SMM Daily Review - 2010/6/11 Base Metals Market

SHANGHAI, June 12 (SMM) --

Copper

Cheered by strengthening LME copper prices, SHFE copper market opened high on Friday, and moved narrowly around the daily moving average for the day. Copper for September delivery, the most active one on the SHFE copper market opened at RMB 51,200/mt, and rallied to RMB 51,640/mt before China announced CPI and other major data for May at 10:00 am. After release of the data, SHFE September delivery copper prices felt great downward pressure above RMB 51,500/mt, down as low as RMB 51,110/mt, and finally closed at RMB 51,400/mt, up RMB 950/mt or 1.88%. Positions increased significantly in the morning session, and a great number of positions were closed in the afternoon business. Trading volumes were 475,468 lots, with trading valued at more than RMB 122 billion, and with turnover rate of 251.84%. Positions for SHFE September delivery copper contract were down 12,108 lots, with total positions below 188,794 lots. The September delivery copper contract on the SHFE copper market has improved to price band of 5 and 10-day moving average, while the upward momentum remains available due to previous price steep losses. However, an unclear direction from KDJ indicators adds to uncertainties towards copper price outlook. 

Based on inventories tallied by Shanghai Futures Exchange (SHFE), copper stocks continued to fall, down 13,392 mt, marking a six-week losing streak, and with total copper inventories down below 140,000 mt. 

In the spot market, downstream producers have showed high buying interest at prices below RMB 50,000/mt since copper prices continue corrections since June, as purchases at lower prices are able to help them reduce costs. Hence, spot premiums stay around positive RMB 200/mt, and transactions remain positive, especially on Friday morning, market trading sentiment was brisk before the upcoming Chinese Dragon Boat Festival holiday. Supply of imported goods increased in the morning, with various kinds of brands, boosted by the rising SHFE/LME copper price ratio. Cargo-holder interest in moving goods was high, with spot premiums down to positive RMB 100/mt, which depressing domestic goods holder willingness to maintain prices firm. With narrow fluctuations on the SHFE copper market, spot transactions were generally traded in the RMB 51,700-51,950/mt, with premiums at RMB 0-150/mt. Spot copper prices have meet great resistance at RMB 52,000/mt in the pre-holiday market, but downstream producers will also accept the price level after the holiday, if LME copper prices strengthen during the holiday period.  

Aluminum

On Friday, SHFE aluminum market opened high, supported by rising LME aluminum market overnight. SHFE September delivery aluminum prices experienced narrow movements after opening at RMB 14,630/mt, with the low-end reported at RMB 14,595/mt for the trading day. Withdrawal by some short positions before the holiday triggered slight rally at the end of trading, setting a daily high of RMB 14,695/mt, and closed at RMB 14,685/mt, up RMB 115/mt or 0.79% from a day earlier, returning above the 5-day moving average. However, any upward momentum is weak, with an unclear market direction technically. Total positions were 269,426 lots, down 4,504 lots, and trading volumes were low at 93,894 lots.

Spot trading volumes dropped from previous levels, and traders maintained prices firm, but downstream producers showed low acceptance at existing price levels, and gradually took a wait-and-see attitude following rising aluminum prices.

SHFE aluminum prices have regained previous losses over the week, and have met short-term resistance level. Hence, SMM believes any rising room for SHFE aluminum prices will be limited unless SHFE copper prices make further improvement in view of pessimistic view for medium-term aluminum prices. Slowing price gains in forward-month aluminum contracts also indicate great downward pressure for aluminum prices at high prices. 

Lead

Domestic lead prices climbed higher on Friday, and supply tightened along with lead producer insistence in holding back goods, and narrowed profits in selling goods from rebounding LME lead prices. Traders joined in lead producers, and became reluctant in moving goods, and so domestic lead prices, coupled with optimistic sentiment, on the last trading day before the holiday rallied all the way. Price offers were up from RMB 14,100/mt in the morning to RMB 14,350/mt in the afternoon. However, downstream producers were cautious in view of rapid price gains, with limited stocks replenishment reported, resulting from uncertainties towards price movements in post-holiday market and low operating rates. Transactions in the Shanghai market were traded between RMB 14,100-14,200/mt, with limited trading volumes.

Zinc

During the last trading day on June 11th before the Dragon Boat Festival, SHFE zinc for delivery in three months fluctuated narrowly after a slight high open. The NBS announced macro economic data in May at 10:00 am, and CPI was up by 3.1% YoY. Although the 3.1% growth rate exceeded the original target set at the early 2010 of 3% growth, market responded flatly towards to data since the outcome is inline with market expectation. In the afternoon session, zinc for delivery in three months fluctuated more narrowly around RMB 14,320/mt and finally closed at USD 14,380/mt. Positions were reduced by 35,470 lots to 254,712 lots. Although trading volumes reached 1.2 million lots, still down significantly from those in the previous three days, indicating strong wait-and-see sentiment before the Dragon Boat Festival.

In the Shanghai zinc spot market, traded prices of #0 zinc were between RMB 14,100-14,150/mt, with discount of RMB 70/mt versus zinc for delivery in three months. Traded prices for #1 zinc were limitedly between RMB 14,050-14,100/mt, and supply of imported zinc with prices at RMB 14,100/mt was also reported in the market. Large amount of stock replenishment didn't occur in last trading day before the Dragon Boat Festival, and downstream companies remained relatively cautiously. Lacking of investment interest from players, current zinc market movement is passively followed neighboring market movement. With regard to consumption, even if SHFE zinc prices climbed to RMB 14,500/mt, the possibility that spot zinc prices also climb up and spot market is boosted up is very small. In this context, zinc prices may face sell-off pressure when prices climb, and cautiously optimistic sentiment remains over the short term.

Tin

LME tin prices opened at USD 16,300/mt and closed at USD 16,500/mt on June 10th, up USD 100/mt, with the highest price at USD 16,700/mt and the lowest price at USD 16,300/mt. Daily trading volumes were 140 lots and positions were 18,190 lots. Boosted by macro economic data from China, global equity markets advanced, but the euro slipped versus the US dollar, dragging base metal prices to shave early gains in the afternoon session. On June 11th, LME tin prices opened at USD 16,500/mt and tested the highest level of USD 16,650/mt, standing above the 5-day moving averages. Market is still haunted by concern over the economic prospect and base metal performance was not optimistic.

In the Shanghai tin spot market, bearish sentiment still dominated the market. Transactions were still sluggish in the morning session, and mainstream traded prices were between RMB 136,500-137,000/mt. Supply of goods was limited, and some traders had no goods on hands after sever day’s consumption, while some goods will arrive at Shanghai in the following week. Some traders may be closed off on holidays on June 12 and June 13th. It is expected that sluggish trading sentiment will extend.

Nickel

LME nickel prices opened at USD 19,020/mt and closed at USD 18,940/mt on June 10th, down USD 140/mt, with the highest price at USD 19,550/mt and the lowest price at USD 18,756/mt. Daily trading volumes were 2,020 lots and positions were 91,020 lots. On June 11th, LME nickel prices opened at USD 18,941/mt, and fluctuated narrowly between RMB 18,720-19,130/mt. The US dollar advanced slightly to 87.2.

In the Shanghai nickel spot market, overall trading sentiment was stagnant. As previous prices slipped too quickly, traders were reluctant to move goods at losses. With importing costs increasing, arrivals of imported nickel were limited and supply of nickel from Jinchuan Group was also limited, resulting in relatively tight supply of goods in the market. Mainstream traded prices of nickel from Jinchuan were between RMB 152,000-153,000/mt and traded prices of imported nickel were between RMB 151,500-151,800/mt. Transactions were not brisk and were still dominated by traders, while few end users were in the market.

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

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