SHANGHAI, June 2 (SMM) --
According to official data, China's PMI index in May dropped from April levels, and China's economy is cooling down from overheating growth, a sign of effect from a tightening monetary policy. In other news, China's stocks markets weakened further due to expectations of property tax in China, greatly depressing market confidence. Domestic base metals market is dominated by short sentiment. On Tuesday, SHFE copper prices opened low, with narrow price fluctuations in the morning session. In late business, SHFE copper prices dropped along with a month-on-month decline of PMI, falling stocks markets, and rising US dollar index, and closed at a daily low.
The September delivery copper contract on the SHFE market opened at RMB 54,670/mt, briefly advancing to RMB 54,880/mt, a sign of lack of upward momentum. In the afternoon trade, SHFE September delivery copper prices retreated further, down as low as RMB 54,000/mt, and finally ended at RMB 54,110/mt, with a daily decline of 2.45%. Positions for SHFE September delivery copper contract grew by 12,206 lots, and trading volumes increased, an indication that short positions returned to the market again.
Premiums appeared in the spot market due to softening prices on the SHFE copper market. In the morning trade, premiums for standard-quality copper were between positive RMB 30~50/mt, and premiums for high-quality copper were in the positive RMB 70~100/mt range, with deals mainly traded between RMB 54,700-54,800/mt range. Spot premiums in the afternoon business rose to positive RMB 50~150/mt along with declines on the SHFE copper market, but spot prices fell to RMB 54,250-54,500/mt. Price gap between domestic and imported copper, between high-quality and standard-quality copper was only at RMB 50/mt, resulting in brisk transactions for good-quality copper, and depressed sales of low-quality copper.
If spot copper prices test RMB 53,500-53,700/mt on Wednesday, spot premiums will improve further, but any rising room will be limited in view of cautious attitude towards purchases among downstream producers. If spot copper prices fall to RMB 52,500 -53,500/mt, downstream producers will purchase goods at lower levels when prices show sign of stabilize, and meanwhile goods for arbitraging will enter the market as well.
SHFE three-month aluminum contract prices climbed slightly in the morning session after opening at RMB 15,280/mt, but later slipped from the daily high of RMB 15,310/mt. SHFE three-month aluminum contract prices fell below the 5-day and 10-day moving averages consecutively in the afternoon, with prices hitting the daily low of RMB 15,150/mt, and finally prices ended at RMB 15,155/mt, down RMB 150/mt compared with the previous trading day, or down 0.98%. Trading volumes shrank to 68,236 lots, while positions increased slightly by 4,218 lots to 280,176 lots. SHFE three-month aluminum prices have fallen below the 5-day and 10-day moving averages, with technical indicators showing a weakening trend, and with the market outlook expected to be pessimistic given the shortage of speculative funds.
Spot markets were moderate in the morning supported by rising SHFE aluminum prices, and suppliers were reluctant to move goods, helping narrow spot discounts. Market fundamentals showed no signs of improvement, and SMM predicts SHFE aluminum prices will continue to test the low-end of price range in the near term.
Domestic lead prices were generally above RMB 14,500/mt on Tuesday, as LME lead prices had moved in the USD 1,780-1,800/mt range for nearly 10 days, and due to stable performance during early Asian trading hours. Downstream buying interest was stimulated to an extent, but actual transactions were lackluster amid the strong bearish sentiment. Transactions were generally done between RMB 14,650-14,700/mt in the morning trade, and traded prices in late business dropped by RMB 50/mt to RMB 14,600/mt, along with falling LME lead prices and low trading sentiment.
SHFE zinc prices opened low and moved lower, and even tumbled before closing depressed by short positions. SHFE 1009 zinc contract prices opened at RMB 15,965/mt, and finally closed at RMB 15,680/mt. Trading volumes of SHFE 1009 zinc contract set a new high of 1.66 million lots yesterday given wild zinc price fluctuations, while positions increased by 44,000 lots, with short positions continuing to grow significantly. The surging short positions allowed market players to remain cautious with regard to any zinc price increases in the future.
The soaring short positions also depressed spot markets. #0 zinc was traded around RMB 15,600/mt in the Shanghai market, with spot discounts ranging between RMB 300-350/mt against SHFE 1008 zinc contract, while #1 zinc was traded between RMB 15,550-15,600/mt. Almost no deals were made in the spot markets in the afternoon due to falling zinc prices. Downstream consumers adopted a cautious attitude toward purchases in view of weak SHFE zinc prices recently. In addition, actual consumption weakened since mid-May, also serving as a major reason behind a weaker zinc prices. In this context, any upward movements in zinc prices will be uneven.
The US dollar index surged to 87 during the Asia trading period on June 1st, and LME tin prices fell from USD 17,850/mt to USD 17,500/mt, slipping below 20-day moving average and having difficulties in standing above 10-day moving average after a two-day decline. Technically, KDJ indicator suggested unclear directions and prices may fluctuate towards a new direction.
The US dollar index surged to 87 during the Asian trading period on June 1st, and LME tin prices fell from USD 17,850/mt to USD 17,500/mt, slipping below 20-day moving average and having difficulties in standing above 10-day moving average after a two-day decline. Technically, KDJ indicator suggested an unclear direction.
In the Shanghai tin spot market, market acceptance was low towards major brand tin with prices between RMB 143,500-144,000/mt, although major brand tin smelters kept offers stable, with offers heard between RMB 142,500-143,000/mt. Middlemen had limited inventories on hand, so they moved goods cautiously and did not move goods in a large amount at low prices. Unknown brand tin didn't experience sell-offs, but offers were slightly down from a day earlier, with prices still having pressure around RMB 141,000/mt. Downstream consumers have always adopted a wait-and-see attitude, and market trading sentiment was soft. Although LME tin prices slipped, spot tin prices in domestic market were slower to drop, with no improvement in trading sentiment.
LME nickel prices opened with USD 200/mt losses at USD 21,050/mt on June 1st, dampening market sentiment, and later slipped to USD 20,750/mt, helping boost brisk transactions at this price level. LME copper prices led the declines, and LME nickel prices experienced relatively slower declines but still lacking confidence.
In the Shanghai nickel spot market, offers of nickel from Jinchuan Group were between RMB 169,500-170,000/mt and offers of imported nickel were around RMB 169,000/mt in the morning session. With increasing arrival of imported nickel, supply of goods was ample in the market, resulting in gradual decline of traded prices in the afternoon trading session. Some suppliers even offered nickel from Jinchuan Group between RMB 167,500-168,000/mt. News that domestic steel mills gradually halted production for maintenance was reported in the market, and wait-and-see sentiment from purchasers was strong, resulting in extremely sluggish transactions.
To contact the writer on this report: angelawang @smm.cn
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