SMM Daily Review - 2010/6/23 Base Metals Market

SHANGHAI, June 24 (SMM) –

Copper
On Wednesday, SHFE copper market represented wild performance after a low open, mainly affected by stocks markets. SHFE September delivery copper contract fell as low as RMB 52,340/mt after opening low at RMB 52,600/mt. Later, SHFE copper for delivery in three months rallied to RMB 53,520/mt along with rising China’s A-shares markets. After 11:00 am, the September delivery copper contract on the SHFE market slid to less than the daily moving average, and finally recuperated losses at the closing due to short covering, with prices ending at RMB 53,130/mt, up RMB 290/mt, or 0.55%. Trading volumes increased to 540,000 lots, and trading value exceeded RMB 143 billion, and with turnover rate of over 300%. Although SHFE copper prices moved in the 5 and 30-day moving average on Wednesday, pressure from 30-day moving average remained, but with support available at the 5-day moving average.

In a marked contrast to intense struggles between longs and shorts on the SFHE copper market, supply in the spot copper market remained tight over the past trading days of the week. Even when the SHFE/LME copper price ratio moved around 8.0 in the morning business, suppliers of imported copper were still reluctant to move goods. Domestic goods dominated market supply, with premiums firm at positive RMB 200/mt. The gap of premiums between domestic and imported copper, high-quality and low-quality copper was little changed at around RMB 50/mt. Supported by rising stocks market in the morning, transactions were made in the RMB 53,500-53,700/mt range, but traded prices fell to RMB 53,200-53,500/mt in the afternoon business due to lower equity market. Downstream producers were still wary of purchases along with volatile price movements and unclear market direction, especially after China announced to cancel export tax rebate on some goods, including some copper tube products. However, the direction impact on exports is expected to be around 0.85% of total exports before the policy adjustment. Spot copper prices managed to stand firm at RMB 53,000/mt for a two consecutive day.

Aluminum
SHFE 1009 aluminum contract prices opened at the daily low of RMB 14,710/mt in the morning session, and later climbed stronger following domestic stock markets, with the highest prices hitting at RMB 14,950/mt. However, SHFE 1009 aluminum contract prices fluctuated below RMB 14,800/mt at the closing in the morning when the Shanghai Composite Index slipped after failing to touch 2,600 points, and finally prices closed up slightly at RMB 14,820/mt in the afternoon, up RMB 10/mt compared with the previous trading day, or up 0.07%. Total positions declined by 4,584 lots to 251,028 lots, and total trading volumes reported 145,092 lots. SHFE 1009 aluminum contract prices stabilized above the 5-day moving average gradually, but still faced heavy pressure at the 20-day moving average, so prices will unlikely make any breakthroughs with the absence of additional positive news.
 
In the spot market, traders were reluctant to move goods and raised offers when SHFE aluminum prices surged, and downstream consumers preferred to stand on the sidelines amid rising aluminum prices. Overall inquiries were up, but most deals were made at the low-end of price range. Spot discounts expanded to RMB 100/mt. Base metals prices rebounded slightly recently, partly easing pressure faced by aluminum producers for production cuts. However, downstream consumption experienced no significant changes, and aluminum prices mainly follow other base metals prices trends, and will continue to move in a narrow band in the short term.       
 
Lead
As domestic lead prices approached RMB 15,000/mt, trading sentiment was low, limiting any upward momentum for prices. Transactions in the Shanghai market were traded in the RMB 14,750-14,850/mt range, and later traders lowered prices to RMB 14,700/mt due to sluggish transactions. After domestic lead prices have gained nearly RMB 1,000/mt, any further upward momentum is slow. Meanwhile, domestic lead producers will show waning interest in holding back goods, and price rising room will be capped when market supply is ample.

Zinc
SHFE 1009 zinc contract prices opened slightly low at RMB 14,555/mt, but later surged to RMB 15,245/mt supported by speculative funds despite that domestic A-shares market remained sluggish, up 4.7% compared with the opening prices. SHFE 1009 zinc contract prices later slipped after profit-taking by long positions. Long positions increased, and short positions declined. SHFE 1009 zinc contract prices finally closed at RMB 15,050/mt, with positions increasing by 25,000 lots to 275,000 lots and trading volumes setting a new high of 2.78 million lots. Total positions reached 3.46 million lots on June 23rd. The turnover rate of SHFE 1009 zinc contract was 1011%, and SHFE zinc market was extremely bullish, with speculative sentiment growing.
 
However, spot zinc market sentiment was weaker. #0 zinc was mainly traded at RMB 14,650/mt in the Shanghai market, with spot discounts ranging between RMB 70-90/mt against SHFE 1009 zinc contract prices, but later offers for #0 zinc climbed to a range of RMB 15,000-15,100/mt after SHFE 1009 zinc contract prices rose sharply, with spot discounts expanding to a range of RMB 120-180/mt against SHFE 1009 zinc contract prices. However, spot trading sentiment weakened significantly when zinc prices were above the RMB 15,000/mt mark, and downstream producers preferred to stay out of the market.
 
Zinc market experienced significant changes after China’s Central Government announced to remove export tax rebates on dozens of commodities, and SMM believes the speculative factors exerted stronger impact on zinc market than China’s export rebates removal. Zinc prices will likely advance further given temporarily stronger long position momentum, but special attention should be paid to the selling pressure at higher zinc prices.
Daily Review
 
Tin
LME tin prices opened at USD 18,050/mt on June 22nd, with highest price climbing to USD 18,150/mt and the lowest price touching USD 17,450/mt. Long position power was slightly stronger than short position power, with prices up USD 50/mt from a day earlier. Daily trading volumes were 204 lots and positions were 17,744 lots. With the US dollar fluctuating without clear trend, market needs guidance from solid fundamental news. On June 23rd, LME tin prices opened flat and slipped to the lowest level at USD 17,800/mt, price fluctuating around USD 18,000/mt around 16:00.
 
In the Shanghai tin spot market, traders also lifted offers as LME tin prices closed above USD 18,000/mt and major tin smelters offered ex-works prices at RMB 142,000/mt. However, downstream purchasers were still hesitant to accept offers above RMB 140,000/mt and the sluggish consumption dragged prices down from traders. Mainstream traded prices of unknown brand tin were between RMB 139,000-139,500/mt. Some traders moved relatively a large amount of tin from Yunnan Tin group at RMB 140,000/mt due to cash flow pressure, exerting negative impact on the transactions of other major brand tin from Yunnan Gejiu Zili Metallurgy Co, Yunnan Chengfeng Non-ferrous Metals Co and Yunnan Tin group and resulting in slightly softer sluggish consumption from a day earlier. Low-priced supply of goods was rarely seen in the market, and tin prices are expected to stay stable. 
 
Nickel
LME nickel prices opened at USD 19,700/mt and closed at USD 19,789/mt on June 22nd, up USD 140/mt from a day earlier, with the highest price at USD 19,990/mt and the lowest price at USD 19,350/mt. Daily trading volumes were 1,950 lots and positions were 88,850 lots. LME nickel inventories reduced by 606mt to 128,178mt. On June 23rd, LME nickel prices opened at USD 19,649/mt, with highest price at USD 19,830/mt and the lowest price at USD 19,616/mt. The US dollar slipped and nickel prices fluctuated narrowly. China’s remove of export rebate tax exerted very limited impact on nickel production, as China’s exporting volume of nickel is extremely low.
 
In the Shanghai nickel spot market, prices remained unchanged and transactions were moderate. Traded prices of nickel from Jinchuan Group were between RMB 155,000-155,500/mt and traded prices of imported nickel were between RMB 154,000-154,500/mt, with ample supply of goods reported in the market. Downstream enquires were slightly brisker when prices were slightly lower in the morning trading session, but transactions at relatively high prices were still few. Supply of low-priced goods was extremely few due to concern that cargo-holders may lift prices. Most inventories were untradable. Some stainless steel mills that had previously halted productions have already resumed production.  

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

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