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SMM Daily Review - 2010/9/6 Base Metals Market
Sep 7,2010 10:20CST
data analysis

SHANGHAI, Sep. 7 (SMM) --


SHFE copper market on Monday advanced further after a high open, with prices standing above RMB 60,000/mt. The December delivery copper contract met resistance at RMB 60,400/mt, and narrowly fluctuated at around RMB 60,350/mt in the morning. In the afternoon, Shanghai Stock Exchange Composite Index tested 2,700 points, and the US dollar index fell to 81.88, helping SHFE December delivery copper contract reach as high as RMB 60,620/mt before ending at RMB 60,500/mt, up RMB 660/mt, or a gain of 1.1%. Despite of moderate trading sentiment, long sentiment remains strong. SMM believes that SHFE copper prices will point to RMB 61,000-61,500/mt after finding a solid support at RMB 60,000/mt.

In the spot market, transactions were done at around RMB 60,000/mt. Spot discounts expanded to negative RMB 220-300/mt in the morning, and increased further in the afternoon to negative RMB 300-400/mt following gains in the SHFE copper market. Traded prices were generally in the RMB 59,900-60,100/mt, and high-quality copper was traded at prices above RMB 60,000/mt. Market transactions improved significantly, and speculators showed strong buying interest for high-quality copper at discounts of negative RMB 200-300/mt, resulting in brisk trading sentiment. With strong long sentiment, downstream producers gradually entered the market for stock building, and with moderate purchasing activity reported when prices were at relatively lower prices. SMM believes that stock replenishment for holiday production, narrowing spot discounts, as well as relation to financial markets will help domestic spot copper prices stand at RMB 60,000/mt, and test RMB 61,000/mt. 


SHFE aluminum prices opened high and moved higher, and SHFE 1012 aluminum contract prices soared after opening at RMB 15,705/mt, with prices climbing to RMB 15,860/mt in the afternoon. At the tail of trading, SHFE 1012 aluminum contract prices lost some previous gains and closed at RMB 15,820/mt, up RMB 140/mt, or up 0.89%. Trading volumes of SHFE 1012 aluminum contract exceeded 100 lots, while positions surged by 19,720 lots. The SHFE aluminum 5-day moving average has been increasing, and SHFE 1012 aluminum contract prices climbed to above RMB 15,800/mt easily. Although there is possibility SHFE 1012 aluminum contract prices will undergo downward corrections given pressure at RMB 15,800/mt, prices are expected to move higher along with improving expectations of consumption and gaining long investor confidence.

In the spot market, downstream aluminum fabricators gradually accepted current aluminum prices as aluminum prices grew steadily, leaving higher buying interest. Actual traded prices in east China were between RMB 15,300-15,320/mt. Market players showed high interest in purchases in south China, and spot aluminum prices even climbed to RMB 15,400/mt in this region in the afternoon after SHFE aluminum prices edged higher. Overall trading sentiment improved significantly.      


In the domestic lead market, downstream producers showed little acceptance towards prices offered by traders after LME lead prices gained further after a high open during earlier Asian trading hours. However, downstream producers were eager to purchase goods in the afternoon due to further rallies in the LME lead market, with high purchasing interest. Traders in the afternoon lifted prices by around RMB 50/mt along with optimistic outlook and limited goods from smelters’ strong intention to hold prices firm, and with unwillingness to move goods reported. In sharp contrast to previous trading days, transactions on Monday were good. Well-known branded goods in the Shanghai market were traded in the RMB 16400-16500/mt, while deals for lead from Gejiu were made between RMB 16,250-16,300/mt.

Market players feel optimistic toward this week’s market prospects, mainly because LME lead market will be more likely to rise due to its recent price breakthroughs. Furthermore, domestic lead prices will also grow following the rising LME lead market. However, part of market players reserve their opinions on the growth rate of domestic lead prices in view of downstream producers’ low acceptance to traded prices in the recent two weeks.


SHFE 1012 zinc contract prices opened slightly higher. The Shanghai Stock Exchange Composite Index strengthened, driving SHFE 1012 zinc contract prices higher all the way. In addition, the US dollar index weakened to 81.876 in the afternoon, helping push up LME zinc prices to USD 2,202/mt. In response, SHFE 1012 zinc contract prices hit a new high of RMB 18,295/mt, and finally closed at RMB 18,240/mt, up 2.85%. Trading volumes of SHFE 1012 zinc contract reached 1.17 million lots, down nearly 90,000 lots compared with last Friday levels, while positions reached 280,000 lots, down over 3,000 lots compared with last Friday levels, with more long investors than short ones.          

Spot zinc prices advanced following SHFE 1012 zinc contract price trends. In the Shanghai spot market, #0 zinc was traded around RMB 17,600/mt, while #1 zinc was traded around RMB 17,550/mt. Overall trading sentiment was bullish, but deals were mainly made between traders. Downstream producers showed little interest in purchases given high zinc prices and weak orders.

SMM sources show 53% of market players believe SHFE 1012 zinc contract prices have broken through the RMB 18,000/mt mark, and will likely rise further following the start of traditional peak demand period in September and October. 27% of market players believe whether or not SHFE 1012 zinc contract prices can hold steady at the RMB 18,000/mt mark after breaking through this mark remains unknown, and they believe SHFE 1012 zinc contract prices will move narrowly around RMB 18,000/mt this week. The remaining 20% of market players believe SHFE 1012 zinc contract prices will fall slightly to between RMB 17,500-18,000/mt, since spot transactions remain weak, and market demand fails to improve.


LME tin prices opened at USD 21,500/mt and closed at USD 21,250/mt Friday, down USD 250/mt from a day earlier, with the highest price at USD 21,600/mt and the lowest price at USD 21,200/mt. Trading positions were 16,232 lots and positions were 14,225 lots. LME tin inventories were up by 20 mt. On Monday, LME tin prices opened at USD 21,350/mt and climbed all the way to test USD 21,500/mt. The US nonfarm payrolls released on last Friday were better than expected, easing market concern over economy recovery. The US dollar index slipped, lending support for base metal prices due to impact from bullish sentiment as well as strong equity markets during the Asian trading hours.

In the Shanghai tin spot market, prices largely remained stable and overall trading sentiment was still quiet. A small amount of tin from Yunnan Tin group was traded between RMB 147,500-148,000/mt, and unknown brand tin was traded between RMB 145,500-146,500/mt. Although mainstream prices remained stable, supply of low-priced goods exerted negative impact on transactions at mainstream prices. Currently, trading goods was limited in the market and traders avoided to take risks to replenish stocks due to current sluggish consumption. Current domestic tin market was still negatively affected by impact from low-demand period. However, LME tin prices were strong, which will lend support for domestic tin prices to stay at current level. Whether or not domestic tin prices can break through resistance level shall depend on recovery of tin demand.


Boosted by better-than-expected nonfarm payrolls from the US, LME nickel prices opened at USD 21,700/mt, and closed at USD 21,774/mt, up USD 74/mt from a day earlier, with the highest price at USD 22,125/mt and the lowest price at USD 21,600/mt.  Daily trading volumes were 2,095lost and positions were 97,899 lots. LME nickel inventories were down by 156 mt to 120,354 mt. On Monday, LME nickel extended last week’s strong momentum, opening at USD 21,850/mt and testing the highest at USD 22,250/mt. LME nickel inventories were down by 468 mt.

In the Shanghai nickel spot market, transactions were relatively brisk, with transactions largely from downstream buyers. Jinchuan Group lifted ex-works nickel prices again by RMB 2,000/mt to RMB 169,000/mt. Mainstream traded prices of nickel from Jinchuan Group were between RMB 169,500-170,000/mt and mainstream traded prices of nickel from Russia were between RMB 168,500-169,000/mt, both up by RMB 500/mt.

Trading interest from traders was low as they believed that current trading risks were high when LME nickel prices were at high levels. However, downstream producers’ purchasing interest for refined nickel was high for the consideration of costs when NPI prices rallied along with refined nickel prices. Most market players remained bullish towards refined nickel prices in the future due to support from the news that NPI producers will halt production and NPI output will decline in the foreseeable future.


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