SHANGHAI, July 12 (SMM) – A recent plunge in China A-share market sent base metals market lower. SMM believes base metal prices remain under pressure unless market fundamentals see significant improvements. Market players are cautious towards outlook. The ISM non-manufacturing index in the US was 53.8 in June, down from 55.4 in May. The decline of the index added to market concerns over the pace of economic recovery in the US. Last week, China’s domestic base metals market continued to experience corrections. SMMI edged up 1.35%. SMMI.Cu outperformed others, up 1.85%, and SMMI.Ni was in the second place, up 1.78%. SMMI.Sn was weak, down 0.18%.
SHFE copper market prices were still closely related to trends in China’s domestic stock markets. China’s stock markets rebounded after the Agricultural Bank of China IPO, and this in turn helped SHFE copper prices outperform LME copper. As a result, the SHFE/LME copper price ratio moved into the 8.1-8.2 range.
Cargo-holders were generally unwilling to move goods while spot prices are sluggish. Domestic copper smelters have begun summer unit maintenance, and these cuts in output will affect market supply to an extent. With expectations of lower supply, smelters have little interest in moving goods at current lower prices. In addition, supply of imported goods remains tight. The traditional low demand period for copper tubes or pipes, electronic products is in progress, but demand in major industrial sectors, including power grids and construction has not yet fallen significantly, helping support demand for copper. As copper prices rose during the second half of last week, downstream producers showed little interest in purchasing, depressing spot transactions.
After a series of downward corrections, LME copper prices rebounded last week, with prices climbing above the key resistance level of USD 6,700/mt. More upward momentum is still available based on technical factors, and prices are expected to test USD 6,800/mt. China will announce a series of economic data over the weekend, which will affect market movements, but SMM is optimistic towards macro-economic growth, although preliminary data for copper imports to China point to a decline during June. In this context, SMM believes the release of economic data from China will have a neutral impact on markets. The US dollar is expected to remain weak, supporting copper prices. In addition, tight supply of refined and scrap copper will provide further upward momentum for copper prices.
SMM believes LME copper prices to fluctuate in the USD 6,600-6,800/mt range in the coming week.
SHFE aluminum prices rose slightly, following LME aluminum price gains, and SHFE 1009 aluminum contract prices have continuously risen above several moving averages, with prices remaining above the 30-day moving average on Thursday and approaching RMB 15,000/mt. However, SHFE 1009 aluminum contract prices were under strong selling pressure, with prices consistently opening higher, but moving lower late last week. Spot transactions also confirmed sluggish aluminum prices. Downstream buying interest rose early last week as aluminum prices rebounded, while tightening supply also contributed to bullish spot market sentiment. However, the upward momentum of SHFE aluminum prices weakened late last week and downstream fabricators adopted a wait-and-see attitude, resulting in a more bearish spot market.
Any upward momentum in SHFE aluminum prices slowed considerably over the past week as the upcoming seasonal low demand period beginning in July becomes the focus of market players. Meanwhile, any impact from positive economic news has been absorbed, and in this context, SMM predicts SHFE aluminum prices will continue to test the RMB 15,000/mt mark in the coming week, but may also fall back.
Overall trading sentiment in domestic lead markets remained lackluster, and only on Tuesday was buying activity stimulated by rising domestic and LME lead prices. Domestic lead producers restricted sales at existing prices, with offers firm, but generated little downstream buying interest. It is worth noting that preference for low-priced goods increased in a stalemated sentiment.
Although long position momentum of SHFE three-month zinc contracts was driven up by China’s A-share markets and rising LME zinc prices, the sluggish spot market kept SHFE three-month zinc contract prices from breaking through the previous RMB 15,800-16,000/mt resistance level. Speculative funds showed signs of withdrawing from markets, causing trading volumes to drop by 883,000 lots on Friday compared with July 2nd levels, and is an indication of the uncertainty within zinc markets and strong selling pressure for zinc at this price level. SHFE three-month zinc contract prices posted growth of only 5.4% over the past week.
Spot market was sluggish, and spot transactions in east and south China remained neutral over the past week except for Friday when transactions reported improvements. Downstream producers showed low interest in spot zinc prices between RMB 15,200-15,300/mt or above as SHFE three-month zinc contract prices failed to hold steady at RMB 15,500/mt. Downstream producers began to make purchases until Friday when spot zinc prices fell to near RMB 15,100/mt, and as Friday was the last trading day of last week.
Average traded prices for #0 zinc were RMB 15,092/mt in Shanghai last week, up RMB 342/mt from a week earlier, or up 2.3%. According to a SMM survey, zinc downstream producers reported declines in orders since July, with galvanizing and zinc die-casting alloy industries experiencing significant drops in orders. In addition, zinc products exporters who mainly export goods to European countries are under strong pressure from costs as China’s currency yuan appreciated against the euro recently. In this context, the seasonal low demand period exerts negative impact on actual spot markets gradually, and SHFE three-month zinc contract prices will still face strong resistance between RMB 15,800-16,000/mt next week if other base metals markets or speculative funds report no significant improvement.
Although LME tin prices largely advanced last week, domestic spot tin prices remained flat due to sluggish transactions. Up to last Friday, offers of major brand tin from smelters were between RMB 138,000-143,000/mt. Traders offers tin from Yunnan Tin group and Yunnan Gejiu Zili Metallurgy Co., Ltd were between RMB 138,500-139,000/mt and offered some unknown brand tin between RMB 137,800-138,000/mt. With the coming of the seasonal low-demand period, orders from downstream companies dwindled, and demand for tin also declined. In addition, tin prices have been sluggish recently, and purchasers were hesitant to make purchases.
In this context, the overall tin market was extremely sluggish. Smelters were reluctant to move goods at low prices due to huge cost pressure, and demand from downstream consumers softened due to seasonal low-demand period. In addition, LME tin prices were weighed by unfavorable macro economic conditions and were hard to make any breakthrough. In this context, tin prices may stagnant and remain stable next week.
Spot nickel transactions in China were brisk at first, but later became soft last week, with prices of imported nickel moving between RMB 150,800-153,000/mt. The price spread between imported nickel and nickel from Jinchuan Group was relatively narrow early last week, with relatively brisk transactions of imported nickel reported. However, later in the week, transactions fell quiet when domestic spot prices failed to match LME nickel price increases, and stock replenishments from traders were dominated by nickel from Jinchuan Group.
According to latest statistics, total inventories of stainless steel at 26 warehouses in the Wuxi stainless steel market were 246.4kt, up 1.0%, and included 25.4kt of #200 stainless steel, 187.3kt of #300 stainless steel, and 33.7kt of #400 stainless steel.
Shanghai Northwest Power and Steel Distribution Company Limited will conduct large-scale unit maintenance for its stainless steel system beginning in July, with maintenance expected to last for approximately two weeks.
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