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SMM Daily Review - 2010/9/7 Base Metals Market
Sep 8,2010 09:42CST
data analysis

SHANGHAI, Sept. 8 (SMM) --


SHFE copper market opened low on Tuesday, and SHFE December delivery copper contract experienced corrections after opening low at RMB 60,300/mt. As Shanghai Stock Exchange Composite Index (SSE Composite Index) failed to reach 2,700 points, the most actively-traded copper contract fell back from RMB 60,370/mt, and dropped below RMB 60,000/mt, with support available at RMB 59,500/mt. Finally, the December delivery copper contract on the SHFE market closed at RMB 59,680/mt, down RMB 730/mt, or a loss of 1.21%. Although SHFE copper market closed above the 5-day moving average, any upward momentum has weakened according to technical indicators, with strong resistance to break through RMB 60,000/mt.

In the spot market, spot discounts remained in the negative RMB 300-200/mt range as SHFE copper prices dropped below RMB 60,000/mt, generating some arbitraging trading. Cargo-holders of high-quality copper were reluctant to move goods along with optimistic outlook for consumption in September and the approach of delivery date. Downstream producers became brisk for inquiries due to copper price corrections, but they remained wary of purchases. Transactions in the morning were generally made between RMB 59,500-59,650/mt, with deals for high-quality copper at RMB 59,600/mt. In the afternoon, spot discounts narrowed to negative RMB 150-250/mt following declines in the SHFE copper market. High-quality copper remained firm at RMB 59,500/mt, and with strong unwillingness to move goods, especially for “Guixi” brand copper, with limited market supply. If SSE Composite Index continues to test 2,700 points on Wednesday, copper prices will regain upward momentum after brief corrections, and transactions will improve as a result.  


SHFE 1012 aluminum contract prices opened high at RMB 15,840/mt, and later made strong gains to RMB 16,010/mt in the morning session, with prices facing pressure after testing the RMB 16,000/mt mark. SHFE 1012 aluminum contract prices later fell back due to weak stock markets, with prices hitting an intraday low of RMB 15,745/mt. At the tail of trading, SHFE 1012 aluminum contract prices returned to above RMB 15,800/mt supported by recovering Shanghai Stock Exchange composite index, and finally closed at RMB 15,860/mt, up RMB 65/mt, or up 0.41%, allowing SHFE aluminum to become the only base metal to post gains yesterday. Trading sentiment was brisk, and trading volumes of SHFE 1012 aluminum contract exceeded 200,000 lots, while positions increased by 13,384 lots. SHFE aluminum has drawn more attention from speculative funds, and long momentum may help push up SHFE aluminum prices, but any upward room for SHFE aluminum prices will be limited if other base metals prices and stock markets remain weak.

In the spot market, as downstream aluminum fabricators were skeptical that aluminum prices can report continuous increases, they chose to stand on the sidelines, leaving lower buying interest. Spot aluminum prices in east China moved higher as well, but spot discounts widened against SHFE 1009 aluminum contract prices. Traded prices moved between RMB 15,380-15,400/mt, and later spot aluminum prices fell to RMB 15,320/mt following falling SHFE aluminum prices, but trading sentiment remained lackluster. 


LME copper prices fluctuated downward after a high open during earlier Asian trading hours, bringing its previous rising streak to an end. Downstream purchasing interest returned low after slight improvement due to uncertainties towards the outlook, with limited transactions. With strong movements in the LME lead market over recent days, offers in domestic lead markets were high, and well-known branded copper was initially quoted at RMB 16,400-16,450/mt. However, most traders lowered offers for well-known branded goods by RMB 50-100/mt along with further declines in the LME lead market, and lower downstream buying interest, but actual transactions remained lackluster. In general, goods from Gejiu, Yunnan province were traded between RMB 16,200-16,300/mt in the Shanghai market, while high-quality goods were made in the RMB 16,350-16,450/mt range.


LME zinc prices fell below USD 2,200/mt in the morning session, dragging down SHFE 1012 zinc contract prices to RMB 17,950/mt from RMB 18,200/mt. At the tail of trading, the Shanghai Stock Exchange composite index reversed previous losses and closed at 2,698 points, driving SHFE 1012 zinc contract prices higher, and finally SHFE 1012 zinc contract prices closed at RMB 18,100/mt, down RMB 25/mt, with prices still standing above all moving averages. Trading volumes of SHFE 1012 zinc contract exceeded 1.11 million lots, down 60,000 lots from a day earlier, while positions exceeded 270,000 lots, with turnover rate of 400%. Short momentum was stronger based on position distribution. However, positions of SHFE 1101 zinc contract increased by nearly 25,000 lots, and trading volumes have risen to 440,000 lots, an indication of brisk trading sentiment.

SHFE 1012 zinc contract prices fluctuated widely, with prices falling from RMB 18,150/mt to RMB 18,000/mt. In the Shanghai spot market, #0 zinc was traded between RMB 17,500-17,550/mt, while #1 zinc was traded between RMB 17,450-17,500/mt. Market players chose to stand on the sidelines amid wide fluctuations in zinc prices recently, and downstream buying interest was low as well, resulting in neutral trading sentiment. Traded prices for spot zinc in Guangdong market were flat at prices in Shanghai market, but trading sentiment was weaker. Some traders said they made no deals, since they bought goods at higher prices from smelters, but downstream consumers stayed out of the market, with few inquiries reported.


LME tin prices opened at USD 21,350/mt and closed at USD 20,950/mt on Monday, down USD 300/mt from a day earlier, with the highest price at USD 21,500/mt and the lowest price at USD 20,740/mt. Daily trading volumes were 293 lots and positions were 16,146 lots. On Tuesday, LME tin prices opened at USD 20,855/mt during the Asian trading hours, and fell to test USD 20,700/mt. LME tin inventories were down by 40 mt to 14,345 mt. A recent bank test revealed the fact that 91 major banks in the EU concealed their real financial condition. The release of this news weighed on the EU and dragged down base metal prices.

In the Shanghai tin spot market, mainstream traded prices slipped slightly and overall trading sentiment was moderate. As small amount of tin from Yunnan Tin group was traded around RMB 147,500/mt. Tin from Yunnan Gejiu Zili Metallurgy were traded around RMB 146,500/mt and tin from Yongkang Guangsheng Tin Industry was traded around RMB 145,300/mt. LME tin prices slipped below USD 21,000/mt again. Although domestic tin prices were supported by high raw material costs, prices continued to slip due to sluggish trading sentient amid low-demand period. Price spread between major band tin and unknown brand tin narrowed to certain extent, and price advantage enjoyed by unknown brand tin was no longer strong. Overall market was still sluggish and was still haunted by negative impact from low-demand period.


LME base metal prices mostly closed with gains on Monday, boosted by better-than-expected nonfarm payroll report. LME nickel prices opened at USD 21,850/mt and closed at USD 22,140/mt, up USD 366/mt, with the highest price at USD 22,250/mt and the lowest price at USD 21,850/mt. Trading volumes were not high due to the absence of the US investors on the Labor Day holiday. 

On Tuesday, the EU was weighed on worse-than-expected bank stress tests. Base metal prices softened due to weak euro versus the US dollar. LME nickel prices opened at USD 21,750/mt and climbed to test USD 22,055/mt. However, LME nickel prices fell to test USD 21,660/mt and fluctuated on downward track when the US dollar index climbed to test 82.41. LME nickel inventories were down by 396 mt to 119,490 mt. Wait-and-see sentiment was strong, and trading volumes were low.

In the Shanghai nickel spot market, wait-and-see sentiment was strong both from suppliers and demanders along with the slip of LME nickel prices, resulting in sluggish trading sentiment. Traded prices of nickel from Jinchuan Group were between RMB 169,000-169,500/mt, down by RMB 500/mt, and traded prices of nickel from Russia were between RMB 168,500-169,000/mt.

SMM believes that demand for nickel will grow with the coming of traditional high consumption period during September and October. In addition, NPI output declined due to power ration, also lending support for nickel prices. In this context, current nickel price slip may be slight corrections after several days’ rally.


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