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SMM Weekly Review and Forecast (Aug. 16-20)
Aug 23, 2010 16:43CST

SHANGHAI, Aug. 23 (SMM) -- Base metal pries rebounded along with a rally of domestic Shanghai and Shenzhen A share markets. However, market reviews were mixed as most base metal prices reached previous highs, and prices slipped in the middle of last week. In general, SMMI advanced slightly by 0.65%. SMM. Zn led rally and advanced by 2.07% and SMM. Ni followed and advanced by 1.64%. SMM. Al moved moderately and slipped slightly by 0.56%.


SHFE copper prices were also stimulated by gains in China's stock markets, with all copper contracts above RMB 58,000/mt. However, total positions in the SHFE copper market were down significantly. Despite the capital outflow, long positions still dominated the market, helping domestic copper prices remain strong.

Copper demand in major copper consuming regions, such as Jiangsu and Zhejiang provinces, fell as local governments restricted electricity supply to local industrial enterprises. Market transactions were weak over the past week as a result. Unit maintenance is still under way at a limited number of copper smelters, while supply still remains sufficient due to current low consumption. Supply of imported copper also did not increase, leaving no significant changes in overall market supply. Downstream producers showed higher interest in purchases when copper prices were low, but little interest in purchasing with copper prices high.

SMM believes copper prices will continue to rise in the coming week for the following reasons. First, the US dollar index is still under downward pressure above 83, and is expected to move between 82.0 and 82.5 given the recent strong euro and no changes in economic conditions. Second, the SSE Composite Index is expected to remain strong since market confidence may improve after the index advanced and briefly broke through 2,700 points. 

In this context, SMM believes LME copper prices will again test USD 7,500/mt in the coming week after finding a solid support at USD 7,300/mt.


SHFE aluminum prices fell slower than LME aluminum prices, with SHFE three-month aluminum contract prices moving around RMB 15,500/mt. Spot discounts widened in east China after SHFE aluminum transitioned into a new contract month. Traders kept offers firm early last week due to market optimism, but buyers showed little interest in purchasing, keeping trading sentiment soft. Spot aluminum prices fell below RMB 15,200/mt on Thursday as SHFE aluminum prices slumped, improving downstream buying interest.

Although uncertainties exist regarding economic recovery and stock markets, there is little chance domestic aluminum prices will fall significantly. SMM predicts domestic aluminum prices will continue to fluctuate in a narrow band in the short term.


SHFE zinc prices posted gains last week, due to a rising SSE Composite Index. SHFE 1012 zinc contract prices surged from RMB 17,255/mt on August 13th, to RMB 17,850/mt, and near the previous high of RMB 17,885/mt. However, market views were mixed toward the sustainability of zinc price increases. SHFE 1012 zinc contract prices faced growing resistance and fell slightly on Thursday and Friday, with a drop even reaching 3.34% on Friday, and with the lowest prices reported at RMB 17,050/mt.

Spot zinc prices tracked SHFE zinc price gains early last week, with prices standing above the RMB 17,000/mt, but downstream buying interest remained low, keeping trading sentiment lackluster. Downstream consumers made some purchases on Friday after prices slumped, but some downstream producers still adopted a wait-and-see attitude due to unclear market direction.

Total zinc stocks were 484 kt last week, up 2 kt from a week earlier. Zinc stocks in Shanghai and Tianjin remain stable, but stocks in south China were up due to higher delivery volumes. Mudslides in Huangzhu town, Cheng county, Gansu province, damaged power lines and transportation facilities, and zinc operations at Gansu Baohui Industrial Group and Gansu Chengzhou Zinc Smelting Factory were affected as well, and SMM predicts zinc output will fall during August in Gansu province.


Domestic lead prices lingered between RMB 16,000-16,300/mt. At the end of last week, lead prices met challenge to stand above RMB 16,000/mt and lead from "Gejiu" region was traded around RMB 15,950/mt. Domestic lead trading sentiment was depend on LME lead price performance, so trading sentiment improved at the middle of last week when LME lead prices rallied and ended with gains last Tuesday. However, overall trading sentiment was sluggish last week. On one hand, market acceptance was low towards high price. On the other hand, electricity restriction in Zhejiang and Jiangsu region affected production at downstream producers, thus reducing demand for lead.


In domestic tin spot market, prices fell at a stable pace last week, with LME tin prices outperforming domestic tin prices. Up to last Friday, traded prices of tin from Yunnan Tin group were between RMB 149,000-149,500/mt and traded prices of tin from Yunnan Gejiu Zili Metallurgy were between RMB 146,500-147,500/mt, while prices of unknown brand tin were between RMB 145,000-146,000/mt. Overall traded tin prices were slightly lower than last week. Recent tin prices are relatively high. In addition, tin market is at its seasonal low-demand period, and the high temperature also exerted negative impact on production. In this context, downstream price acceptance was low, and wait-and-see sentiment was strong in the market. Companies only made purchases on an as-needed basis, and overall trading sentiment was sluggish. With regard to smelters, Yunan Tin group still kept offers firm above RMB 150,000/mt but other tin smelters lowered prices to promote sales, dragging to mainstream tin prices to certain extent.  


LME nickel prices fluctuated narrowly last week. On Monday, LME nickel prices advanced slightly to USD 21,560/mt in response to a lower US dollar index, then later fluctuated between USD 21,600-22,500/mt.  Rising equity markets in the US and China provides upward momentum for LME nickel prices, but China's policies designed to control the real estate market and tighten credits are dampening the economic recovery outlook. Last week, LME nickel inventories were down 1,026 mt on a weekly basis, to 115,668 mt.

In China's nickel spot market, transactions between traders were relatively brisk, but downstream purchasers were still cautious.  Higher LME nickel prices added to trader expectations of higher refined nickel prices.  As refined nickel prices rose, downstream purchasers increased purchases of (1.7-1.8%) NPI and (4-6%) NPI, driving down demand for refined nickel. Up to last Thursday, traded prices of nickel from Jinchuan Group were between RMB 165,000-169,500/mt, and traded prices of nickel from Russia were between RMB 164,500-169,000/mt.


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