SMM Daily Review - 2010/5/26 Base Metals Market

SHANGHAI, May 27 (SMM) --

Copper

SHFE copper market opened slightly higher on Wednesday, with prices fluctuating with China's stocks market during the trading day. SHFE August delivery copper prices opened at RMB 54,930/mt, and tested RMB 55,060/mt, but met with failure. In the afternoon trade, SHFE August delivery copper prices traded as low as RMB 54,550/mt following depressed stocks market. At the closing, the August delivery copper contract on the SHFE market rose slightly, finishing at RMB 54,890/mt. Positions for SHFE August delivery copper contract were down 16,988 lots, and both trading volumes and positions experienced declines. At the end of trading month, trading volumes for SHFE September delivery copper contract increased higher than SHFE August delivery copper contract to 268,834 lots, but positions remain lower than SHFE August delivery copper contract, despite of a increase of 2,532 lots. SMM believes SHFE copper prices will continue to test the 10-day moving average in the short term based on technical analysis.

In the spot market, premiums represented continuous declines, with premiums down to positive RMB 50-150/mt in the morning business, and with mixed market supply of goods. Transactions were generally traded in the RMB 54,900-55,050/mt in the morning business, but purchasing interest was low at the high-end, with declines in trading volumes. Spot premiums dropped with falling prices on the SHFE copper market in the afternoon, down to RMB 0-positive RMB 100/mt, with traded prices dropping below RMB 55,000/mt, down to RMB 54,800-54,950/mt. Cargo-holders were eager to move goods, but generated little buying interest, a sign of low market acceptance towards prices above RMB 55,000/mt.

Recently, the SHFE/LME copper price ratio moves narrowly around 8.0, and suppliers and downstream producers both take a cautious attitude, with low market trading sentiment reported.

Aluminum

SHFE 1008 aluminum contract prices climbed to as high as RMB 15,295/mt after opening at RMB 15,250/mt, but later prices fluctuated lower in the morning session. The soaring US dollar index in the afternoon sent LME aluminum prices falling to USD 2,020/mt, and SHFE aluminum prices plunged as well to the daily low of RMB 15,165/mt, and later pared previous losses before closing as domestic stock markets rebounded, with prices finally closing at RMB 15,245/mt, up RMB 15/mt compared with the previous trading day, or up 0.1%. Total positions increased by 1,604 lots to 265,820 lots, and trading volumes were only 77,070 lots. SHFE aluminum prices struggled between the 5-day and 10-day moving averages, and all technical indicators show trends of consolidation, but the upward momentum is weak.

Spot transactions were weak as SHFE aluminum prices moved on a downward track in the morning, with spot discounts moving between RMB 30-70/mt, and with deals mainly made at the low-end. The speculation of electricity price adjustment continues, but huge aluminum inventories depressed market sentiment with regard to aluminum prices. Aluminum industry is entering an industrial transition period, but the supply surplus will remain unchanged in the short term, allowing aluminum prices to continue to fluctuate at low levels in the future. 

Lead

In the morning, traders in domestic lead markets raised offers in view of stabilizing LME lead prices, setting prices at RMB 14,650-14,700/mt. However, prices were quoted down to RMB 14,600/mt in the afternoon business, given fluctuating LME lead prices and market news. Downstream producers were wary of purchases due to pessimistic outlook, resulting in low trading sentiment.

Zinc

SHFE zinc prices fluctuated widely yesterday. SHFE 1008 zinc contract prices fell to break through the 5-day moving average at noon dampened by short positions, with the lowest prices reported at RMB 15,580/mt. SHFE 1008 zinc contract prices regained most of previous losses later supported by withdrawal of large amount of short positions, with prices finally ending at RMB 15,790/mt, up 0.1%. Short positions of SHFE 1009 zinc contract increased significantly during recent two days, and positions increased by 25,000 lots to 170,000 lots yesterday, with the SHFE 1009 zinc contract becoming the dominant one smoothly.

Wide fluctuation in SHFE zinc prices limited spot transactions, and most downstream consumers were uneager to purchase goods. #0 zinc was mainly traded between RMB 15,450-15,500/mt, with spot discounts moving around RMB 300/mt against SHFE 1008 zinc contract prices, while #1 zinc was mainly traded in the RMB 15,400-15,450/mt range. Trading volumes were very limited in the afternoon given sharp declines in SHFE zinc prices. Spot transactions were modest during recent three days, and lower market sentiment was responsible for the fact that zinc prices failed to break through RMB 16,000/mt. In this context, zinc prices will continue to face resistance in the short term if market concerns over the European economy persist.

Tin

As market concerned over solvency of Spanish banks, the haunting sentiment weighed on base metal again. On May 25th, LME tin prices opened at USD 17,401/mt and closed at USD 17,500/mt, down USD 300/mt from a day earlier, with highest price at USD 17,600/mt and the lowest price at USD 17,250/mt. Daily trading volumes were 75 lots and positions were 17,614 lots. On May 26th, LME tin prices opened with slight gains at USD 17,625/mt, and later fluctuated narrowly with heavy resistance to make any break through. Close attention should be paid to the US home sale data to be released on Wednesday night.
In the Shanghai tin spot market, supply of goods was relatively limited. Traded prices of tin from Yunnan Tin group and Yunnan Chengfeng Non-ferrous Metals Co., Ltd were between RMB 142,000-142,500/mt and traded prices of tin from Nanshan Tin Solder Co., Ltd were around RMB 140,000/mt. Although smelters lifted offers on May 25th, market response was not strong. Downstream companies still couldn’t accept the offers and only made purchasers in a small amount on an as-needed basis. Traders believed they had difficulty in making profit at current price ex-works prices, so they were waiting to make purchases at an appropriate time, resulting in continuous sluggish trading sentiment.

Nickel

LME nickel prices opened at USD 21,869/mt on May 25th, and closed at USD 21,242/mt, down USD 986/mt from a day earlier, with highest price at USD 21,900/mt and the lowest price at USD 20,756/mt. Daily trading volumes were 2,237 lots and positions were 89,620 lots. As investors concerned over solvency of Spanish banks and market was affected by the tense situation of Korean peninsular, base metal prices almost all closed with losses on May 25th. LME nickel prices opened at USD 21,400/mt during the Asia trading period and later fluctuated narrowly, meeting heavy resistance to make any break through due to unfavorable macroeconomic factors.

In the Shanghai spot nickel market, mainstream traded prices of nickel from Jinchuan Group were between RMB 171,500-172,000/mt and few nickel from Russia were around RMB 171,000/mt. Transactions were relatively brisk in the morning session, but traders showed unwillingness to move goods in the afternoon session. Some traders were stimulated and planned low-cost acquisition of nickel from Jinchuan Group when Jinchuan Group released the news that the company will halt production to conduct unit maintenance, but traders were quite disappointed that low-priced goods were rarely seen in the market. Overall trading sentiment was relatively sluggish, and transactions were mainly done between traders.

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

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