Last week (June 28-July 2), most European and the US major financial markets have slumped and the US equity market fell sharply on June 29th, with Down Jones index falling below 10,000 points to 9622. The concern over global economic growth was rekindled in the market, triggering buying of risk aversion assets like the US dollar and the US treasury, but sell-offs of heavy-weights like Boeing and Alcoa. The banks in the Euro zone are required to pay back EUR 440 billion of one-year loans, triggering market concern over possible inadequate liquidity in the market. Meanwhile, investors are more concerned that the global economic prospect will be potentially overshadowed by G20 Summit's commitment to cut deficits. It is expected that base metal prices will extend fluctuation trend in the short term under that context that global economy recovery is riddled with uncertainties. In domestic market, after ABC released its IPO price range, market has been dominated by short positions. The benchmark Shanghai Composite Index tumbled through 2481 to 2425.93 points after dropping below 2,500 points on Tuesday's morning, setting a new 14-month low. SMM believes market remains under pressure due to liquidity jitters from a state-owned bank's huge share sale. China's official purchasing managers' index (PMI) fell to 52.1 in June from 53.9 in May, down 1.8 percentage points, suggesting slower pace of China's economic. Market confidence was dampened to great extent and domestic metal markets later experienced significant slump after a temporarily rebound. SMMI was down 3.18%, with SMMI.Cu leading the decline by 4.06%, and SMMI. Zn falling by 3.41%.
Depressed LME copper prices weighed down SHFE copper market, but plunging Chinese A-shares had a greater effect on SHFE copper prices. Following the Agricultural Bank of China's huge IPO, domestic financial markets moved lower. In response, SHFE copper market fell below RMB 52,000/mt, from RMB 54,000/mt, then fluctuated around RMB 51,500/mt. Last week, a new contract month began and SHFE October delivery copper contract became the most actively traded, but also fell as low as RMB 51,000/mt. An approximate 300% turnover rate of SHFE October delivery copper contracts, as well as increases in positions indicated a withdrawal of long positions in a market previously dominated by shorts. All technical indicators suggest SHFE copper prices remain under pressure and on a downward track.
Production at domestic copper smelters was restricted by tight supply of scrap copper. Some copper producers have conducted scheduled maintenance over the summer, and have expressed a greater unwillingness to move goods. In response, supply of domestic goods tightened, with premiums between positive RMB 150-250/mt. Supply of imported copper was limited as the SHFE/LME copper price ratio was unfavorable for imports. SMM expects China's imports of refined copper will continue to fall in June.
Downstream producers increased purchase volumes at the weekend, as tightening supply caused downstream purchasing to increase. Over the past week, transactions fell at first then later improved, but prices fell back nonetheless.
The US government will announce non-farm employment data on Friday, and markets are expecting poor results. Investors have already revised down previously optimistic outlooks. Stocks are under heavy selling pressure, and large amounts of cash have been withdrawn from the market, leaving commodity prices exposed. Muddy's warnings that Spain could be stripped of its AAA credit status only aggravated market concerns over the ongoing debt issues in Europe. US stock markets moved lower and prices for gold and crude oil were lower as well. LME copper prices are now well below all moving averages, but shortages of imported copper are growing due to the unfavorable SHFE/LME copper price ratio, supplier unwillingness to move goods, and rising premiums for imports. Coupled with constant declines in LME and SHFE warehouses, copper prices will likely find new support, but the extent of support will be overshadowed by economy uncertainties, government regulatory moves, and depressed market sentiment.
In this context, SMM believes LME copper prices will fluctuate between USD 6,300-6,500/mt in the coming week, and domestic copper prices will test RMB 50,000/mt.
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.
In domestic lead markets, downstream purchase interest remained low at prices around RMB 15,000/mt, and spot discounts showed signs of expanding. Domestic lead prices fell to RMB 14,450-14,600/mt after LME lead prices plunged on Tuesday. Domestic lead prices were slower to drop compared with LME lead prices, but downstream producers were not eager to purchase goods, leaving trading sentiment low.
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.
Domestic tin smelters gradually lowered offers due to decline of LME tin prices, and ex-works nickel prices from major tin smelters were between RMB 139,000-141,000/mt up to last Friday. Offers from smelters were firm due to high raw material prices, and traders' interest to replenish stocks was not high since downstream consumers only made purchases on an as-needed basis. In this context, supply of goods was limited in the market following several days' consumption, but supply was not in shortage as most downstream companies adopted a wait-and-see attitude. Traders told that although supply of major brand tin was limited, transactions of major brand tin were still very limited as downstream consumers were more likely to buy unknown brand tin with more favorable prices. Up to last Friday, offers of major brand tin were between RMB 138,500-139,000/mt and traded prices of unknown brand tin were at RMB 137,500/mt. It is reported that some goods will arrive in Shanghai in the following week.
LME nickel prices broke turned lower last week. The Agricultural Bank of China's huge IPO on June 29th sent China's financial markets lower. China's equity markets fell below the key 2,500 point level, dragging down other financial markets. In addition, economic indexes were not overly positive, causing LME nickel prices to fall on June 29th by USD 1,207, to USD 19,000/mt.
Domestic nickel spot prices hit a low of RMB 151,500/mt and low-priced goods were in short supply. Enquires from end users were relatively strong and transactions were also up slightly. Buyers remained cautiously as prices fell and remain without any upward momentum. Since costs for domestic traders remain between RMB 152,000-153,000/mt, even transactions between traders have gradually become quiet. Inventories were still high, with limited arrivals of goods from Jinchuan Group, and with only around 400 mt of imported nickel entering the market.
Ex-works prices from Taigang Stainless Steel were unchanged last week, with prices at RMB 21620/mt for #304 cold-rolled stainless coil, RMB 20,820/mt for #304 hot-rolled stainless coil, and RMB 11,120/mt for #430 cold-rolled stainless coil. Pohang Iron and Steel Corporation, also known at POSCO, will cut its July prices for major stainless steel products by KRW 300,000/mt (approximately USD 247/mt). Taiwan Yelian Group announced a cut in July stainless steel prices of NTD 2,000/mt (USD 62/mt), to NTD 3,000/mt (USD 93/mt), and also cut stainless steel export prices by USD 50-80/mt. Price cuts from stainless steel producers both overseas and in China are signs that the stainless steel market has entered a low demand period.
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