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SMM Weekly Review and Forecast (Sep 6-10)
Sep 13,2010 17:02CST
smm insight
base metals prices in shanghai metal market, and LME base metals market

SHANGHAI, Sep. 13 (SMM) – Base metals market advanced at first, and then fell back in the week of September 6th to 10th, and financial factors again dominated market movements. The US announced mixed economic data, and concerns over debt issues in the Europe were rekindled, weighing down the euro, and so the US dollar moved towards 83, the high-end of its recent moving band. China’s domestic stock and commodity markets suffered sell-off pressure following negative reports, adding to price fluctuations in the base metals market. SMMI registered a weekly decline of 1.06%, with SMMI.Cu leading the drop, down as much as 1.76%. Lead prices were flat with previous levels due to no direct negative impact from domestic futures market, as there is no lead futures market in China. SMMI.Ni, however, was up 0.44%, supported by Jinchuan Group’s twice price lifts. Prices for nickel from Jinchuan Group stood above RMB 170,000/mt again after Mid August, showing that improvement in stainless steel markets has supported nickel prices.

SHFE copper market prices moved lower on rumors China’s State Reserve Bureau’s would  sell some copper stockpiles on Tuesday and from news that China’s Security Regulatory Commission was investigating trading in the Shanghai rubber market.  All copper contract prices in the SHFE copper market fell back to around RMB 58,500/mt due to several downward corrections after breaking through the RMB 60,000/mt mark.

China’s National Bureau of Statistics announced that the CPI, PPI, and other major economic indicators scheduled for release on September 13th will be announced on September 11th (Saturday).  The adjustment triggered speculation, but markets generally anticipate China’s CPI for August will continue to rise between 3.5-3.7%.  If the results are as expected, market concerns over inflation in China will intensify, weighing down copper prices.  However, any price declines from negative news will not be significant given recent reactions to unfavorable news in both LME and SHFE copper markets. 

In this context, SMM believes that LME copper prices will fluctuate in the USD 7,550-7,650/mt range in the coming week.

SHFE aluminum prices strengthened early last week, with SHFE 1012 aluminum contract prices advancing to RMB 16,000/mt. Rumors that Chinese regulators are now investigating positions in rubber futures caused China's commodities to slump in the morning session on Thursday, with SHFE 1012 aluminum contract prices even falling as low as RMB 15,000/mt. In the spot market, aluminum prices rose steadily early last week, with spot aluminum prices reaching as high as RMB 15,400/mt in east China. Market expectations of higher aluminum prices grew, resulting in improved trading sentiment. However, aluminum prices then fell sharply ahead of the weekend, but since buyers were not overly pessimistic and were still making purchases at lower prices, overall trading sentient remained moderate.
SHFE aluminum prices showed strong upward momentum early last week due to improving expectations of market consumption and from efforts of China's government to conserve energy and reduce emissions.  However, rumors on Thursday that Chinese regulators are investigating positions in rubber futures dampened market sentiment. Although downstream fabricators are not overly pessimistic toward the aluminum market outlook, speculators will still take a more cautious attitude toward trading given recent significant price declines. SMM predicts SHFE aluminum prices will not likely regain upward momentum in the short term, with prices expected to fluctuate in a narrow band without any new positive economic data. 

In domestic lead markets, previous lackluster trading sentiment improved significantly, since strong price movement in the LME lead market lifted market sentiment, and since downstream producers needed raw materials for production after consuming previously-built stocks over the past several weeks. Hence, inquiries by downstream producers increased. Domestic lead producers’ unwillingness to move goods and traders’ refusal to cut prices helped prevent domestic lead prices from tumbling as the fallout of sharp declines in the LME lead and China’s domestic futures markets. However, any rising room was also depressed by a wait-and-see attitude among downstream producers at high prices. Transactions were generally made in the RMB 16,200-16,400/mt range.

Early last week, SHFE 1012 zinc contract prices mainly fluctuated between RMB 18,100-18,300/mt, but on Thursday fell as low as RMB 17,190/mt in response to reports that Chinese regulators are investigating positions in rubber futures. Prices finally closed on Thursday at RMB 17,680/mt after first breaking through the RMB 18,000/mt mark. Spot zinc prices mainly moved between RMB 17,500-17,600/mt early last week, with transactions improving from a week earlier. However, spot prices later slumped on Thursday to near RMB 17,200/mt, causing downstream producers to stay out of the market, keeping trading sentiment neutral.
Total zinc stocks were reported at 495 kt last week, up 7 kt from a week earlier. Bearish trading sentiment in spot markets caused zinc stocks to grow. The 2010 Summer Davos Forum will be held in Tianjin, China, so transportation networks and access will be strictly controlled beginning September 10th. In this context, downstream producers cut purchases, causing stocks in north China to grow by 2 kt. Zinc stocks in east China increased by 4 kt, since spot deals were mainly made between traders and only limited goods were purchased by downstream producers. Stocks in south China grew slightly by 1 kt.

In the Shanghai tin spot market, mainstream prices were down RMB 1,000/mt from a weak earlier. Affected by wide fluctuation of LME tin prices and sluggish domestic downstream consumption, domestic spot prices were weak and were on downward track. Up to last Friday, traded prices of major brand tin were between RMB 145,600-146,500/mt and traded prices of unknown brand tin were between RMB 144,500-145,000/mt. Wait-and-see sentiment was strong in the market, and downstream consumers made purchases on an as-needed basis, resulting in quiet trading sentiment. Price spread between major brand tin and unknown brand tin was narrowing as some major brand tin suppliers lowered ex-works tin prices. Overall tin market was sluggish, and time is still needed for domestic tin market to step out of low-demand period. 
As LME nickel prices rallied, in the Shanghai nickel spot market, Jinchuan Group raised ex-works nickel prices twice last week to RMB 172,000/mt.  Transactions in Shanghai were brisk early last week, but later became quiet.  Early last week, downstream purchases were brisk, but wait-and-see sentiment gradual prevailed as prices rose, leaving transactions largely  between traders. Downstream consumers were waiting prices to fall further after LME nickel prices tumbled last Thursday.  Suppliers were unwilling to move goods at the lower prices given expectation of higher future prices, resulting in stagnant trading.  Nickel inventories remained high at 12,000 mt due to the arrival of 3,000 mt of nickel from Jinchuan Group.  As of last Thursday, mainstream traded prices for nickel from Jinchuan Group were between RMB 170,000-171,000/mt, and mainstream traded prices of nickel from Russia were between RMB 169,000-169,500/mt.
Output of stainless steel was down due to government crackdowns on energy conservation and emission reductions.  Reports say the local Ningbo government will step up efforts in the latest crackdown beginning September 15th, especially after governments in Jiangsu and Zhejiang province restricted power supplies in September.  Stainless steel mills in Ningbo stated that local government planned to raise power prices by RMB 0.3/kWh on September 15th, and also intend to restrict power supply according to rationing plans.  Meanwhile, producers with outputs below 10 kt/month will possibly face orders to halt production, and approximately 100 small scale stainless steel mills may be permanently shut down.  Only a few stainless steel mills like Ningbo Huaguang Stainless Steel, Ningbo ASEAN Stainless Steel, and Ningbo Tiandi Stainless Steel have monthly output greater than 10kt.


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