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SMM Daily Review - 2010/6/7 Base Metals Market
Jun 8,2010 10:05CST
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SHANGHAI, June 8 (SMM) --
SHFE copper market dropped to its daily limit after opening on Monday. SHFE September delivery copper contract, the most active on the SHFE market closed at RMB 50,100/mt. Compared with a daily decline of over 6.5% on the LME copper market, SHFE copper prices fell by 5%, leaving a price gap of near RMB 1,500/mt between the two. LME copper prices will possibly rebound to USD 6,250/mt on technical if no solid negative news is available. If short-term buying fails to boost LME copper prices, SHFE copper prices will easily drop below RMB 50,000/mt on Tuesday, with price band expected between RMB 48,800-49,500/mt, and test support at RMB 48,000/mt. SHFE copper market has entered a bear market. If SHFE copper prices fall below RMB 48,000/mt, the next support level will be RMB 45,000/mt.

In the spot market, the SHFE/LME copper price ratio was above 8.2, creating profits around RMB 1,000/mt for imported copper. Supply of imported goods significantly increased as a result, with discounts expanding to around negative RMB 500/mt to stimulate buying interest. Deals in the morning were in the RMB 50,000-50,150/mt range, and traded prices retreated to RMB 49,800-50,000/mt in the afternoon due to wide discounts. Transactions were mainly done by speculators, with few downstream consumers. If the price ratio falls to 8.0-8.1 on Tuesday, spot discounts will narrow. As the delivery data for a new contract month falls on a 5-day period of holiday of Chinese Dragon Boat festival, wide spot discounts will likely stimulate buyers, leaving spot discounts for the week unsustainable. In this context, SMM believes spot copper prices will fluctuate between RMB 48,000~50,000/mt.

Both SHFE copper and zinc prices hit their downside limits yesterday, and SHFE 1009 aluminum contract prices fluctuated in a narrow band after opening at RMB 14,220/mt, but later fell to the daily price limits at RMB 14,080/mt when the spot trading period in east China drew near. Total positions increased by 7,360 lots to 304,014 lots, while trading volumes were 137,860 lots.

SHFE aluminum prices hitting the downside limit heavily depressed downstream buying interest, and offers quoted by traders slid gradually, with slight spot premiums turning zero, and trading sentiment was sluggish. Aluminum prices may experience technical rebound after significant declines, but changes of European debt crisis and US dollar index trends remain major factors behind base metals prices. SHFE metals prices all fell to their price limits yesterday, and SMM predicts SHFE aluminum prices will open low on June 8th, and special attention should be focused on the development of sovereign debt crisis in the Euro zone and bank shares trends in Europe and the US. 

Traded prices in domestic lead markets dropped to RMB 13,700-13,800/mt, easily falling below RMB 14,000/mt due to plunging LME lead prices, although both domestic lead producers and downstream producers were unwilling to see marked decline in domestic lead prices. The domestic/LME lead price ratio is now slightly favorable for imports, and flow of imported goods into the already amply supply market will add to downward pressure on domestic lead prices. 

SHFE zinc prices fell to the daily price limits after opening yesterday, and then remained at this level all day. Spot trading sentiment was sluggish as well. #0 zinc was traded between RMB 13,600-13,650/mt in the morning session in Shanghai market, while #1 zinc was traded between RMB 13,550-13,600/mt. Smelters were unwilling to move goods, while goods held by traders were relatively sufficient, but trading volumes were limited. Downstream consumers held very low interest in purchases despite of moderate inquiries, and most of them were pessimistic toward zinc price outlook.

SHFE 1009 zinc contract prices finally closed at RMB 13,900/mt, and positions declined by 22,466 lots to 325,668 lots, with short positions much higher than long positions. SHFE zinc prices followed LME zinc price trends recently, and the SHFE/LME zinc price ratio shows SHFE zinc prices should move on a downward track. 

LME tin prices opened at USD 17,650/mt last Friday and closed at USD 16,000/mt, down USD 1,500/mt from a day earlier, with highest price at USD 17,650/mt and the lowest price at USD 16,000/mt. Daily trading volumes were 760 lots and positions were 18,049 lots. LME tin prices were down by 8.57% to a four-month low. Market is still negatively affected by lower-than-expected employment data from the US, the concern over slower economic growth from China and the expanding of the EU sovereign debt crisis. On June 7th, LME tin prices opened at USD 15,951/mt and hit the lowest level at USD 15,750/mt, with prices later rebounding slightly and closing above USD 16,000/mt at 17:00. Unfavorable technical condition, along with many concerns, heavily weighed on current market, and price movement shall not be optimistic for the foreseeable future.

In the Shanghai tin spot market, some domestic smelters began to lower offers along with the sharp decline of LME tin prices last Friday. With strong bearish sentiment expanding, downstream consumers continued to adopt a wait-and-see attitude and few of them entered the market. Transactions were extremely sluggish, with traded prices of major brand tin between RMB 138,500-140,500/mt and traded prices of unknown brand tin between RMB 137,500-139,500/mt. Market offers were relatively mixed on June 7th, with some smelters quoted no offers with a wait-and-see attitude. Traders' willingness to move goods was not strong due to limited goods on hands, and most traders were reluctant to move goods at prices below RMB 140,000/mt.

LME nickel prices opened at USD 18,800/mt, and closed at USD 18,065/mt last Friday, down USD 584/mt from a day earlier, with highest price at USD 18,900/mt and the lowest price at USD 17, 975/mt. Daily trading volumes were 3,831 lots and positions were 89,733 lots. On June 7th, LME nickel prices opened at USD 17,900/mt during the Asian trading period, and prices later rebounded slightly to USD 18,000/mt, still fluctuating weakly between USD 18,207/mt and USD 17,375/mt.

In the Shanghai nickel spot market, overall trading sentiment was moderate. Mainstream traded prices of nickel from Jinchuan Group were between RMB 148,000-149,000/mt and traded prices of imported nickel from Russia were between RMB 147,000-148,000/mt, while Russian nickel at RMB 145,000/mt also was reported in the market when LME nickel prices stumbled on June 7th. Market sentiments were mixed, with most traders bearing bearish sentiment but few traders believing that a technical rebound may occur following an oversell. Relatively few downstream consumers entered the market and transactions were still dominated between traders.

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


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