SMM Daily Review - 2010/8/19 Base Metals Market

SHANGHAI, Aug. 20 (SMM) –

Copper
SHFE copper market fluctuated widely on Thursday, with movements closely related to performance in Shanghai Stock Exchange Composite Index (SSE Composite Index). SHFE copper for November delivery opened at RMB 58,270/mt, and rallied briefly to RMB 58,360/mt in the earlier session. However, the November delivery copper contract on the SHFE market slid as low as RMB 57,710/mt, as SSE Composite Index met resistance at 2,680 points, down as low as 2,660 points. Later, buying activity at low prices supported SHFE November delivery copper contract. In the afternoon, SSE Composite Index broke though 2,680 points, and hit a new high of 2,700 points, led by gains in Everbright Bank’s shares prices. Supported by strengthening SSE Composite Index, SHFE copper market advanced, returning above the daily moving average. The most actively-traded copper contract climbed above RMB 58,000/mt, reaching as high as RMB 58,270/mt before closing at RMB 58,260/mt, up RMB 20/mt, or a gain of 0.03% from the previous trading day. SHFE copper market is now above the 5-day moving average, and a further upward momentum is still available according to technical indicators. Positions for SHFE November delivery copper contract dropped further, while positions for SHFE December delivery copper contract were up nearly 15,000 lots to more than 100,000 lots, and with trading volumes approached 200,000 lots. The number of long positions is equal to that of short positions, with prices expected to struggle at above RMB 58,000/mt.

In the spot market, market transactions failed to be traded at premiums. In the morning business when SHFE copper market fell with declines in SSE Composite Index, “Guixi” brand copper tried to trade at premiums of positive RMB 10-30/mt, but failed to materialize, as goods for short hedging enter the market. A large volume of imported copper entered the market, with spot discounts at negative RMB 50-100/mt; discounts for hydro-copper were at around negative RMB 150/mt. Domestic high-quality copper was generally traded at premiums of RMB 0/mt. Transactions in the morning business were made between RMB 57,800-58,000/mt, and with greater pressure at RMB 58,000/mt. In the afternoon trade, spot copper advanced above RMB 58,000/mt when SHFE copper market rallied with rising stock market. Deals were made at discounts of negative RMB 50-200/mt, with traded prices up to RMB 58,000~58,200/mt. Market trading sentiment turned low in the afternoon business, as goods for short hedging were unable to flow out, due to falling market supply from optimistic outlook, as well as downstream producer expectations of price declines on Friday. The support at above RMB 58,000/mt for spot copper prices still needs to be tested.

Aluminum
SHFE aluminum prices slipped first but moved higher later. SHFE 1011 aluminum contract prices opened at RMB 15,510/mt in the morning session, but later dipped to RMB 15,415/mt due to weakening stock markets. However, the SSE Composite Index rebounded and set a new high of 2,701.92 points in the afternoon, helping drive SHFE 1011 aluminum contract prices higher. SHFE 1011 aluminum contract prices finally closed with a drop of 0.35%, and positions of SHFE 1012 aluminum contract grew gradually.
 
The weakening SHFE aluminum prices caused spot aluminum prices in east China to dip by over RMB 100/mt, and spot discounts narrowed slightly. In this context, large amounts of lower-priced goods held by traders in Shanghai for hedging flowed into spot markets, and downstream buying interest was up when spot zinc prices moved between RMB 15,180-15,190/mt, resulting in improving market sentiment. SHFE aluminum prices rebounded in the afternoon, and buyers chose to stand on the sidelines, so almost no deals were made when spot aluminum prices climbed to RMB 15,220/mt, and market sentiment was very sluggish.
 
Technical indicators show SHFE aluminum prices will face heavy pressure on the upward track, but stock markets show strong momentum recently, giving a boost to base metals prices, and SHFE aluminum prices may continue to fluctuate in a narrow band driven by SHFE copper and zinc prices.        
 
Lead
Trading sentiment in domestic lead markets remained lackluster on Thursday following low confidence at downstream producers towards outlook. Although domestic lead prices remained above RMB 16,000/mt, downstream producers still showed low acceptance towards the price level due to doubts on support at the level, as domestic lead prices failed to stand at the level during 1H 2010 despite of efforts for several times. Buying interest will wane once prices experience corrections at the price mark. Transactions in the Shanghai market were traded at around RMB 16,200/mt on Thursday.

Zinc
SHFE 1012 zinc contract prices opened lower in the morning session, and later dipped to RMB 17,460/mt negatively affected by weakening stock markets at noon. SHFE 1012 zinc contract prices rebounded rapidly to the daily high of RMB 17,795/mt in the afternoon supported by rebounding SSE Composite Index and growing purchases at lower price levels, with prices finally closing at RMB 17,720/mt, up 0.08%. Trading volumes of SHFE 1012 zinc contract exceeded 1.57 million lots, while positions increased by more than 10,000 lots, with long position momentum gaining significantly. SHFE 1012 zinc contract prices still moved above all moving averages, showing signs of rising.
 
In Shanghai spot market, #0 zinc was traded between RMB 17,050-17,100/mt, with spot discounts ranging between RMB 450-500/mt against SHFE 1012 zinc contract prices, while market supplies of #1 zinc remained limited. As SHFE 1012 zinc contract prices fluctuated lower after opening slightly higher, and later picked up after dipping to RMB 17,460/mt, leaving an unclear market direction, so market views were mixed, and downstream producers adopted a wait-and-see attitude, resulting in limited spot transactions. SHFE zinc prices rallied to RMB 17,795/mt in the afternoon, helping push up spot zinc prices to RMB 17,200/mt, but only a portion of traders made some purchases, while downstream buyers continued to stay out of the market, so spot transactions failed to improve, and the conditions of strong SHFE zinc prices and weak spot zinc prices remained unchanged.

Tin
LME tin prices opened at USD 21,360/mt and closed at USD 21,000/mt on Wednesday, down USD 185/mt from a day earlier, with highest price climbing to USD 21,375/mt and the lowest price touching USD 20,850/mt. Daily trading volumes were 133 lots and positions were 16,458 lots. LME tin inventories were down by 15 mt to 14,050 mt. The US dollar index rebounded slightly on Wednesday night, slightly weighing on LME tin prices. On Thursday, LME tin prices opened at USD 19,950/mt and fluctuated narrowly around this level, but later surged to USD 21,300/mt in the afternoon trading session, widening its price fluctuation range.
 
In the Shanghai tin spot market, overall prices were stable, but few smelters lowered ex-works prices. Tin from Yunnan Tin group had difficulties in making deals at RMB 150,000/mt, with only low volume traded between RMB 149,000-149,500/mt, while unknown brand tin was traded between RMB 146,000-147,000/mt. Although some smelters lowered prices due to sluggish sales pressure, actual transactions still didn’t improve. Currently, LME tin prices have outperformed domestic tin prices, which is mainly due to sluggish consumption of tin domestic market. It is reported that demand for tin is negatively affected by the unsustainable production in Guangzhou province caused by the hot weather in that region. 
 
Nickel
The US dollar index rebounded slightly, weighing on base metal prices. LME nickel prices opened at USD 22,000/mt and closed at USD 21,900/mt on Wednesday, down USD 175/mt from a day earlier, with the highest reaching to USD 22,265/mt and the lowest touching the USD 21,600/mt. Daily trading volumes were 1,610 lots and positions were 92,656 lots. LME nickel inventories were down by 624 mt to 115,968 mt. Due to support from China’s strong equity market, LME nickel prices opened at USD 21,835/mt on Thursday, climbing to the highest level at USD 22,095/mt and touching the lowest level at USD 21,800/mt, with latest at USD 22,032/mt, up USD 130/mt from a day earlier.
 
In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 169,000-169,500/mt and mainstream traded prices of nickel from Russia were between RMB 168,000-168,500/mt. Transactions were largely done between traders, while downstream purchases were not active, accounting for 20% of total trading volumes. Trading inventories of nickel exceeded 9,000 mt.

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