SMM Daily Review - 2010/9/15 Base Metals Market

SHANGHAI, Sep. 16 (SMM) –

Copper
Supported by LME copper market overnight, the December delivery copper contract on the SHFE market opened high at RMB 59,370/mt, but then fell back due to weak performance in China’s domestic stock markets. Buying activity emerged after prices fell to RMB 58,810/mt, helping narrow some losses. Finally, SHFE December delivery copper prices closed at RMB 59,090/mt, down RMB 150/mt, or a loss of 0.25%. Both trading volumes and positions exhibited moderate performance. Positions for SHFE December delivery copper contract were down 4,032 lots, and SHFE copper prices moved in the 5-10 day moving average. SMM believes that struggles will continue in the SHFE copper market in the short term.

In the spot market, spot discounts narrowed as SHFE copper prices fell, especially for high-quality copper, and with strong unwillingness to move goods by cargo-holders. On the other hand, downstream producers represented low buying interest. Transactions were done in the RMB 59,000-59,200/mt range. With the approach of the holiday, market risks heightened. Downstream producers in Jiangsu and Zhejiang province are facing restrictions by local government on electricity supply. In this context, some producers with limited orders have halted production. Following the upcoming holiday and the start of a new contract month, near-term contracts on the SHFE copper market have outperformed forward month contracts. SMM believes that China’s domestic copper market will be characterized with “buying near-term contracts” and “selling forward-month contracts”, and spot trades at discounts of RMB 0/mt in the near future. 

Aluminum
SHFE aluminum prices remained weak on Wednesday, shrugging off gains in LME aluminum prices, with SHFE 1012 aluminum contract prices fluctuating lower after opening flat at RMB 15,695/mt. The rebounding US dollar index and falling Shanghai Stock Exchange Composite Index (SSE Composite Index) accelerated declines in SHFE 1012 aluminum contract prices in the midday, with prices dipping to an intraday low of RMB 15,590/mt. In the afternoon session, SSE Composite Index extended declines, while SHFE 1012 aluminum contract prices recovered, but still failed to break through the pressure at the 5-day moving average at the tail of trading, with prices finally closing at RMB 15,635/mt, down RMB 70/mt compared with the previous trading day, or down 0.45%. Total trading volumes were 58,888 lots, while total positions fell by 1,560 lots to 294,116 lots.

In domestic spot markets, yesterday was the last trading day for SHFE 1009 aluminum contract, and spot premiums appeared in the market. Traders kept offers firm due to their optimism toward market outlook, but downstream buying interest remained low, since the effect from power restrictions persisted recently. In this context, overall trading sentiment was lackluster. Aluminum prices rebounded in the afternoon business, and traders in south China were optimistic toward aluminum prices, with traded prices growing steadily, but downstream buying interest was relatively low, keeping overall trading sentient neutral.

Technical indicators show an unclear market direction, and SMM predicts SHFE 1012 aluminum contract prices will continue to fluctuate in a narrow band in the short term.

Lead
On Wednesday, domestic lead market remained lackluster, since downstream producers represented low buying interest towards high-priced goods, which neared RMB 16,500/mt in view of a weak LME lead market. However, prices in domestic lead market did not fall despite of lackluster transactions due to low selling interest in both smelters and traders. Main transactions were done in the RMB 16,350-16,450/mt range in the Shanghai market, with a firm low-end price level. SMM believes that domestic lead prices will meet greater resistance to gains, if downstream consumption continues to be negatively affected by continuing restrictions on electricity supplies in Jiangsu and Zhejiang regions. 
 
Zinc
The US dollar index rebounded from 81.2 to 81.6, and the SSE Composite Index weakened to between 2,665-2,685 points. As a result, SHFE 1101 zinc contract prices moved lower, with prices mainly moving below the daily moving average. SHFE 1101 zinc contract prices even hit a low of RMB 17,500/mt in the afternoon session, and finally closed at RMB 17,670/mt, down 1.45%, with prices still standing above the 20-day moving average. Trading volumes of SHFE 1101 zinc contract remained at 1.52 million lots, while positions fell by 10,000 lots to 300,000 lots, with long momentum still stronger than short momentum.

In the Shanghai spot market, as SHFE 1101 zinc contract prices edged lower in the morning session, #0 zinc was traded around RMB 17,200/mt, with spot discounts of RMB 400/mt against SHFE 1012 zinc contract prices, and some brands were traded at RMB 17,270/mt, but trading volumes were limited. #1 zinc was traded between RMB 17,100-17,150/mt. Downstream producers made some purchases at lower prices, and overall trading sentiment was brisk. Guangdong spot markets were weaker than Shanghai spot markets, and #0 zinc was traded between RMB 17,150-17,250/mt, while #1 zinc was traded between RMB 17,100-17,200/mt. Downstream buying interest was low, and they preferred to buy #1 zinc since some brands of #1 zinc could be traded at RMB 17,100/mt.

Tin
LME tin prices opened at USD 22,250/mt and closed at USD 22,505/mt on Tuesday, up by USD 305/mt from a day earlier, with the highest price at USD 22,625/mt and the lowest price at USD 22,050/mt. Daily trading volumes were 236 lots and positions were 17,943 lots. On Wednesday, LME tin prices opened at USD 22,525/mt and climbed to test USD 22,900/mt, boosted by tight supply. LME tin inventories were down by 350 mt to 13,520 mt.
 
In the Shanghai tin spot market, spot tin prices rose passively along with LME tin price surge, but transactions were not optimistic. Traded prices of tin from Yunnan Tin group were between RMB 148,500-149,000/mt and traded prices of unknown brand tin were between RMB 146,500-148,000/mt. Downstream consumers were hesitant to make purchases amid tin price increase, and overall trading sentiment was not so positive from a day earlier. Current downstream consumption hasn’t shown any positive signs, and it is still hard to tell whether or not prices still have momentum to climb further. Boosted by global tight supply, recent LME tin prices continued to be strong, which help lend support for domestic tin prices. 
 
Nickel
Base metal prices largely ended with gains on Tuesday, boosted by a weaker dollar against the euro and positive sentiment from rising gold and equity markets. LME nickel prices finished at USD 23,196/mt, up USD 276/mt, or 1.2% from a day earlier, with the highest price at USD 23,336/mt and the lowest price at USD 22,740/mt. Inventories were up by 216 mt to 119,034 mt. LME nickel prices broke through key USD 23,000/mt level, but trading volumes were still thin.

On Wednesday, LME base metal prices declined in a response to rebound of the US dollar index. LME nickel prices opened at USD 23,200/mt, reaching the highest at USD 23,310/mt and touching the lowest at USD 23,025/mt. LME nickel inventories were up by 822 mt to 119,856 mt.
 
In the Shanghai nickel spot market, transactions were sluggish. Mainstream traded prices of nickel from Jinchuan Group were between RMB 171,800-172,000/mt, down RMB 350/mt from a day earlier, and traded prices of nickel from Russia were between RMB 170,700-171,000/mt, unchanged from a day earlier. LME nickel price decline dragged down spot nickel prices. Transactions of nickel from Jinchuan Group at prices between RMB 171,500-171,800/mt were reported when LME nickel prices fell to the lowest in the noon. However, traders were unwilling to move goods and downstream consumers’ purchasing interest was low when LME nickel prices rebounded in the afternoon trading hours.

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