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SMM Daily Review - 2010/6/2 Base Metals Market
Jun 3,2010 10:13CST
smm insight

SHANGHAI, June 3 (SMM) --

On Wednesday, SHFE copper prices moved downward after a low open. China's stocks markets dropped as low as 2,521 points at the midday. Japan's Prime Minister's resignation triggered sell off of yen, and the panic sentiment sent commodity market lower. SHFE copper prices tumbled. The September delivery copper contract on the SHFE market fell as low as RMB 52,520/mt, and pared some losses in later business due to rebounding stocks markets, with prices finally closing at RMB 53,330/mt, down 2.04% or RMB 1,110/mt from a day earlier. Both trading volumes and positions increased. Trading volumes exceeding 750,000 lots, and trading valued at more than RMB 201 billion, with turnover rate of 395.95%. Positions for SHFE September delivery copper contract were up 11,082 lots. With downward pressure available technically, SMM believes SHFE copper prices will weaken further, and may test the previous low level.

In the spot market, mixed offers were heard following plunges on the SHFE copper market at the midday. In early morning, spot premiums were stable between positive RMB 80~150/mt, dealing in the RMB 54,150-54,350/mt range. Supply of both domestic and imported goods was ample, with brisk trading sentiment. However, traded prices retreated below RMB 54,000/mt after SHFE copper prices tumbled, despite of spot premiums as high as positive RMB 150-350/mt, with deals done between RMB 53,500~53,900/mt. In the afternoon business, traded prices fell further to RMB 53,100-53,450/mt. Downstream purchasing interest failed to be stimulated, though spot copper prices approached to a low level of RMB 52,000/mt. On the other hand, suppliers of imported goods represented higher interest in moving goods in view of increasing profits, which will result in higher supply of imported goods.

A traditional low demand period is coming soon after entering June, and supply surplus will become more evident, and this will further weigh down copper prices. 

SHFE aluminum prices opened lower yesterday following weakening LME aluminum prices, and moved narrowly in the morning, but plunged at noon along with SHFE copper and zinc price trends. SHFE 1008 aluminum contract prices opened at RMB 15,115/mt, with the highest level and lowest level reported at RMB 15,175/mt and RMB 14,730/mt, respectively, and prices finally ended at RMB 14,935/mt, down RMB 310/mt. SHFE 1008 aluminum contract prices regained some losses in the afternoon supported by rebounding stocks markets, with an intraday drop of 2.03%. Positions of SHFE 1008 aluminum contract declined by 2,758 lots to 86,472 lots, while positions of SHFE 1009 aluminum contract grew by 8,860 lots to 68,302 lots, with trading value exceeding RMB 10 billion, and with the turnover rate greater than 201%. SHFE 1009 aluminum contract prices fell from RMB 15,310/mt to RMB 15,055/mt. LME aluminum prices were weak at USD 1,970/mt in the afternoon, heading for USD 1,960/mt. SHFE 1008 aluminum contract prices are expected to fall below RMB 15,000/mt on June 3rd, and market players remain pessimistic toward market outlook.

In the spot market, spot offers were stable before 11:00 a.m., and deals were made between RMB 14,800-14,830/mt, with spot discounts ranging between RMB 0-30/mt, and transactions were stagnant. However, spot premiums appeared in the spot aluminum market in the afternoon as SHFE aluminum prices slumped after 11:00 a.m., and spot offers were around RMB 14,600/mt, with spot premiums moving around RMB 50/mt against SHFE current-month aluminum contract prices of RMB 14,500-14,600/mt. A portion of cargo-holders held high interest in moving goods amid rising spot aluminum prices, but no purchases were reported. Aluminum producers were under great pressure from electricity price hikes and falling aluminum prices, and CHALCO's move to cut alumina prices will make aluminum prices fall further. Spot aluminum prices are expected to test the support at RMB 14,500/mt amid higher pessimistic sentiment in the market.  

Domestic lead prices dropped along with falling LME lead prices, with offers down from RMB 14,650/mt to RMB 14,550/mt. Domestic lead prices struggled to remain above RMB 14,500/mt in the morning business, but lost support at the price level following more declines on LME lead market. Domestic lead producers maintained prices firm due to costs, while downstream producers were not eager to make purchases along with continuing declines of lead prices, bringing market to a standstill. Transactions in the Shanghai market were done in the RMB 14,450-14,550/mt range on Wednesday.

SHFE zinc prices fluctuated in a narrow band after opening lower yesterday, but later dropped rapidly after 11:00 a.m. depressed by short positions, with SHFE three-month zinc contract prices even falling to the daily price limits, and SHFE zinc prices led base metals prices declines yesterday. SHFE zinc prices climbed slightly before closing as domestic A-shares market bottomed out. The turnover rate of SHFE three-month zinc contract reached 521%, an indication of intensifying struggles between long and short positions, and trading volumes remained high at 1.5 million lots. Market players remained pessimistic toward zinc price trends, exerting negative impact on actual transactions in the spot market yesterday.

#0 zinc was mainly traded between RMB 15,250-15,350/mt in Shanghai market before 11:00 a.m., with spot discounts for different brands moving between RMB 200-280/mt against SHFE 1008 zinc contract prices. However, actual deals were made between RMB 14,900-15,000/mt after zinc prices fell rapidly, with spot discounts narrowing to RMB 200/mt against SHFE 1008 zinc contract prices, and trading volumes were limited. The pessimistic sentiment still dominated the market, and although spot zinc prices have fallen below RMB 15,000/mt again, special attention should be paid to the support at this level. If spot zinc prices fail to get support at RMB 15,000/mt, the next support level will be RMB 14,500/mt.

The US dollar moved robustly above the 5-day moving average during the Asian trading period on June 2nd, and LME tin for delivery in three months extended yesterday's decline trend, being weighed below the 10-day moving average and fluctuating around USD 17,550/mt. Bearish sentiment on the LME tin market was not as strong as that in other base metals markets, with prices more likely affected by the decline of other metal prices.

Trading sentiment in the Shanghai tin spot market was extremely sluggish, and prices were under great pressure to fall, despite that upstream major brand tin smelters didn't want to lower prices. Offers of major brand tin from traders were around RMB 142,500/mt on June 2nd, and offers of unknown brand tin, without further decline reported in the market, also narrowly fluctuated around RMB 141,000/mt. With strong short position sentiment, few downstream consumers took the initiative to make purchases, waiting for price adjustment of major brand tin.

LME nickel prices opened at USD 20,250/mt, reaching the highest level at USD 20,300/mt and slipping as low as USD 19,660/mt. Market sentiment dampened as prices had fallen below the supporting level of USD 20,000/mt, and transactions were relatively brisk at USD 19,700/mt.

In the Shanghai nickel spot market, offers of nickel from Jinchuan Group were between RMB 165,000-166,000/mt and traded prices of nickel from Jinchuan Group were at RMB 165,000/mt in the morning session. Offers of imported nickel were RMB 164,500/mt and traded prices of imported nickel gradually declined to RMB 164,000/mt with the increasing arrival of goods. In the afternoon session, spot prices of nickel from Jinchuan Group slipped to RMB 162,000/mt. Wait-and-see sentiment was strong from downstream consumers, with sluggish transactions reported in the market.
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