SMM Daily Review - 2010/9/14 Base Metals Market

SHANGHAI, Sep. 15 (SMM) –

Copper
SHFE copper market opened high, and China’s currency Renminbi hit a new high since its reform in June, weighing down the commodity market. The December delivery copper contract on the SHFE market opened high at RMB 59,580/mt, and then fell back after briefly touching RMB 59,680/mt, with prices narrowly fluctuating at above RMB 59,300/mt in the morning session. The most actively-traded copper contract dropped again in the afternoon session along with rising US dollar, and heavy pressure at 2,700 points for Shanghai Stock Exchange Composite Index. In this context, SHFE December delivery copper contract fell below RMB 59,000/mt, down as low as RMB 58,880/mt. Finally, SHFE December delivery copper contract closed at RMB 59,040/mt, down RMB 320/mt, or a loss of 0.54%. Trading volumes and positions experienced moderate performance. SHFE copper market will still meet resistance at RMB 59,500/mt in the short term, but the support at RMB 58,500/mt still exists. With the approach of the delivery date and holidays, market risks and pressure will become more evident, and longs and shorts are expected to take a cautious attitude towards operations.

In the spot market, cargo-holders offered spot discounts at negative RMB 50-100/mt in the morning business as prices in the SHFE copper market fluctuated narrowly, and high-quality copper dominated market supply. Some suppliers of domestic copper showed unwillingness to move goods at discounts due to the approach of the delivery date; supply of imported hydro-copper reduced from the unfavorable price ratio, with limited market supply. Downstream producers were generally wary of purchases, and only some traders purchased goods when spot discounts for high-quality copper expanded. Transactions in the morning were mainly done between RMB 59,300-59,450/mt. In the afternoon when SHFE copper prices slid, players with hedging trade increased spot discounts to close positions for cash generation. Spot discounts for high-quality copper expanded to negative RMB 80/mt, and the low-end of traded prices fell to RMB 59,150-59,300/mt; discounts for standard-quality copper expanded to negative RMB 150/mt, with deals down to RMB 59,100-59,200/mt; supply of hydro-copper increased, and with discounts reported at negative RMB 200/mt, and traded prices held at RMB 59,000/mt. With price declines in the SHFE copper market, downstream producers represented high buying interest in goods at around RMB 58,500/mt, and meanwhile opportunities were also available for arbitragers, improving market trading sentiment.

Aluminum
Positively affected by rising LME aluminum prices, SHFE 1012 aluminum contract prices opened higher at RMB 15,775/mt on Tuesday, with prices falling to RMB 15,750/mt after soaring to an intraday high of RMB 15,795/mt. In the afternoon session, the US dollar index bounced back after slipping, and SHFE 1012 aluminum contract prices dipped under heavy selling pressure, with a drop of over RMB 100/mt. At the tail of trading, SHFE 1012 aluminum contract prices stabilized at RMB 15,650/mt given a lack of upward momentum and profit-taking by short positions, with prices finally closing at RMB 15,650/mt, down RMB 135/mt compared with the previous trading day. Total positions declined by 4,106 lots to 295,676 lots, while trading volumes shrank slightly to 69,062 lots.
 
Domestic spot markets tended to be lackluster. Market sentiment in east China was relatively bullish in the morning business, and traders kept offers firm, but sufficient market supply and low downstream buying interest resulted in sluggish trading sentiment. In the afternoon business, plunging SHFE aluminum prices spurred market concerns, and only selected cargo-holders moved limited goods at lower prices in spot markets, but buying interest was low, keeping trading sentiment lackluster.
 
A portion of short positions exited the market after SHFE aluminum prices fell back, and market fundamentals tended to be positive, helping limit any possible declines in aluminum prices. Meanwhile, aluminum producers still faced heavy pressure to meet energy saving targets. In this context, SMM predicts aluminum prices will continue to fluctuate higher in the near term.            
 
Lead
As LME lead prices fluctuated at high levels during early Asian trading hours, traders in domestic lead market were reluctant to move goods even at relatively high prices, with extremely low selling interest reported. Traded prices grew by RMB 150/mt following price rises released on the SMM website. However, downstream producers exhibited low acceptance towards goods at high prices, leading to lackluster transactions for high-priced well-known branded lead. Downstream producers preferred to purchase goods priced between RMB 16,350-16,450/mt from “Gejiu”, and a limited number of low-priced well-known branded lead. LME lead market fell in the afternoon, but domestic traders kept offers firm due to expectations of limited declines in LME lead market from optimistic sentiment. In this context, more downstream producers chose to stay on the sidelines, but entered market for purchases when traders lowered offers by around RMB 20/mt, which was deemed as good chances for bargain hunting. Generally speaking, trading sentiment was moderate in domestic lead market on Tuesday. Transactions for unknown branded lead were done in the RMB 16,350-16,400/mt range, and well-known branded lead was traded between RMB 16,450-16,550/mt.

Zinc
SHFE 1101 zinc contract prices fell back from a high open in the morning session, with prices mainly moving along the daily moving average. In the afternoon session, the US dollar index advanced to 82, dragging down LME zinc prices to USD 2,140/mt. Meanwhile, the Shanghai Stock Exchange Composite Index dipped to as low as 2,679 points in the midday. As a result, SHFE 1101 zinc contract prices dipped to an intraday low of RMB 17,735/mt in the afternoon session, and finally closed at RMB 17,760/mt, down RMB 255/mt, but prices still stood above the 20-day moving average. Short positions of SHFE 1012 zinc contract declined significantly. Trading volumes of SHFE 1101 zinc contract increased to 1.52 million lots, and positions grew as well by 32,000 lots to 310,000 lots, with long momentum stronger than short momentum. SHFE 1101 zinc contract prices will fall to test the 20-day moving average, with pressure from the 5-day moving average still existent.
 
In the Shanghai spot market, #0 zinc was traded at RMB 17,450/mt, while #1 zinc was traded at RMB 17,420/mt. In the Guangdong spot market, #0 zinc was traded between RMB 17,300-17,450/mt, while #1 zinc was traded between RMB 17,250-17,400/mt. Market players still stayed out of the market, and downstream buying interest was low, especially when SHFE 1101 zinc contract prices slid in the afternoon session, some traders said no deals were made, and inquiries were limited as well.

Tin
LME tin prices opened at USD 21,850/mt and closed at USD 22,200/mt on Monday, up USD 700/mt from a day earlier, with the highest price at USD 22,300/mt and the lowest price at USD 21,800/mt. Daily trading volumes were 614 lots and positions were 18,203 lots. On Tuesday, LME tin prices opened at USD 22,250/mt during the Asian trading hours, and fell to test USD 22,175mt in the afternoon trading hours due to fragile improvement of global industrial activity confidence. LME tin inventories were down by 15 mt to 13,870 mt. Close attentions should be paid to August consumption inflation data from the UK, July industrial output from the EU and the August retail sales from the UK.
 
In the Shanghai tin spot market, mainstream prices were slightly up from a day earlier, as LME tin prices climbed above RMB 22,000/mt. Traded prices of tin from Yinnan Tin group were between RMB 147,500-148,000/mt, and traded prices of tin from Yunnan Gejiu Zili Metallurgy were between RMB 146,000-146,800/mt. Traded prices of unknown brand tin were between RMB 145,000-146,000/mt. Overall trading sentiment was moderate. Trading volumes were low for tin from Yunnan Tin group and Yunnan Gejiu Zili Metallurgy at RMB 148,000/mt, while low-priced unknown brand tin was more popular among purchasers. Traders avoided taking risks to replenish a large amount of goods when tin supply was limited and market demand was sluggish. 
 
Nickel
Supported by recovered demand from stainless steel mills in the EU and reduced supply of NPI from China, LME nickel prices climbed to a 5-month high. On Monday, LME nickel prices closed at USD 22,920/mt, up by 2.32% or up by USD 519/mt, reaching the highest at USD 23,168/mt and touching the lowest at USD 22,500/mt. Daily trading volumes were 2,063 lots and positions were 99,031 lots. LME nickel inventories were down by 342 mt.
 
On Tuesday, LME nickel prices opened at USD 23,000/mt, reaching the highest at USD 23,135/mt and touching the lowest at USD 22,840/mt. LME nickel inventories were up by 216 mt to 119,034 mt. LME base metal prices mostly slipped slightly during the Asian trading hours due to fragile improvement of global industrial activity confidence and from a lack of fresh solid news in the market.
 
In the Shanghai nickel spot market, transactions were as moderately as that on Monday, with downstream purchasing volumes accounting for 30% of total trading volumes. Traded prices of nickel from Jinchuan Group were between RMB 172,000-172,500/mt, up RMB 1,500/mt and traded prices of nickel from Russia were between RMB 170,700-171,000/mt, up RMB 1,100/mt from a day earlier.

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