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SMM Daily Review - 2010/8/16 Base Metals Market
Aug 17, 2010 10:25CST

SHANGHAI, Aug. 17 (SMM) –

Negatively affected by LME copper prices, SHFE copper market opened low on Monday, but rising stock markets boosted market confidence, helping SHFE copper market rally. SHFE copper for November delivery briefly fell as low as RMB 56,550/mt after opening at RMB 56,800/mt. Later, the most actively-traded copper contract on the SHFE marked rallied with rising domestic stock markets, and reached RMB 57,460/mt in the afternoon session. Finally, SHFE November delivery copper contract closed at RMB 57,300/mt, up RMB 430/mt, or a gain of 0.76%. Positions for SHFE November delivery copper contract were down 10,892 lots to 192,000 lots, and trading volumes expanded to more than 330,000 lots. Both longs and shorts reduced positions to an extent. Market worried the sustainability of rallies on domestic stock markets after strong performance on Monday, and some longs withdrew from the market after locking profits. According to technical indicators, support at the low end is becoming strong, and SHFE copper market is expected to enter a phase of narrow fluctuations, and gather upward momentum to climb higher.

Spot offers were mixed on the last trading day of SHFE August delivery copper contract. In the morning business, spot copper prices rallied from RMB 57,050/mt to RMB 57,350/mt, and prices gained further to RMB 57,250~57,400/mt in the afternoon trade. Transactions were depressed except those at large discounts. Spot transactions will not trade at large discounts after a new contract month starts. Supply of imported copper was restricted as the SHFE/LME copper price ratio ever fell to around 7.0. Market players believe that copper prices will rally after the traditional low demand period ends. SHFE copper market is closely related to China A-share market, and movements in domestic stock market will affect performance on the commodity market. 

Although LME aluminum prices closed with declines last Friday, SHFE aluminum prices fell at a slower pace yesterday supported by positive domestic stock markets. SHFE 1011 aluminum contract prices opened lower but moved higher, with prices opening at RMB 15,430/mt. China’s A-shares climbed gradually to 2,660 points, improving SHFE market sentiment, with SHFE 1011 aluminum contract prices edging higher to RMB 15,560/mt in response. SHFE 1011 aluminum prices lost some gains later and finally closed at RMB 15,495/mt, up RMB 40/mt compared with the previous trading day. Positions of SHFE 1011 aluminum contract increased slightly, and trading sentiment improved as well. SHFE 1011 aluminum contract prices again struggled at the 5-day moving average, with technical indicators showing positive signs.
Yesterday was the last trading day of SHFE 1008 aluminum contract, and deals were mainly made with discounts of RMB 20-0/mt in spot markets. Downstream producers stayed out of the market, and their buying interest was low amid unclear aluminum price trends, while traders kept offers firm given their optimistic sentiment, resulting in lackluster trading sentiment.  
Spot discounts narrowed steadily against SHFE aluminum prices in overseas spot markets, and LME aluminum inventories continued to decline as well. The US dollar index faced resistance at 83, and any further declines in LME aluminum prices will be limited in the short term. Spot discounts will expand in domestic spot markets after transitioning into a new contract month, but traders will not widen discounts significantly given positive overall market sentiment. In this context, domestic aluminum prices are expected to fluctuate higher in the short term.      
As LME lead prices fluctuated at the 20-day moving average, domestic downstream producers stood on the sidelines, waiting for a clear market direction, with modest transactions reported. Deals for goods from Gejiu, Yunnan province were made between RMB 16,000-16,050/mt, and traded prices for well-known branded goods were in the RMB 16,100-16,200/mt range. Some traders said downstream producers purchased some goods enough for one-month consumption in earlier month due to optimistic outlook, resulting in brisk transactions in earlier month. However, a wait-and-see attitude became strong among downstream producers due to uncertainty towards the outlook. On the other hand, traders were wary of moving goods in view of limited stocks and high costs. Hence, trading sentiment over the past two weeks was quiet.

Currently, LME lead prices have reached USD 2,070/mt for the fourth time, and if LME lead market is able to advance after finding a solid support, resistance at the 5-day moving average is likely to disappear, and this will also boost domestic market confidence. Otherwise, domestic lead market will continue to experience fluctuations. 

SHFE 1012 zinc contract prices fluctuated widely in the morning session, with prices even dipping to RMB 16,905/mt. SHFE 1012 zinc contract prices rebounded rapidly in the afternoon supported by strengthening China’s A-share markets and weakening US dollar, and finally closed at RMB 17,305/mt, up 1.61%. Trading volumes of SHFE 1012 zinc contract increased significantly compared with last Friday levels, nearing 1 million lots. Total positions jumped to 488,000 lots, with short positions higher than long positions.
In the spot market, #0 zinc was traded between RMB 16,600-16,650/mt in Shanghai, with spot discounts ranging between RMB 320-350/mt against SHFE 1011 zinc contract prices, while #1 zinc was traded in the RMB 16,570-16,620/mt range, with spot discounts moving around RMB 350/mt against SHFE 1011 zinc contract prices. Market players stood on the sidelines when SHFE zinc prices fluctuated between RMB 16,800-17,050/mt in the morning session, and spot trading sentiment was neutral. Offers for #0 zinc increased in the afternoon in response to rising SHFE zinc prices, with offers above RMB 16,800/mt also heard in the market, but market players were unwilling to accept higher prices, resulting in sluggish spot trading sentiment.

LME tin prices opened at USD 20,500/mt and closed at USD 20,750/mt last Friday, up USD 300/mt from a day earlier, with the highest price at USD 20,800/mt and the lowest price at USD 20,450/mt. Daily trading volumes were 192 lots and positions were 17,484 lots. LME tin inventories down by 265 mt to 13,870 mt. On Monday, LME tin prices opened at USD 20,675/mt and continued to test USD 21,000/mt, with the highest at USD 21,050/mt. LME tin inventories fell to the lowest since May 2009, as output of refined tin was 20% lower than target output due to negative impact on ore mining in Indonesia during its rainy season. In this context, tin prices received strong support from fundamentals.
In the Shanghai tin spot market, overall trading sentient was stronger from that on last Friday as LME tin prices surged to USD 21,000/mt. Most major brand tin smelters kept offers firm between RMB 149,000-150,000/mt, but actual trading volumes were low. Supply of unknown brand tin was relatively ample, with traded prices of unknown brand tin between RMB 145,500-146,000/mt, and traded prices of major brand tin were between RMB 147,000-150,000/mt at low trading volumes. Current tin spot prices stagnated given the high raw material prices but weak downstream purchasing interest. Although LME tin prices were relatively strong, possibility for LME tin prices to rise significantly is small due to a strong US dollar. It is expected that tin prices will largely remain stable this week, and may climb slightly along with LME tin prices. 
LME nickel prices ended with slight losses last Friday on weaker equity markets and strong US dollar. LME nickel prices opened at USD 21,425/mt and closed at USD 21,400/mt last Friday, down USD 75/mt from a day earlier, with the highest price at USD 21,868/mt and the lowest price at USD 21,200/mt. Daily trading volumes were 1,626 lots and positions were 97,094 lots. LME nickel inventories were up by 306 mt to 117,000 mt. After the Fed reserve meeting, market worried of economy recovery pace, and the risk aversion pushed up US dollar. In this context, LME nickel prices weakened again after strengthening. On Monday, LME nickel prices opened at USD 21,400 mt, reaching the highest at USD 21,640/mt and touching the lowest at USD 21,260/mt, with the latest at USD 21,332/mt, slightly down USD 68/mt from a day earlier.
In the Shanghai nickel spot market, transactions increased amid bullish sentiment in the morning trading session, but transactions were down in the afternoon trading session. Mainstream traded prices of nickel from Jinchuan Group were around RMB 165,500/mt and mainstream traded prices of nickel from Russia were around RMB 164,500/mt. Downstream purchases increased, accounting for 35% of total trading volumes. Based on a survey, bearish sentiment grew slightly, with 50% respondents having negative price outlook, 13% respondents believing flat prices and 37% respondents having positive price outlook. 


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