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SMM Daily Review - 2010/7/2 Base Metals Market
Jul 5,2010 10:00CST
data analysis

SHANGHAI, July 5 (SMM) --


On Friday, China's A-shares market experienced volatile movements, fell at first, and then rallied. SHFE copper for October delivery closed 1.48% higher to end at RMB 52,200/mt on Friday. Trading volumes increased to 596,566 lots, and positions stabilized at 195,580 lots. All copper contracts prices on the SHFE market stood above RMB 52,200/mt, especially for SHFE current-month copper prices, which ended at RMB 53,000/mt, truly reflecting conditions in the spot market.

In the spot market, supply of goods was limited, with firm prices. Domestic copper producers remained unwilling to move goods due to supply tightness of raw materials. Hence, supply of domestic goods was tight, with firm prices, and market reported unavailability of goods in the afternoon business. Although the SHFE/LME copper price ratio remains unfavorable for imports, with supply of imports expected to be limited in the future, imported copper dominated market supply, with climbing spot premiums. In the morning trade, spot premiums were between positive RMB 150-250/mt, dealing in the RMB 52,250-52,450/mt range. Spot premiums in the afternoon business gained to positive RMB 250-450/mt, with traded prices up to RMB 52,500-53,000/mt. Supply tightness increased downstream purchasing interest, and speculative buying as well, with brisk trading sentiment reported. 


 LME aluminum prices closed down 2% on July 1st, but SHFE 1009 aluminum contact prices opened higher at RMB 14,610/mt, and later fluctuated higher slightly in the morning session. SHFE 1009 aluminum contract prices rose rapidly in the afternoon supported by advancing LME copper prices and rebounding stock markets, with prices breaking through the 5-day and 10-day moving averages and facing heavy pressure at the 20-day moving average. SHFE 1009 aluminum contract prices hit the highest level of RMB 14,800/mt, and finally closed at RMB 14,775/mt, up RMB 130/mt compared with the previous trading day, or up 0.89%. Positions declined slightly by 2,784 lots to 205,104 lots, while trading volumes reported only 74,084 lots.

In the spot market, downstream producers actively replenished stocks, and their acceptance of current aluminum prices was relatively high. In the mean time, market supplies tightened gradually, and traders kept their offers firm, with trades made at a zero discount against SHFE current-month aluminum contract prices. Overall transactions were bullish. There is high likelihood aluminum prices will edge higher in the short term, but the superficial improvement in market fundamentals will help dampen any aluminum price increases, so aluminum prices will likely fall in the medium and long term.


Supported by rallying LME lead prices, domestic lead prices followed suit, with offers for well-known branded products firm between RMB 14,650-14,700/mt. Prices for goods from Gejiu increased to RMB 14,450-14,500/mt. After staying out of market for nearly a week, downstream producers made brisk inquiries in view of lead price's slower pace to fall, and purchased goods, with improved market transactions compared with conditions in earlier week.


SHFE 1010 zinc contract prices opened lower at RMB 14,560/mt, and later soared to RMB 14,800/mt as the US dollar index dipped significantly on Thursday night (July 1st). SHFE 1010 zinc contract prices surged again in the afternoon buoyed by recovering weighted shares in Shanghai and Shenzhen A-shares markets, with prices climbing all the way and finally closing at RMB 15,105/mt, up RMB 505/mt, or up 3.46%. Transactions were bullish, and positions increased further. Positions have risen consecutively to a record high, with total positions increasing by 34,746 lots to 519,500 lots. SHFE zinc prices moved widely, an indication of heavy resistance faced by zinc prices. As base metals markets are on a downward track currently, the short-term increases in zinc prices may open the door for growing short selling pressure at higher prices. In this context, SHFE zinc prices will likely fall further in the short term.

In the spot market, actual traded prices for #0 zinc were between RMB 14,650-14,700/mt in the morning, with spot discounts ranging between RMB 100-150/mt against SHFE 1010 zinc contract prices, while #1 zinc was traded in the RMB 14,600-14,650/mt range. Although both futures and stocks markets rebounded, the impact from negative economic news persisted. As a result, spot zinc market showed no response. Downstream consumers stayed out of the market, while suppliers actively moved goods at higher prices, resulting in oversupply in the market and growing short positions momentum. In response, no deals were made when spot offers rose to RMB 14,700/mt, and trading sentiment was stagnant in the afternoon despite that spot offers were lifted to RMB 14,800/mt. Overall transactions in spot markets were contrary to those in SHFE zinc market. 


LME tin prices opened at USD 17,400/mt and closed at USD 17,050/mt on July 1st, down USD 350/mt from a day earlier, with the highest price at USD 17,400/mt and the lowest price at USD 16,950/mt. Daily trading volumes were 159 lots and positions were 18,589 lots. As PMI from China, India, Australia and Taiwan all suggested a slower pace of manufacture activities, investors' concern over economic prospect exacerbated. On July 2nd, LME tin prices opened at USD 16,850/mt and surged to the highest level at USD 17,390/mt in the afternoon session. Close attention should be paid to non-farm employment data scheduled to be released on Friday.

Prices continued to fall in the Shanghai tin spot market, as LME tin prices fell below USD 17,000/mt. Major brand tin smelters continued to lower quotes between RMB 139,000-141,000/mt. Although traders had limited major brand tin in hand and quoted offers between RMB 138,500-139,000/mt, enquires were quite limited. Unknown brand tin with more favorable prices dominated market transactions on July 2nd, with mainstream traded prices at RMB 137,500/mt reported in the market. Supply of goods was still limited on July 2nd, and new goods are expected to arrival in the following week.


LME nickel prices opened at USD 19,358/mt and closed at USD 19,100/mt on July 1st, down USD 550/mt from a day earlier, with the highest price at USD 19,500/mt and the lowest price at USD 18,900/mt. Daily trading volumes were 1,990 lots and positions were 87,208 lots. On July 2nd, LME nickel prices opened at USD 19,150/mt, reaching the highest level at USD 19,450/mt and touching the lowest level at USD 19,100/mt, up USD 275/mt from a day earlier. LME nickel prices advanced slightly as Shanghai A share market boosted performance of neighboring markets. Technically, LME tin prices tested USD 19,000/mt for several times, but any room for prices to rise will be limited and prices are expected to fluctuate narrowly in the short term.

In the Shanghai nickel spot market, enquires increased and trading sentiment improved to certain extent. Traded prices of nickel from Jinchuan Group were between RMB 152,000-153,000/mt and traded prices of imported nickel were between RMB 151,000-151,500/mt. As some merchants were eager to replenish stocks, transactions between traders were brisk. Supply of imported nickel and nickel from Jinchuan Group was relatively sufficient.

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

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