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SMM Weekly Review and Forecast (August 23-27)
iconAug 30, 2010 16:59iconCST

SHANGHAI, Aug. 30 (SMM) -- Last week, a stream of negative economic data in the US drove the US stocks lower significantly, with the Dow Jones Industrial Average even falling below 10,000 points. A portion of investors shifted their focus to the US dollar, with the US dollar index soaring to above 83.5 as a result, and the stronger US dollar weighed on LME base metals prices. Although base metals prices regained some losses late last week, the SMMI still fell by 0.11%, with SMMI.Ni falling by 1.67%, followed by SMMI.Pb, which slipped by 1.25%. SHFE copper, aluminum, and zinc prices fell at a slower pace than other metals, with SMMI.Cu rebounding by 0.33% ahead of weekend.  
SHFE copper prices fell at a slower pace compared with LME copper prices last week, and SHFE 1009 copper contract prices generally moved above RMB 57,000/mt, except on Wednesday, when prices fell to RMB 56,650/mt.  As a result, the SHFE/LME copper price ratio improved to above 7.9. 

Unit maintenance is still under way at Jinlong Copper Company.  Chifeng Yuntong Nonferrous Metals Company also began unit maintenance last week, but overall market supply remains sufficient.  Smelters were reluctant to move goods when copper prices fell, causing higher spot premiums last week and with premiums for high-quality copper rising to close to RMB 200/mt.  Copper demand in major copper consuming regions such as Jiangsu and Zhejiang provinces were down as local governments still restricted electricity supplies to local industrial enterprises.  Despite the power restrictions, downstream consumers showed higher interest in lower-priced goods, with buying interest significantly higher than previously.  Overall transactions were brisk, with trading volumes increasing as well from a week earlier. 

Recently, a stream of negative economic news clouded overall financial markets, and LME copper prices edged lower, but SMM believes any further declines in copper prices next week will be limited and are unlikely to fall below USD 7,000/mt, even if more negative news is reported.  The US dollar index should now remain stable at 83, but the US and Chinese stocks may fall further, so LME copper prices will be under heavy pressure to rise.  SMM expects LME copper prices to fluctuate between USD 7,100-7,300/mt in the coming week, with prices expected to return to above USD 7,300/mt if positive economic data is released. 

Ben Bernanke, Chairman of the US Federal Reserve, will speak at the annual Federal Reserve symposium from 27-28 August, and his comments will affect copper price trends.

SHFE aluminum prices fell slower than LME aluminum and SHFE copper and zinc prices, with SHFE aluminum prices fluctuating around RMB 15,300/mt for four consecutive days. Spot aluminum prices in east China advanced slightly during the first two days of last week as SHFE aluminum prices strengthened in morning sessions, but later posted mixed results for the next several trading days, with mainstream traded prices fluctuating between RMB 15,070-15,120/mt. Downstream producers remained pessimistic toward the market outlook and overall spot trading sentiment was sluggish.

SHFE aluminum prices are moving in a narrow band and should continue for the near term. Whether or not the Shanghai Stock Exchange Composite Index can hold steady at the 2,600 point level will be a key factor affecting base metals prices.

In China's domestic lead spot market last week, spot prices fell below the key support level of RMB 160,000/mt due to steady declines in LME lead prices.  According to traders, smelters kept offers firm and were reluctant to move goods at low prices, leading to only limited supply of goods in the market. Traders, however, were unwilling to move goods at the lower prices in view of their own high costs. In this context, spot prices were relatively firm.  Overall trading sentiment in spot markets last week was soft, with actual traded prices between RMB 15,800-16,000/mt.  Battery producers preferred to purchase major name brand lead, given the narrow price spread between major brands and lead from the "Gejiu" region.

Last week, SHFE 1012 zinc contract prices were influenced by falling LME zinc prices and ended the week down. The Shanghai Stock Exchange Composite Index retreated as well, falling below 2,600 points, which sent SHFE 1012 zinc contract prices as low as RMB 16,445/mt and further depressing market confindence.  However, active purchasing at lower prices on Thursday helped drive SHFE 1012 zinc contract prices back up to slightly above RMB 17,000/mt. Spot market sentiment was neutral and wide fluctuations in SHFE zinc prices added to market uncertainty, causing zinc spot prices to hover between RMB 16,300-16,600/mt.  Some downstream consumers made some purchases at lower prices, but overall trading sentiment was lackluster. 

Total zinc stocks were reported at 486 kt last week, up 2 kt from a week earlier. Bearish trading sentiment in spot markets resulted in slight increases in zinc stocks, with stocks in Shanghai up 5 kt. Zinc stocks in south China were down 3 kt due to lower delivery volumes, while stocks in Tianjin were relatively stable.

In domestic tin spot market, price firstly declined but later rallied. Spot tin prices reached the lowest level last Thursday, with mainstream traded prices falling to between RMB 144,500-145,500/mt and few transactions reported. Downstream purchasing interest improved and transactions became brisk due to LME price rally on last Thursday and continuous LME tin price increases on last Friday. In this context, mainstream traded prices were lifted to between RMB 145,500-146,000/mt and offers from Yunnan Tin group were between RMB 148,500-149,000/mt.

Although transactions improved slight along with sudden price rally, market sentiment didn't become total bullish and wait-and-see sentiment still lingered in the market. Currently, LME tin prices were still higher than domestic tin prices, with domestic tin prices lacking support from demand amid traditional low-consumption period. Although LME tin prices are strong, it still takes time to tell whether or not domestic tin prices can rally along with LME tin prices.

In the Shanghai nickel spot market, on August 23rd, Jinchuan Group cut ex-works prices by RMB 4,000/mt, to 167,000/mt, and market traded prices fell to the lowest on August 26th, with traded prices moving between RMB 165,000-165,500/mt. Overall trading sentiment was sluggish. Although LME nickel prices were able to remain above USD 20,000/mt and ex-works prices from Jinchuan group were firm, traders adopted a wait-and-see attitude and were still unwilling to move goods.

Ex-works contract prices from Taigang Stainless Steel were unchanged from a week earlier. Currently, offers are RMB 22,920/mt for #304/2B cold-rolled stainless steel coil, RMB 22,120/mt for #304 No.1 hot-rolled stainless steel coil, and RMB 11,620/mt for #430/2B cold-rolled stainless steel coil. Tsingshan Holding Group cut stainless steel prices as nickel prices fell. Prices for #304, #321, and #316L stainless steel prices were down by RMB 500/mt, while prices for #200 stainless steel were unchanged. 

During the summer months, electricity supply for industrial use is restricted in Jiangsu and Zhejiang province in order to guarantee sufficient supply for residential use, causing stainless steel mills in those regions to cut or halt production. In this context, stainless steel output will be lower in August, with market supply of stainless steel also down. Although the reduced output and supply help support stainless steel prices, actual increases in prices will still depend on downstream demand.


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