SHANGHAI, July 26 (SMM) -- LME base metal pries rallied last week due to a weakening US dollar, rebound of the US equity markets and out-than-expected US new building permits. Later last week, metal prices continued to advance on US dollar slip due to strong economic data from the Euro zone. LME copper prices led a strong rally across the base metals, with SMMI. Cu up 4.07%, and LME zinc prices also advanced, with SMMI. Zn up 3.85%. Although LME base metal experienced a strong performance last week, spot prices only rose passively without significant upward momentum.
SHFE copper prices tracked LME copper price trends last week. SHFE October delivery copper contract prices climbed above RMB 55,000/mt on Friday, moving away from the 60-day moving average level. Trading sentiment in the spot market was closely linked to price movements, and buying interest was brisk when spot prices were within the RMB 52,000-53,000/mt range. However, transactions fell as buyers became cautious at the spot price level of RMB 54,000/mt.
Rising copper prices increased cargo-holders' willingness to sell, increasing market supply. Inquiries for imported copper were brisk due to the improved copper price ratio. Supply of domestic copper was relatively limited, however, from the unwillingness by producers to move goods and from unit maintenance at some smelters.
Currently, copper is experiencing a seasonal low demand period, with orders falling from June levels. SMM predicts demand for refined copper will weaken, but trading sentiment is not expected to fall significantly in view of existing tight market supply. Overall trading volumes may drop, but trading sentiment will remain brisk.
The results of financial stress tests on European banks will be released on Friday, but markets are generally optimistic outlook towards the expected results. If the outcome is positive as expected, the US dollar will come under more downward pressure, and the US dollar index may fall below 82 as a result, which will in turn support copper prices. Strong buying from China helped LME copper prices advance last week. If cash flows remain ample and buying interest is strong, LME copper prices will climb above the previous price range, and possibly test USD 7,000/mt. In addition, LME copper inventories are expected to continue shrinking based on the growing proportion of cancelled warrants, and this is a positive factor for copper prices during the traditional low demand period.
In this context, SMM believes that the low-end of LME copper price ranges will rise next week, with prices expected to fluctuate between USD 6,800-7,200/mt.
SHFE three-month aluminum contract prices initially opened lower on Monday, but later rose along with China's domestic financial markets. Aluminum prices remained above RMB 15,000/mt, but the performance was weaker than SHFE copper and zinc prices. The absence of upward momentum in aluminum prices and weaker demand dampened buying interest from aluminum fabricators. Other market players also chose to stay out of the market, leaving market sentiment lackluster.
SHFE aluminum prices have remained above the 5-day moving average, but prices were weak and posted slower growth last week, negatively affected by sluggish spot markets. SHFE 1010 aluminum contract prices also fluctuated narrowly around RMB 15,000/mt. SMM believes SHFE aluminum prices still have upward momentum given the positive external economic environment, but any increases will depend on other base metals prices trends and spot transactions.
Supported by stronger LME lead prices, domestic lead prices climbed above RMB 15,000/mt on Wednesday, and transactions were made between RMB 14,850-15,200/mt over the past week. A strong aversion by domestic lead producers to move goods was believed to be another reason behind higher domestic lead prices. However, downstream purchasing interest failed to materialize, leaving overall trading sentiment neutral.
SHFE zinc prices failed to keep pace with LME zinc prices, with SHFE three-month zinc contract prices moving slightly higher to RMB 15,900/mt until Friday. Weaker SHFE zinc prices were mainly attributed to sluggish spot transactions. In addition, China's A-share markets were neutral, with most investors choosing to stand on the sidelines due to a lack of market confidence. As a result, zinc prices remained soft.
Market players were cautious in spot markets, and average traded prices for #0 zinc were RMB 15,283/mt in Shanghai, up RMB 278/mt from a week earlier. However, a portion of imported zinc from Kazakhstan flowed into spot markets, and imported zinc prices were slightly lower than domestic zinc ingot, which negatively affected already weak spot markets.
Total stocks in Shanghai, Tianjin, and Guangdong were 505 kt last week. Zinc stocks monitored by the SHFE also declined by over 4 kt. The steady declines in zinc stocks were due mainly to lower delivery volumes, and SMM predicts this situation will continue if zinc prices fail to move higher significantly.
Tin smelters lifted ex-works prices last week (July 12-16) when LME tin prices fluctuated upward, with current mainstream ex-works prices from major brand tin smelters above RMB 139,500/mt and ex-works prices from Yunnan Tin group as high as RMB 144,000/mt. Supply of unknown brand tin reduced, and major brand tin dominated market supply. Mainstream prices climbed to certain extent, with prices of tin from Yunnan Tin group at RMB 141,000/mt up to last Friday, but with few transactions reported. Traded prices of tin from Yunnan Gejiu Zili Metallurgy Co., Ltd were between RMB 139,500-139,800/mt and traded prices of unknown brand tin were around RMB 139,200/mt. Price increase failed to stimulate purchasing sentiment, and transactions were still relatively lackluster.
Low-priced supply gradually consumed out, but transactions of high-priced goods were not good, with most purchasers trying to beat down prices. However, traders were not willing to move goods at low prices as ex-works prices from smelters were still firm. In this context, spot tin prices fluctuated narrowly last week. LME tin prices continued to rally and market confidence resumed to certain extent, with market responded insensitive towards negative news. In this context, LME nickel prices are expected to stay stable or continue to advance slightly.
LME nickel prices fluctuated in a narrow band between USD 18,800-19,400/mt last week, but did not fall below USD 18,800/mt. Soft economic data from the US did not help boost market sentiment and markets now lack clear guidance. LME nickel inventories were down 552 mt, to 117,210 mt. In China's spot markets, traded prices rallied after slipping. Traded prices for imported nickel were between RMB 153,000-153,500/mt, while traded prices for nickel from Jinchuan Group were around RMB 155,000/mt. Overall trading sentiment was sluggish early last week as the narrow price range and high costs eliminated trader profits. However, trading sentiment improved to certain extent on July 21st and 22nd when some downstream consumers entered the market to make purchases. LME nickel prices are expected to move around USD 2,000/mt in the short term in the week (July 26-30).
According to the latest data, total inventories of stainless steel at 26 warehouses in the Wuxi stainless steel market were 236.5kt, down 2.8%, and included 22.9kt of #200 stainless steel, 182.6kt of #300 stainless steel, and 31kt of #400 stainless steel. Ex-works prices from Taigang Stainless Steel remained unchanged last week, at RMB 21,620/mt for #304 cold-rolled stainless steel, RMB 20,820/mt for #304 hot-rolled stainless steel, and RMB 11,120/mt for #430 cold-rolled stainless steel. Stainless steel spot prices were slightly higher last week, due mainly to shortages after a period consumption. Transactions improved in Wuxi and Foshan markets from stable prices, but the overall market was still weak, with brisk transactions reported for only certain specification steels.
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