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SMM Daily Review - 2010/7/30 Base Metals Market
Aug 2, 2010 10:12CST

SHANGHAI, August 2 (SMM) –

SHFE copper market moved closely with China A-share market on Friday. SHFE copper for November delivery copper contract stalled at RMB 56,400/mt due to lack of further upward momentum after opening high at RMB 56,390/mt. Falling China A-share market weighed on SHFE copper market at noon, and a rally in domestic stock markets in the afternoon helped SHFE copper market eased some losses. Finally, SHFE November delivery copper contract closed at RMB 56,280/mt, up RMB 140/mt, or a gain of 0.25%, failing to break through RMB 56,500/mt. Positions for SHFE November delivery copper contract were up 8,744 lots to more than 185,000 lots, but trading volumes fell below 400,000 lots, down to 389,000 lots. An upward room is still technically possible, but any upward momentum is waning, and with expanded mixed views. SMM believes SHFE copper market will continue to fluctuate on an upward track. 

In the spot market, suppliers took a cautious attitude in offerings in the morning as SHFE current-month copper contract fluctuated at RMB 56,300/mt. Suppliers of imported goods quoted offers at RMB 0-positive 30/mt, and domestic high-quality copper was still quoted at premiums. Offers for domestic standard-quality copper were quoted at discounts of negative RMB 30/mt, pressed by imported copper at discounts of negative RMB 100-150/mt. At around 11:00, spot premiums rapidly improved as SHFE current-month copper contract fell to RMB 56,000/mt. Premiums for “Guixi” brand copper and other high-quality copper rallied to positive RMB 100-150/mt, dealing in the RMB 56,100-56,350/mt range. Downstream inquiries increased when prices were low, and downstream producers stood on the sidelines after prices broke through RMB 56,000/mt. After LME copper prices stood above USD 7,200/mt, and domestic copper prices were slower to rise, buying activity increased on Friday for production preparations over the weekend, with improved trading sentiment.

According to data from Shanghai Futures Exchange (SHFE), copper inventories were down 9,415 mt in the week ended July 30. Falling copper inventories supported copper prices during the seasonal low demand period. With the approach of delivery date, spot discounts will gradually disappear. However, whether or not downstream producers will enter for purchases and accept the price depends on the US dollar movements, stocks markets, LME copper prices, as well as funds support. 

SHFE 1010 aluminum contract prices opened flat at RMB 15,405/mt on July 30 th, and fell back to RMB 15,315/mt after soaring to RMB 15,430/mt temporarily. The sluggish spot transactions dampened the upward momentum in SHFE aluminum prices, and SHFE 1008 aluminum contract prices dropped significantly at the closing, while SHFE 1010 aluminum contract prices also closed down RMB 60/mt at RMB 15,345/mt, down 0.39%. Trading volumes shrank slightly, and total positions increased by 5,204 lots to 254,604 lots. SHFE 1010 aluminum contract prices mainly tested the support at the 5-day moving average.  
Spot aluminum transactions were weak negatively affected by soft SHFE aluminum market, and spot aluminum prices fell as well following SHFE aluminum prices. Downstream producers stayed out of the market, and held low interest in replenishing stocks before the weekend. Overall trading sentiment was lackluster in response. LME aluminum prices were strengthened recently, positively affected by steady declines in LME aluminum inventories and rumors of the launch of aluminum exchange traded fund (ETF). However, SHFE aluminum prices posted weak performance driven down by soft spot markets and weak consumption. Special attention should be paid to the effect from US dollar index and domestic financial markets on aluminum prices in the coming week. 
Supported by rising LME lead prices, domestic lead prices rallied further to RMB 15,850-16,050/mt, but market mixed views expanded. Domestic lead producers remained unwilling to move goods, with offers approaching to RMB 16,000/mt, while downstream producers generally stood on the sidelines due to steadily rising lead prices. Traders were in a dilemma along with unavailability of goods at low prices, and depressed sales at existing prices. Transactions were done between RMB 15,750-15,850/mt. Sales of high-end lead were depressed due to high prices, resulting in limited overall transactions.

SHFE zinc prices fluctuated narrowly all day on July 30th. SHFE 1011 zinc contract prices mainly moved around RMB 16,300/mt, flat at July 29th levels, and finally ended at RMB 16,305/mt. Positions of SHFE 1011 zinc contract slumped by 22,000 lots, with short positions higher than long ones. SHFE zinc prices still move on an upward track currently.
In the spot market, as SHFE zinc prices slipped gradually in the morning session, traded prices for #0 zinc declined from RMB 15,950/mt, to RMB 15,900/mt in Shanghai, and traded prices for #1 zinc were between RMB 15,850-15,900/mt. Although LME zinc prices surged to USD 2,000/mt on July 29th, zinc price increases slowed amid weaker performance of China’s A-share markets, which helped boost downstream buying interest to some extent, and spot transactions improved significantly in east and south China as a result. At present, raw material inventories held by downstream producers are generally low, so they adopt a pessimistic and wait-and-see attitude when zinc prices rise consecutively, but they also have to replenish stocks to meet normal production needs, especially when zinc prices stabilize temporarily.

LME tin prices opened at USD 19,499/mt and closed at USD 19,600/mt last Thursday, up USD 100/mt from a day earlier, with highest price at USD 19,800/mt, and the lowest price at USD 19,450/mt. Daily trading volumes were 267lots and positions were 17,542 lots. LME tin inventories reduced by 105mt to 15,050mt. Base metal prices were stimulated up due to strengthening equity market as well all confidence rebound and firm euro. LME tin prices opened at USD 19,500/mt last Friday, reaching the highest at USD 19,525/mt and touching the lowest at USD 19,400/mt, with prices slipping slightly from decline of China’s stock market.
In the Shanghai tin spot market, few traders lowered prices to promote sales, leading to decline of mainstream tin prices. Traded prices of major brand tin were between RMB 144,000-146,000/mt, and traded prices of unknown brand tin were between RMB 143,500-145,300/mt. Offers from smelters were firm but transactions were sluggish. Mainstream prices slipped to certain extent, which is mainly due to impact from supply of low-priced goods. Sluggish demand is the biggest obstacle preventing prices from rising. It is expected that LME tin prices will slip slightly at a stable pace in this week. 
The US dollar sipped significantly, and the employment data released last Thursday were better-than-expected. In this context, LME nickel prices were up USD 250/mt from a day earlier, while LME nickel inventories increased by 444 mt. LME nickel prices opened at USD 20,450/mt last Friday, reaching the highest at USD 20,750/mt and touching the lowest at USD 20,450/mt, with the latest at USD 20,600/mt, down USD 100/mt from a day earlier.
In the Shanghai nickel spot market, overall trading sentiment was largely stable from a day earlier. Transactions were dominated by traders, with downstream purchases accounting for 20% of total purchasing volumes. Mainstream traded prices of nickel from Jinchuan Group were around RMB 160,500/mt and traded prices of nickel from Russia were around RMB 159,500/mt, with market transactions dominated by nickel from Jinchuan Group.


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