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SMM Daily Review - 2010/8/11 Base Metals Market
Aug 12, 2010 10:08CST

SHANGHAI, Aug. 12 (SMM) --
SHFE copper market opened low on Wednesday, and SHFE copper for November delivery contract opened at RMB 57,060/mt. Around the release of China's major economic data, SHFE copper market advanced, briefly touching RMB 57,690/mt in the morning. However, China's domestic stock market dropped due to lack of upward momentum, weighing down SHFE copper market. The falling China's A-share market, coupled with rising US dollar in the afternoon, further dent on SHFE copper market, helping all copper contracts on the SHFE market fall below RMB 57,000/mt. The November delivery copper contract slid as low as RMB 56,600/mt before closing at RMB 56,700/mt, down RMB 850/mt, or a loss of 1.48%. Trading volumes increased to 424,000 lots, and with turnover rate of 209%. Positions for SHFE November delivery copper contract dropped significantly in the afternoon, down 4,578 lots, to more than 202,000 lots. Similar to LME copper market, the most actively-traded contract on the SHFE market has fallen below the 10-day moving average, and further price corrections are technically possible in the short term. 

In the spot market, domestic goods dominated market supply in the morning business. "Guixi" brand tried to quote prices at premiums, and domestic standard-quality copper intended to narrow discounts to RMB 0/mt or to negative RMB 50/mt. Supply of imported copper was limited. Downstream producers preferred to stand out of the market along with unsteady price movements and an unclear market direction. Traded prices fell from RMB 57,450-57,550/mt to RMB 57,350-57,450/mt. In the afternoon when SHFE copper market weakened, goods for hedging entered the market, and some cargo-holders intended to lift spot premiums to positive RMB 50/mt. However, downstream producers showed little purchasing interest, waiting for further market direction.

SHFE 1011 aluminum contract prices opened slightly lower at RMB 15,555/mt, and later China released a series of economic data including CPI and PPI, helping push up aluminum prices to hit RMB 15,590/mt. However, the strengthening US dollar in the afternoon caused base metals prices to slump, with SHFE 1011 aluminum contract prices dipping to RMB 15,435/mt, and finally prices closed at RMB 15,475/mt, down RMB 145/mt, or down 1%. Trading sentiment remained weak, and positions fell by nearly 4,000 lots, with all technical indicators showing signs of further declines.

Spot aluminum prices slipped following weaker SHFE aluminum prices, but traders kept offers firm at a discount of RMB 20/mt in the morning session, since SHFE aluminum prices moved relatively stable. Downstream inquiries were up, and buying interest improved as well. However, buyers chose to stand on the sidelines in the afternoon along with plummeting SHFE aluminum prices, and market sentiment was neutral. Cargo-holders may make deals with zero discounts or even at slight premiums as the delivery date nears.  

As LME lead market overnight dropped, traders lowered offers, and a small number of downstream producers made purchases due to optimistic outlook. However, most of downstream producers preferred to adopt a wait-and-see attitude for further market direction. In the afternoon trade, falling LME lead prices in the afternoon kept downstream producers on the sidelines, with low buying interest. In general, trading sentiment in domestic lead markets was quiet. Traders said that price declines on the LME lead market over the past two days would not cause them to sell off goods, given limited supply and uncertainty towards outlook. Transactions in the Shanghai market were made in the RMB 16,200-16,250/mt for "Gejiu" brand, and RMB 16,350-16,400/mt for well-known branded goods.

SHFE zinc prices opened slightly lower in the morning session, and SHFE market was bearish. As of 10:00 am, trading volumes of SHFE 1011 zinc contract were only 200,000 lots. However, trading volumes of SHFE 1011 zinc contract reached 50,000 lots in five minutes after 10:00 am, as China released a series of macro economic data for July, and China's CPI rose by 3.3% on a yearly basis in July and China's new loans reached RMB 532.8 billion in July, both helping drive up market optimism. SHFE 1011 zinc contract prices jumped to an intraday high of RMB 17,615/mt, and prices finally ended at RMB 17,180/mt, down 2.02%. Trading volumes of SHFE 1011 zinc contract were 965,600 lots, and positions fell by 5,726 lots to 210,000 lots, and positions of SHFE 1012 zinc contract continued to grow significantly.

In the spot market, #0 zinc was traded between RMB 17,080-17,150/mt in Shanghai, with spot discounts ranging between RMB 380-430/mt against SHFE 1011 zinc contract prices, while #1 zinc was traded in the RMB 17,050-17,080/mt range. Downstream producers were cautious about purchases given rapid increases in SHFE zinc prices in the morning session, and they continued to stay out of the market in the afternoon when SHFE zinc prices slipped. As a result, overall spot trading sentient remained lackluster. Trading sentiment improved slightly in south China when SHFE zinc prices fluctuated at high levels, but later weakened after 14:00 pm when SHFE zinc prices dropped. In this context, market views are still mixed on whether or not zinc prices will experience significant declines in the future. SMM believes zinc market remains in surplus, and the weakening market confidence will become the major reason behind possible declines in zinc prices in the future.       

LME tin prices opened at USD 21,200/mt and closed at USD 20,525/mt on Tuesday, down USD 825/mt from a day earlier, with highest price climbing to USD 21,200/mt and the lowest price touching USD 20,525/mt. Trading volumes were 216 lots and positions were 17,485 lots. Base metal prices slip sharply on weaker economic data and the fact that US dollar strengthened even before the release of interest rate results from Federal Reserve. On Wednesday, LME tin pries opened at USD 20,500/mt and fluctuated weakly. Recent base metal prices were under pressure to experience correction, and time is needed to tell LME tin price trend.

In the Shanghai tin spot market, transactions were extremely sluggish when LME tin prices slumped. Although traders lowered prices, it still had limited impact on stimulating transactions. Tin from Yunnan tin group was sparsely traded at RMB 150,500/mt, and offers of tin from unknown smelters were between RMB 146,500-148,000/mt. Smelters still kept offers firm and adopted a wait-and-see attitude, still showing reluctance to move goods despite that transactions were sluggish. Wait-an-see sentiment was prevailing in the market, and buyers and sellers were both waiting for a clearer trend.

LME nickel prices opened at USD 22,700/mt and closed at USD 22,250/mt on Tuesday, down USD 580/mt from a day earlier, with the highest price at USD 22,700/mt and the lowest price at USD 22,075/mt. Daily trading volumes were 2,505 lots and positions were 92,010 lots. LME nickel inventories were down by 240 mt to 116,034 mt. LME base metal prices slipped sharply on lower-than-expected economic data and strong US dollar. On Wednesday, LME nickel price opened at USD 22,110/mt, reaching the highest at USD 22,424/mt and touching the lowest at USD 21,905/mt, with the latest at USD 21,922/mt, down USD 328/mt from a day earlier. LME nickel prices opened slightly lower, but later climbed on release of China's July economic data. However, upward momentum was weak from Tuesday's price slump, and prices continued to slip on Wednesday.

In the Shanghai nickel spot market, overall transactions were reduced from a day earlier. Mainstream traded pries of nickel from Jinchuan Group were between RMB 168,500-168,800/mt and traded prices of nickel from Russia were between RMB 167,500-168,000/mt. Market participants adopted a wait-and-see attitude on the impact from LME nickel price slump. Transactions were mainly done between traders to replenish stocks, while very few downstream purchasers entered the market.   


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