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SMM Daily Review - 2010/6/18 Base Metals Market
Jun 21,2010 10:12CST
smm insight

SHANGHAI, June 21 (SMM) –

SHFE copper prices fell further after opening at low last Friday. In the morning session, SHFE copper prices rallied briefly along with rising China A-shares market, and later weakened all the way. Finally, SHFE September delivery copper prices closed at RMB 50,930/mt, down RMB 1,090/mt or 2.1%. Positions for SHFE September delivery copper contracts were up 13,490 lots, and trading volumes increased 38% to 487,356 lots, with positions as high as more than 208,000 lots. SMM believes SHFE copper prices will test support at the 5-day moving average in the coming week, with struggle between short and long positions expected at RMB 51,000/mt.

In the spot market, trading sentiment was brisk, making a marked contrast with narrow fluctuations on the SHFE copper market. In earlier trading hours, spot traded prices rallied with rising SHFE copper prices. Friday marked the beginning of a new delivery contract month, with spot premiums reported between positive RMB 80-180/mt. The SHFE/LME copper price ratio dropped to 7.95, lowering selling interest of imported goods. Hence, domestic goods dominated market supply, and with supply tightness of high-quality goods. Downstream purchasing interest improved after a wait-and-see attitude reported a day earlier, with brisk trading sentiment. Transactions in the morning business were made between RMB 51,850-52,100/mt, and dropped to RMB 51,750~51,950/mt in the afternoon trade. SMM believes buying interest will remain towards prices at around RMB 51,500/mt.

According to data tallied by Shanghai Futures Exchange (SHFE), copper stocks in Shanghai warehouses continued to fall, down 3,388 mt, and with total stocks down to 135,944 mt. Continuous declines in stocks suggested brisk buying activity.

SHFE aluminum prices fluctuated in a narrow band after opening lower, with any upward momentum and downward movements reported limited. SHFE 1009 aluminum contract prices opened at RMB 14,580/mt, and later moved higher supported by rebounding domestic A-shares market during the spot trading hours. However, domestic A-shares market slipped all the way in the afternoon and finally closed at a daily low. In response, although SHFE aluminum prices struggled to move above the daily moving average, prices were still pressed by the 5-day moving average. SHFE 1009 aluminum contract prices mainly fluctuated around RMB 14,500/mt, with the highest prices reported at RMB 14,625/mt, and finally prices ended at RMB 14,535/mt, down RMB 150/mt compared with the previous trading day, or down 1.02%. Positions of SHFE nearby aluminum contracts declined, but positions of SHFE forward aluminum contracts increased, with total positions up 128 lots. SHFE aluminum prices are still pointing to the RMB 14,500/mt mark amid current strong pessimistic sentiment.
In the spot market, a limited number of downstream consumers actively made deals between RMB 14,370-14,390/mt during the spot trading hours when SHFE aluminum prices moved higher, while cargo-holders offered prices at a discount of RMB 20/mt against SHFE 1007 aluminum contract prices after transitioning into a new contract month. Spot aluminum prices fell at slower pace at noon following falling SHFE aluminum prices, with deals made between RMB 14,350-14,370/mt and with discounts of RMB 0/mt against SHFE 1007 aluminum contract prices. Aluminum prices remain weak despite of support from higher costs, and aluminum price movements will still mainly depend on copper price trends and macro economic conditions. 

On Friday, domestic lead prices found no support from LME lead market. Coupled with sluggish downstream demand, trading sentiment in domestic lead markets remained lackluster, although prices showed signs of stabilizing after rising above RMB 14,000/mt. Recently, LME lead market have represented price rebounds, but pessimistic attitude in the medium term continues to hamper buying interest. Transactions in the Shanghai market were done in the RMB 14,300-14,400/mt range.

SHFE zinc prices remained weak on the second trading day after the Chinese Dragon Boat Festival holiday. SHFE 1009 zinc contract prices fluctuated around RMB 14,200/mt all day after opening lower at RMB 14,300/mt, and finally ended at RMB 14,055/mt amid sluggish domestic A-shares market in the afternoon. Positions of SHFE 1009 zinc contract increased consecutively by 11,840 lots to 291,000 lots, with struggles between long and short positions remaining intense. However, Positions of SHFE 1009 zinc contract increased by 45,500 lots at the closing in the morning session, indicating investors still adopted a wait-and-see attitude toward zinc market outlook, so the number of investors who withdrew from the market before the weekend was large. In addition, transactions of warrants increased recently on the SHFE zinc market as the delivery date nears, so SHFE zinc inventories declined by 23,000 mt last week as a result. However, SMM predicts SHFE zinc inventories will unlikely decline further after transitioning into a new contract month.
Zinc spot markets remained sluggish. Downstream buying interest was lower amid weakening SHFE zinc prices, and downstream consumers were uneager to make purchases unless their raw material inventories were relatively low. # zinc was traded between RMB 14,050-14,150/mt in the Shanghai market, with spot discounts ranging between RMB 70-100/mt against SHFE 1009 zinc contract prices, while #1 zinc was traded between RMB 14,050-14,100/mt. Market supply of imported zinc from Australia increased, with traded prices moving around RMB 14,050/mt. SHFE zinc prices will face difficulties in moving higher but will be easy to fall in the near term in view of the approach of seasonal low demand period, stronger speculative sentiment, as well as higher short position momentum. As a result, SHFE 1009 zinc contract prices will find heavy selling pressure between RMB 14,500-15,000/mt in the short term. 

LME tin prices opened at USD 17,850/mt and closed at USD 17,651/mt on June 17th, down USD 99/mt from a day earlier, with the highest price at USD 17,850/mt and the lowest price at USD 17,500/mt. Daily trading volumes were 305 lots and positions were 17,507 lots. LME tin prices were dragged down by concerns over China’s oversupply and un-expected increase of the US initial job-less claim, but the decline range was relative limited. On June 18th, LME tin prices opened at USD 17,651/mt and reached the highest level at USD 17,700/mt, with prices moving narrowly along with other base metals.

In the Shanghai tin spot market, spot prices were firm, as some smelters gradually lifted up offers, helping lent support for market prices. Overall trading sentiment remained sluggish, and few downstream purchases entered the market. LME tin price movement was not clear, with most market players adopting a wait-and-see attitude. Traded prices of major brand tin were between RMB 139,000-140,000/mt and traded prices of unknown brand tin were between RMB 138,500-139,000/mt.

LME nickel prices opened at USD 19,730/mt and closed at USD 19,636/mt on June 17th, down USD 314/mt from a day earlier, with the highest price at USD 19,950/mt and the lowest price at USD 19,360/mt. Daily trading volumes were 1,888 lots and positions were 89,367 lots. On June 18th, LME nickel prices opened at USD 19,636/mt, and reached the highest level at USD 19,800/mt, with prices moving slightly upward between 5-day and 10-day moving average. Trading volumes and positions both decreased, and market direction is not clear.

In the Shanghai nickel spot market, transactions were sluggish. Although LME nickel prices slipped, traded prices were able to stand above RMB 153,000/mt, supported by ex-works nickel prices from Jinchuan Group. Supply of imported nickel was still tight. Prices of imported nickel were between RMB 153,500-154,000/mt and traded prices of nickel from Jinchuan Group were between RMB 154,000-154,500/mt, with narrow price spread between the two. Transactions were still dominated by traders, with downstream purchasers remaining cautious. 

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


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