices will struggle at RMB 15,000/mt, with possibility of falling further.
Traded prices in domestic lead markets dropped below RMB 15,000/mt, down to RMB 14,500/mt. With an 8.83% decline on the LME lead market, cargos available in the market for inter-market arbitraging further depressed domestic lead prices below RMB 14,500/mt. Despite declining over the past week by nearly RMB 700/mt, downstream producers were still not eager to purchase due to pessimism from significant declines in LME lead prices, leaving low trading sentiment.
Last week, the domestic/LME lead price ratio advanced to 8.2, creating slight profits for imports. Domestic lead markets will face supply pressure if imported lead enters the market at this time.
Domestic lead producers maintained prices at the production cost level of RMB 15,000/mt, with only limited sales volumes reported, and goods were mainly from traders.
SHFE zinc prices were also weak. SHFE 1008 zinc contract prices have declined consecutively since May 18th, on occasion falling to the maximum daily price limit. SHFE zinc prices slipped from RMB 16,600/mt, to a low of RMB 14,830/mt, a drop of 10.7%. Closing prices for SHFE zinc prices moved between RMB 15,340-16,125/mt last week (May 17-21), and the steep decline in domestic zinc prices is fueling market pessimism. SMM believes zinc prices will face resistance when prices are lower than RMB 15,000/mt in view of higher downstream purchasing interest and investors' brisk buying at this level. Average traded prices for #0 zinc were RMB 15,270/mt over the past week, down 7.2% from a week earlier.
In other news, zinc prices in north China were still RMB 600-800/mt higher than east China, but this high premium has caused a portion of goods flow into north markets from east China. However, operating rates at galvanized zinc producers north China declined significantly, resulting in general overall spot transactions.
SHFE zinc inventories increased by 2,018 mt to 288,438 mt last week, with the growth slowing sharply from a week earlier. However, market views are very different with regard to whether or not zinc prices experience significant increases in the near term, and SMM believes SHFE zinc prices will still face strong resistance between RMB 16,500-17,000/mt in the short term after stabilizing at the 5-day moving average.
In the Shanghai tin spot market, prices experienced limited decline compared with LME tin price. Up to last Friday, traded prices of brand name tin were between RMB 141,500-142,000/mt and prices of unknown brand tin were between RMB 140,500-141,000/mt. Suppliers' confidence in holding goods further collapsed as they were under great pressure that transactions were sluggish in spot market. Downstream consumers still made purchases on an as-needed basis, despite that suppliers had lowed prices slightly given the high costs. Most traders were unwilling to replenish stocks since traded prices were lower than ex-works prices and short position sentiment was prevailing in the market, and they stated frankly that the slight cut of spot prices had very limited impact on boosting the trading sentiment following the decline of LME tin prices. The recent EU debt crisis continued to weigh commodity market, and downstream companies were all waiting prices to fall further. There were almost no enquiries in the Shanghai tin spot market last week (May 17-21), and prices may continue to be weak in the following week (May 24-28).
Transactions remain soft in China's domestic nickel spot markets. Jinchuan Group cut ex-works prices by RMB 10,000/mt on Tuesday, to RMB 166,000/mt, but this price cut failed to boost trading sentiment. The willingness of producers to sell was low with traded prices for nickel from Jinchuan Group at or near ex-works prices. Although some arbitrage traders moved some portions of inventories, large volumes moving in the market were not reported. Most end-users adopted a wait-and-see attitude after the sharp price declines, keeping transaction activity modest. .
Ex-works prices from Taigang Stainless Steel were unchanged. Currently, prices are RMB 25,120/mt for #304 cold-rolled stainless steel and RMB 23,620/mt for #304 hot-rolled stainless steel, while prices are RMB 13,470/mt for #430 cold-rolled stainless steel. Prices for #304 and #430 stainless steel from Lianzhong Stainless Steel Corporation were unchanged, and prices for #201stainless steel were down RMB 500/mt from a week earlier. Currently, prices are RMB 23,700/mt for #304 cold-rolled stainless steel, and RMB 22,200/mt for #304 hot-rolled stainless steel. Prices for #430 stainless steel are RMB 9,850/mt, RMB 12,650/mt for LH cold-rolled stainless steel, RMB 10,500/mt for #201 hot-rolled stainless steel with width 1219mm, and RMB 10,900/mt for #201 hot-rolled stainless steel with width 1500mm.
Stainless steel markets were extremely sluggish due to recent sharp declines in nickel prices. Prices and transactions for stainless steel were both sluggish, exerting a negative impact on profits at stainless steel mills. This latest round of price declines was a result of concerns over the ongoing EU debt crisis, as well from the possibility of tighter monetary policy from China, and is unlikely to ease in the short term. In this context, nickel prices will remain weak, with the possibility of further declines. Reviewing the past, it can be seen that stainless steel prices only advanced limitedly and producers only gained limited profit although stainless steel prices surged after the Chinese New Year holiday; while both prices and profits are now down significantly during this latest period of nickel price decline. #200 stainless steel mills have already began to limit production, with some steel mills planning maintenance while demand is soft, stainless steel price is low and any impact on cost is negative. CBI will continue to keep a close look on the latest movement on Stainless Steel Market.
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