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SMM Daily Review - 2010/7/21 Base Metals Market
Jul 22,2010 10:15CST
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SHANGHAI, July 22 (SMM) --
SHFE copper market on Wednesday opened high, but failed to advance further. SHFE copper for October delivery reached as high as RMB 53,600/mt due to rallying China A-share market after opening at RMB 53,300/mt, but then lacked further upward momentum along with falling stock markets and profit-taking. The most actively-traded copper contract on the SHFE market generally moved above the daily moving average in the morning session, and felt pressed the daily moving average in the afternoon session, narrowing gains made in the morning. Finally, the October delivery copper contract closed at RMB 53,350/mt, up 1.10%. Both positions and trading volumes dropped. Positions for SHFE October delivery copper contract were down 5,630 lots to 209,000 lots, while trading volumes were around 325,000 lots. The failure of SHFE copper market to move higher indicated a lack of confidence towards further upward strength. Despite of positive signs from technical indicators, any further rising momentum is still not strong.

In marked contrast to high opening on the SHFE copper market, spot copper market was quiet. Copper prices gradually returned above RMB 54,000/mt from levels below RMB 53,000/mt, while downstream producers showed no intention to chase higher prices, generally making purchases on an as-needed basis. Market concerns over the sustainability of price gains were triggered by negatively-affected sentiment following a drop on China A-share market after breaking above RMB 54,000/mt. Supply of imported copper entered the market for cash generation after the SHFE/LME copper price ratio improved above 8.05, resulting in ample supply, and with premiums between positive RMB 120-250/mt. The low-end of premiums for imported goods restricted rising room of domestic copper, causing domestic standard-quality copper to trade only at premiums of around RMB 200/mt. Domestic high-quality copper was also negatively affected by imported copper. Although premiums for "Guixi" brand copper tried to advance to positive RMB 300/mt, transactions dropped from a day earlier due to pressure from imported high-quality copper. Transactions were made between RMB 53,900-54,100/mt in the morning business, while traded prices in the afternoon dropped to the price band between RMB 53,850-54,000/mt due to falling SHFE copper market. The price mark at RMB 54,000/mt is an important level, and only solid positive news and strong market confidence could help prices break out the mark.

SHFE base metals prices opened slightly higher yesterday, and SHFE 1010 aluminum contract prices opened at RMB 15,030/mt, and later climbed to RMB 15,080/mt temporarily, but SHFE 1010 aluminum contract prices lacked upward momentum amid weak LME aluminum prices and no improvement in market fundamentals, with prices falling to below the 5-day moving average. SHFE 1010 aluminum contract prices dipped to RMB 14,960/mt in the afternoon, and later rallied to RMB 15,015/mt at the closing. Trading sentiment remained lukewarm, and total trading volumes were 59,124 lots, and positions declined slightly by 3,228 lots to 232,046 lots. SHFE 1010 aluminum contract prices struggled at the RMB 15,000/mt mark, and will try to hold steady at this level in the near term.

In the spot market, slight increases in SHFE aluminum prices in the morning session drove up spot aluminum prices, and traders kept offers firm, with spot discounts failing to expand. However, downstream acceptance of higher prices was low, with deals mainly made near RMB 14,800/mt. Downstream inquiries were up, but actual transactions reported limited improvements. LME aluminum inventories grew again, weighing down recent LME aluminum prices. Meanwhile, the euro shows signs of falling after failing to advance to 1.3 against the US dollar, which will help push up the US dollar slightly and in turn limit the possibility of increases in LME base metals prices. In this context, SMM predicts aluminum prices will continue to fluctuate in a narrow band in the short term. 

Domestic lead prices rallied steadily along with closing higher on the LME lead market and supply tightness. Prices quickly improved to RMB 15,000/mt from RMB 14,950/mt in the morning, with offers for well-known branded goods at 15,200/mt. Transactions in the Shanghai market were generally made in the RMB 15,000-15,150/mt range. Traders reported difficulties in replenishing goods due to limited supply from producers, helping them keep prices firm. However, downstream demand was moderate, leaving no trends of chasing higher prices.

SHFE 1010 zinc contract prices mainly moved around RMB 15,500/mt all day, with prices beginning to fall slightly at noon and finally closing at RMB 15,450/mt. Positions declined significantly by near 30,000 lots. Market players were unwilling to accept higher zinc prices after sharp increases in zinc prices yesterday, so most investors chose to stand on the sidelines. SHFE zinc prices still fluctuated in a narrow band, with difficulties for zinc prices to stand steady at RMB 15,500/mt still existing.

In the spot market, #0 zinc was traded around RMB 15,300/mt in Shanghai market, with spot discounts ranging between RMB 180-200/mt against SHFE 1010 zinc contract prices. #1 zinc was traded around RMB 15,250/mt, with market supply still limited. Downstream producers' buying interest became lower as SHFE zinc prices slipped gradually at noon. In addition, a portion of imported zinc from Kazakhstan flowed into domestic market, and their prices were slightly lower than #1 zinc prices, exerting negative impact on spot markets.    

LME tin prices opened at USD 17,825/mt and closed at USD 18,125/mt on Tuesday, up USD 300/mt from a day earlier, with highest price climbing to USD 18,300/mt and the lowest price touching USD 17,825/mt. Trading volumes were 408 lots and positions were 17,037 lots. LME tin inventories reduced by 330mt to 15,830mt. The economic data released on Tuesday were mixed, with the US June housing starts slipping by 5.0% but new building permits unexpectedly increasing by 2.1%. LME tin prices opened at USD 18,075/mt and hit the highest level at USD 18,290/mt, hovering firmly above USD 18,000/mt. Close attention should be paid to testimony from Federal Reserve chairman Ben Bernanke to the U.S. Senate, which will help guide market directions.

In the Shanghai tin spot market, supply of low-priced goods further reduced, and trading sentiment remained 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 tin from Yunnan Chengfeng Non-ferrous Metals Co., Ltd were around RMB 138,500/mt, while traded prices of unknown brand tin were between RMB 138,000-138,500/mt. Quotes from some smelters began to slip, and overall transactions were moderate. 

LME nickel prices opened at USD 18,924/mt and closed at USD 19,090/mt on Tuesday, up USD 300/mt from a day earlier, with the highest price at USD 19,200/mt and the lowest price at USD 18,800/mt. Daily trading volumes were 1,382 lots and positions were 87,994 lots. LME nickel inventories reduced by 330mt to 118,206mt. On Wednesday, LME nickel prices opened at USD 19,100/mt, reaching highest price at USD 19,214/mt and touching the lowest price at USD 19,100/mt, up USD 110/mt, with latest price at USD 19,200/mt.

In the Shanghai nickel spot market, overall trading sentiment was moderate. Transactions were still dominated by traders, though, few end-users entered the market. Mainstream traded prices of nickel from Jinchuan Group were around RMB 155,000/mt and mainstream traded prices of imported nickel were between RMB 153,000-153,500/mt.     


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