SMM Daily Review - 2010/7/13 Base Metals Market

SHANGHAI, July 14 (SMM) –

Copper
Plagued by a falling China’s stock market, SHFE copper market moved lower after a low open. SHFE copper for October delivery felt pressure all the way after opening at RMB 53,200/mt, and finally closed at RMB 52,290/mt, down RMB 1,160/mt or 2.17%. Positions for SHFE October delivery copper contract were down 1,146 lots, and both trading volumes and positions experienced moderate corrections, with levels at 440,000 lots and 208,600 lots, respectively. SHFE October delivery copper prices on Tuesday dropped below RMB 53,000/mt, and support at RMB 52,250/mt was weak. SHFE current month copper contract struggled to hold at RMB 53,000/mt on Tuesday, but the price gap among other contracts was narrower, adding to selling-off pressure of forward-month contracts.

Spot copper prices fell along with a lower price on the SHFE copper market, with spot premiums down to positive RMB 50-100/mt. In the morning business, transactions were made in the RMB 53,300-53,500/mt range. Since the SHFE/LME copper price ratio is around 7.95, creating no incentives for imports, market supply was dominated by domestic copper. Deals in the afternoon were done in a lower price band of RMB 53,100-53,400/mt. SHFE copper market posed larger declines in the afternoon session, and forward-month copper contract fell more than RMB 1,000/mt, creating opportunities for some goods to enter the market, and supply of imported copper increased. Transactions on Tuesday improved as a relative low price at RMB 53,000/mt boosted buying interest to an extent. SMM believes spot premiums will remain before the delivery data arrives. 

Aluminum
China's Central Government denied rumors they would relax property market restrictions, sending China's stock markets significantly lower led by property stocks. Shanghai A-shares opened low and moved lower, and even hit 2,440 points, heavy depressing market sentiment. SHFE 1009 aluminum contract prices opened at the daily high of RMB 14,825/mt, but later slipped to as low as RMB 14,715/mt, with prices finally ending at RMB 14,730/mt, down RMB 140/mt compared with the previous trading day, or down 0.94%. Total trading volumes were 58,172 lots, while positions declined by 1,124 lots to 251,590 lots.
 
Spot market was sluggish. Traders' buying interest was moderate after aluminum prices dropped, but downstream purchase interest was low, resulting in lackluster trading sentiment. Aluminum prices will likely fall further in the short term, but any declines will be limited given steady drops in aluminum inventories, and SMM predicts SHFE 1009 aluminum contract prices will dip to the previous low of RMB 14,600/mt in the near term.

Lead
Domestic lead prices dropped for the first time since rallies starting from the previous week, with a strong wait-and-see attitude, resulting in low trading sentiment. Transactions in the Shanghai market were made in the RMB 14,650-14,750/mt range. Prices for well-known brand were quoted at RMB 14,800/mt, generating little purchasing interest, and with actual deals made between RMB 14,700-14,750/mt. Downstream producers still preferred to purchase low-priced goods from Yunnan, but market supply was limited, supporting the low-end of market price.

Zinc
SHFE zinc prices opened low and moved lower, showing weak performance all day. SHFE 1010 zinc contract prices slipped all the way to break through the daily moving average, with prices finally closing at RMB 14,865/mt, setting a new low over two weeks. Positions of SHFE 1010 zinc contract increased by 14,865 lots to 313,950 lots, with short position momentum remaining stronger. Technical indicators show zinc prices will continue to fall in the future.
 
Spot market improved, and a number of downstream producers began to make purchases when zinc prices fell below RMB 15,000/mt. #0 zinc was traded between RMB 14,800-14,850/mt in the morning in Shanghai, with spot discounts ranging between RMB 100-120/mt against SHFE 1010 zinc contract prices, or with spot discounts at RMB 220/mt against SHFE 1011 zinc contract prices. #1 zinc was traded around RMB 14,800/mt. As zinc prices continued to fall in the afternoon, and market pessimism was gaining, so spot trading volumes were limited. Some market players believe zinc prices will find support from buying when zinc prices are at the previous low of RMB 14,500/mt set on July 1st, but some market players believe zinc prices will continue to drop to RMB 14,000/mt, or even to RMB 13,000/mt. Special attention should be paid to China's macro economic data for 1H 2010 set for release this week, which may show a clearer market direction.
 
Tin
LME tin prices opened at USD 17,800/mt and closed at USD 17,549/mt on Monday, down USD 201/mt from last Friday, with the highest price at USD 17,800/mt and the lowest price at USD 17,520/mt. Daily trading volumes were 92 lots and positions were 17,325 lots. Base metal prices closed with losses on Monday after a day of thin trading in which data showing a drop in Chinese copper imports weighed heavily on sentiment. On Tuesday, LME tin prices opened at USD 17,400/mt and continued falling to test USD 17,350/mt due to bearish impact from declining Chinese equity market as well as strengthening US dollar.
 
Smelters kept offers of tin from Yunnan Tin group unchanged at USD 143,000/mt, while traded prices of other brand tin were between RMB 138,200-139,000/mt. In the Shanghai tin spot market, supply of goods was relatively limited, with traded prices of tin from Yunnan Tin group and Yunnan Gejiu Zili Metallurgy Co., Ltd between RMB 138,300-139,000/mt and traded prices of unknown brand tin between RMB 137,500-137,800/mt. Demand for tin was low amid the seasonal low-demand period, and some companies have inventories, leading to continuous sluggish transaction.  
 
Nickel
LME nickel prices opened at USD 19,430/mt and closed at USD 19,149/mt on Monday, down USD 251/mt from a day earlier, with the highest price at USD 19,430/mt and the lowest price at USD 19,000/mt. Daily trading volumes were 976 lots and positions were 88,499 lots. Inventories reduced by 420mt to 120,240mt.  On Tuesday, LME nickel prices opened at USD 19,149/mt, reaching the highest level at USD 19,200/mt and touching the lowest level at USD 18,985/mt, with the latest at USD 19,045/mt reported, down USD 104/mt from a day earlier. The decline of Chinese equity market dragged down base metal prices down slightly.
 
In the Shanghai nickel spot market, offers were relatively firm in the morning session, but trading sentiment was dampened in the afternoon session on weak LME nickel prices. Traded prices of nickel from Jinchuan Group were between RMB 153,500-154,500/mt and traded prices of imported nickel were between RMB 152,000-153,000/mt. Overall trading sentiment was relatively sluggish.

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

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