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SMM Daily Review - 2010/7/20 Base Metals Market
Jul 21, 2010 10:03CST

SHANGHAI, July 21 (SMM) --
SHFE copper market opened slightly higher on Tuesday. SHFE copper for October delivery opened at RMB 52,340/mt, and generally moved around RMB 52,500/mt in the morning session. In the afternoon business, the most actively-traded copper contract was buoyed by rising China A-share market, climbing all the way, with prices fluctuating at RMB 53,000/mt. Finally, the October delivery copper contract on the SHFE market closed at RMB 53,060/mt, near to the daily high level of RMB 53,130/mt, up RMB 740/mt, or 1.41% from a day earlier. Positions for SHFE October delivery copper contract were slightly up 62 lots. SHFE copper prices have stood above the 30-day moving average, but still feel pressure at RMB 52,800/mt. If further support is available from China A-share market and speculators, SHFE copper market will likely open at RMB 53,000/mt on Wednesday, and test RMB 53,500/mt.

In the spot market, spot premiums were quoted between positive RMB 220-320/mt. Rising SHFE copper prices stimulated buying interest, helping deals made in the RMB 53,250-53,450/mt range in the morning trade. As the SHFE/LME copper price ratio advanced to 8.05, supply of imported copper entered the market. Cargo-holders were eager to move goods for cash generation, resulting in amply supply, but most of imported copper were generally low-end copper, and with premiums at around positive RMB 200/mt. Premiums for high-quality imported copper were at positive RMB 280/mt, limiting sales of domestic standard-quality copper, with premiums reported at positive RMB 250/mt. Supply of domestic high-quality copper was limited, with premiums at positive RMB 320-350/mt for "Guixi" brand copper. Before the afternoon business, traded prices climbed to around RMB 53,500/mt along with rising SHFE copper prices and a rally in China's A-share market. Transactions were done in a higher price band between RMB 53,500-53,650/mt in the afternoon trade, but downstream purchasing interest was depressed, with a cautious attitude reported. SMM believes that spot copper prices will continue to move narrowly around RMB 54,000/mt in the short term, as market concerns over the sustainability of copper price gains and a rally in China's stock markets still exist.

Although LME aluminum prices were weak, SHFE aluminum prices opened slightly higher led by other base metals prices, with prices fluctuating in a narrow band in the morning session. SHFE 1010 aluminum contract prices opened at RMB 14,925/mt, and later dipped to RMB 14,915/mt. Base metals prices were pushed up by stronger China's A-shares at noon, and SHFE 1010 aluminum contract prices soared to the daily high of RMB 15,070/mt, and finally closed at RMB 15,030/mt, up RMB 120/mt compared with the previous trading day, or up 0.8%. Total trading volumes were 85,798 lots, and positions increased by 4,592 lots to 235,274 lots. Technical indicators show SHFE aluminum prices will move on an upward track in the short term. SHFE 1010 aluminum contract prices climbed above RMB 15,000/mt, but further upward momentum will be needed to support prices to hold steady at this resistance level.

Spot market sentiment remained bearish, and uncertainties over aluminum prices helped raise the wait-and-see sentiment by downstream producers. Traders kept offers firm, with spot discounts remaining steady. Overall trading sentiment was stagnant. Strong rebound in China's stock markets drove up SHFE aluminum prices recently, but any upward momentum in China's financial markets will be limited with the lack of actual positive news. Meanwhile, speculative funds will likely withdraw from the market after steady increases in SHFE aluminum prices, so SHFE aluminum prices will unlikely remain high for a long term once other base metals prices fail to lend support. In this context, SMM predicts SHFE 1010 aluminum contract prices will struggle at RMB 15,000/mt in the near term.

Domestic lead prices edged up on Tuesday, as domestic lead producers remained reluctant in moving goods, with offers between RMB 14,850-15,050/mt. Actual transactions were mainly done in the low-end of RMB 14,850-14,950/mt, and deals for well-known branded goods were traded at RMB 15,000/mt, with limited transactions. It is now a low demand period, and it remains to be seen whether or not domestic lead prices will find support at RMB 15,000/mt.

SHFE zinc prices outperformed other base metals. China's A-shares increased consecutively, boosting SHFE zinc market sentiment. As a result, SHFE 1010 zinc contract prices opened slightly higher at RMB 15,165/mt, with prices mainly moving narrowly between RMB 15,250-15,300/mt in the morning session. Long positions grew at noon, and China's A-shares jumped all the way, both helping SHFE 1010 zinc contract prices to surge to RMB 15,495/mt in the afternoon, but strong resistance was reported at RMB 15,500/mt, and short positions increased as well. SHFE 1010 zinc contract prices finally closed at RMB 15,450/mt, up RMB 350/mt, or up 2.32%. Positions of SHFE 1010 zinc contract increased by 10,150 lots, with struggles between long and short positions remaining intense. SHFE zinc prices fluctuated wildly between RMB 15,000-15,500/mt. Effective breakthrough in SHFE zinc prices lacks support and further momentum.

In the spot market, jumping SHFE zinc prices boosted offers quoted by traders, and prices for #0 zinc were between RMB 15,150-15,200/mt in the morning session, with spot discounts reported only RMB 100/mt. Offers for #0 zinc climbed to RMB 15,200-15,250/mt in the afternoon following rising SHFE zinc prices, with spot discounts expanding as a result. Almost no market response was reported amid higher zinc prices, and downstream consumers even stood on the sidelines, and only some traders made limited deals at noon. #1 zinc prices moved around RMB 15,150/mt narrowly.

LME tin prices opened at USD 17,750/mt and closed at USD 17,825/mt on Monday, up USD 225/mt from a day earlier, with the highest price at USD 18,000/mt and the lowest price at USD 17,750/mt. Daily trading volumes were 227 lots and positions were 17,079 lots. LME tin inventories increased by 40mt to 16,075mt. On Tuesday, LME tin prices opened at USD 17,825/mt and climbed to test USD 18,000/m in the afternoon session on strong performance of Shenzhen stock market.

In the Shanghai tin spot market, overall trading sentiment was soft. Traded prices of tin from Yunnan Tin group and Yunnan Gejiu Zili Metallurgy Co., Ltd were between RMB 138,800-139,500/mt and traded prices of unknown brand tin were between RMB 138,300-138,500/mt. Quotes from smelters were still firm, and supply of goods was still limited in the market, with major brand tin dominating market supply.

LME nickel prices opened at USD 19,200/mt and closed at USD 18,790/mt on Monday, down USD 434/mt from a day earlier, with the highest price at USD 19,200/mt and the lowest price at USD 18,700mt. Daily trading volumes were 1,929 lots and positions were 89,435 lots. Inventories reduced by 150mt to 118,536mt.  On Tuesday, LME nickel prices opened at USD 18,924/mt, reaching the highest level at USD 19,103/mt and touching the lowest level at USD 18,800/mt, with the latest at USD 19,060/mt, up USD 270/mt from a day earlier.

In the Shanghai nickel spot market, transactions of nickel from Russia were brisker than nickel from Jinchuan Group. Mainstream traded prices nickel from Russia were between RMB 152,000-152,700/mt and mainstream traded prices of nickel from Jinchuan Group were between RMB 154,000-154,500/mt. Traders only replenished stocks on an as-needed basis after receiving orders, and downstream consumers largely adopting a wait-and-see attitude. Supply of goods was only between 200-300mt. Large steel mills increased purchases for (10-15%) NPI, exerting certain selling pressure for refined nickel.      


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