SMM Daily Review - 2010/8/5 Base Metals Market

SHANGHAI, Aug. 6 (SMM) –

Copper
SHFE copper market followed rising LME copper prices on Thursday, opening at high, but fell back due to a falling China A-share market. SHFE copper for November delivery opened at RMB 58,100/mt and fell back after failing to test RMB 58,500/mt, moving in the RMB 57,500~57,800/mt range. At the tail of the trading, the most actively-traded copper contract fell as low as RMB 57,250/mt, and finally closed at RMB 57,400/mt, up slightly RMB 20/mt. Positions and trading volumes both increased. Positions for SHFE November delivery copper contract were up 6,084 lots to more than 210,000 lots, and trading volumes exceeded 544,000 lots, with turnover rate of 260%. The support for SHFE November delivery copper contract is still available at the 5-day moving average, and a warning signal of downward pressure is available on technical indicators. Whether or not Chinese stock markets will regain upward momentum will play a decisive role on market confidence towards SHFE copper market.

Offers were mixed in the spot copper market, and spot discounts continued. High-quality copper was quoted at discounts of around negative RMB 100/mt in the morning session when SHFE copper prices were high, creating buying activity, and speculators chose to buy goods at discounts, and sold forward contracts. When SHFE copper prices fell, downstream producers made more inquiries, but transactions were depressed by some trader attempt to make deals at premiums. In the afternoon business, high-quality copper was quoted at premiums of RMB 0/mt, and domestic standard-quality copper remained at discounts, with limited sales, with discounts down to negative RMB 60-80. Traded prices dropped from the morning session, down from RMB 57,600-57,800/mt to RMB 57,450-57,650/mt. Despite of a closer delivery date, spot market remains at discounts, reflecting depressed market transactions. Sluggish transactions from price gains in nearly a week will likely result in increases in inventories, and this will cap rising trend of copper prices.

Aluminum
SHFE aluminum prices opened higher but moved lower, and SHFE 1011 aluminum contract prices opened at RMB 15,715/mt, and later climbed to RMB 15,810/mt temporarily. China’s A-share markets retreated, weighing down SHFE aluminum prices, and SHFE 1011 aluminum contract prices dipped to RMB 15,625/mt, and finally closed at RMB 15,660/mt, up RMB 20/mt, or up 0.13%. Trading sentiment improved, and positions increased by nearly 3,000 lots. SHFE 1011 aluminum contract prices tested the support at the 5-day moving average, and the lack of upward momentum caused SHFE aluminum prices to depend mainly on other base metals prices and financial markets.
 
Transactions improved slightly in spot markets. Traders kept offers firm in the morning session in east China, with spot discounts moving below RMB 50/mt. Trader buying interest was up after aluminum prices fell back, but they were still reluctant to accept current higher prices. Aluminum offers declined significantly later, with spot discounts expanding to RMB 100/mt. Trading volumes grew sharply, and overall trading sentiment was moderate.
 
SHFE aluminum prices stood steady at the 5-day moving average, and mixed market fundamentals in China failed to drive aluminum prices higher, so special focus should be put on LME aluminum market and other base metals prices trends.        

Lead
As LME lead prices gained at a moderate pace, downstream producers became more cautious towards price hikes, and market expectations towards price declines increased, waiting for purchases at lower prices. Transactions in the Shanghai market were made between RMB 16,250-16,400/mt on Thursday. The number of traders operating on a short-term basis increased due to higher risks from constant price gains. 
 
Zinc
SHFE 1011 zinc contract prices fluctuated widely after opening slightly higher, with prices climbing to the intraday high of RMB 17,485/mt in the morning session. However, SHFE 1011 zinc contract prices later fell rapidly negatively affected by declining copper prices, with prices hitting the daily low of RMB 16,975/mt. SHFE 1011 zinc contract prices moved narrowly around RMB 17,000/mt in the afternoon, and finally closed at RMB 17,085/mt. Positions of SHFE 1011 zinc contract continued to drop by nearly 9,000 lots to 250,000 lots, with the number of short-term positions higher. Trading volumes of SHFE 1011 zinc contract reached 1.536 million lots, an indication of relatively bullish market sentiment. In addition, long position momentum was gaining recently, and SHFE zinc market is expected to remain strong in the short term.
 
Spot trading sentiment was moderate. #0 zinc prices fell from RMB 16,750/mt, to RMB 16,550/mt in Shanghai market, with spot discounts stabilizing between RMB 400-450/mt against SHFE 1011 zinc contract prices. Traded prices for #1 zinc were between RMB 16,530-16,730/mt, with the price gap between #0 and #1 zinc narrowing. Zinc prices fluctuated in a wide band yesterday. Downstream producers began to make purchases when SHFE 1011 zinc contract prices fell to near RMB 17,000/mt, so overall spot trading sentiment was general.
 
At present, market players remain pessimistic toward future zinc prices, as zinc prices rose continuously from RMB 15,000/mt to RMB 17,000/mt without any necessary corrections. However, positive global macro economic data helps support base metals prices, and SHFE zinc prices are fluctuating above all moving averages, with technical indicators showing positive signals. In this context, SMM predicts the bullish trading activity on the SHFE zinc market will be depressed to some extent in the near term.

Tin
LME tin prices opened at USD 19,850/mt on Wednesday and closed at USD 20,200/mt, up USD 325/mt from a day earlier, with highest price climbing to USD 20,370/mt and the lowest price touching USD 19,725/mt. Daily trading volumes were 258 lots and positions were 17,424 lots. LME tin inventories were up by 40mt to 14,925mt. Due to the impact from positive US economic data and the rebound of the US equity market, LME base metal prices rallied significantly on Wednesday, setting a high last seen in August 2008. On Thursday, LME tin prices rallied after a high open, and tested the highest at USD 20,500/mt, with prices continuing moving at high level.

In the Shanghai tin spot market, major tin smelters lifted ex-works tin prices above RMB 150,000/mt along with the LME tin price jump. Trading sentiment was brisk, and traders constantly lifted their offers. Traded prices of major brand tin were between RMB 146,500-147,500/mt up to the afternoon of Thursday, and traded prices of unknown brand tin were between 145,000-146,000/mt. As supply of goods was limited, trading volumes didn’t grow significantly. However, purchasing interest from downstream purchases was higher from a day earlier. Market players told that spot tin prices may still have room to climb further as long as LME tin prices continue to be strong. 
 
Nickel
Due to impact from positive US economic data and a rebound of the US equity market, LME nickel prices opened at USD 21,560/mt and closed at USD 21,850/mt on Wednesday, up USD 250/mt from a day earlier. Daily trading volumes were 1,396 lots and positions were 87,382 lots. LME nickel inventories were down by 288mt to 117,870mt. LME nickel prices opened at USD 21,850/mt on Thursday, climbing to the highest level at USD 22,000/mt and touching the lowest level at USD 21,820/mt, with latest at USD 21,919/mt, up USD 69/mt from a day earlier.
 
In the Shanghai nickel spot market, trading sentiment was relatively brisk between traders, due to strong performance of LME nickel prices. However, downstream demand was still sluggish, accounting for 20% of total trading volumes. Traders were largely optimistic towards future outlook. Mainstream traded prices of nickel from Jinchuan Group were between RMB 165,000-165,500/mt, and mainstream traded prices of nickel from Russia were between RMB 164,000-164,500/mt. 

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