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SMM Daily Review - 2010/9/16 Base Metals Market
Sep 17,2010 10:10CST
smm insight

SHANGHAI, Sep. 17 (SMM) –

With enhanced expectations for interest rate hikes by China’s central bank, the Agricultural Bank of China’s shares fell below its IPO price on Thursday, leading declines of other shares in banking sector. The Shanghai Stock Exchange Composite Index dropped all the way, testing its support at the 60-day moving average. Although SHFE copper market opened high on Thursday, market sentiment was dampened by falling prices in China’s domestic stock markets. SHFE copper prices dived since 11:00 am, and plunged further in the afternoon due to rising US dollar. The December delivery copper contract prices briefly reached as high as RMB 59,390/mt in the morning, and slid below RMB 59,000/mt in the afternoon session, down as low as RMB 58,680/mt. The most actively-traded copper contract prices cut some losses at the tail of the trading, and finally closed at RMB 59,060/mt, down RMB 30/mt, a loss of 0.05%. The stimulated purchasing interest after falling below the RMB 59,000/mt mark helped SHFE copper prices end at above RMB 59,000/mt. Trading volumes and positions for SHFE December delivery copper contract continued to fall, with intense struggles between longs and shorts. Market risk aversion sentiment before the upcoming holiday has increased, and market players are becoming more cautious.

In the spot market, plunging prices on the SHFE copper market lifted spot premiums. In the morning business, high-quality copper was quoted at discounts of negative RMB 30-50/mt, with deals made between RMB 59,250-59,300/mt. However, marked price declines in the SHFE copper market resulted in spot premiums for high-quality copper, and also helped narrow discounts for standard-quality copper to negative RMB 0/mt, with traded prices down to RMB 59,050-59,150/mt. Spot premiums for high-quality increased further in the afternoon after SHFE copper prices dropped below RMB 59,000/mt, and traded prices tried to hold at RMB 59,000/mt, and with bargain hunting emerging.

The Shanghai Futures Exchange (SHFE) has adjusted its limits for margin trading and price volatility in all futures contracts traded on the bourse for the Mid-Autumn Festival and the National Day holidays, from Sept. 21 to Oct. 8. The margin for trading of copper contracts has been raised to 25%, and the sign that players withdrew from the market became more evident. Despite of stronger shorts before the holiday following expectations of higher interest rates and other factors, longs are always in a standby position in view of copper price resilience and demand during a traditional peak demand period. To sum up, SMM believes that SHFE copper market will fluctuate widely before the holiday period. 
SHFE aluminum prices laced upward momentum after opening slightly higher, with SHFE 1012 aluminum contract prices opening at RMB 15,650/mt and climbing to a high of RMB 15,670/mt. The Shanghai Stock Exchange Composite Index (SSE Composite Index) remained weak after opening, and SHFE 1012 aluminum contract prices slipped gradually as well, with prices hitting a low of RMB 15,575/mt. At the tail of trading, SHFE 1012 aluminum contract prices rebounded slightly, and finally closed at RMB 15,630/mt, down RMB 10/mt, or down 0.06%. Trading volumes of SHFE 1012 aluminum contract were 29,284 lots, with trading sentiment very sluggish, while positions declined slightly. Although SHFE aluminum prices opened high in the morning session, the continuously falling SSE Composite Index depressed market investment interest in SHFE aluminum market, and SMM predicts SHFE aluminum prices will continue to fluctuate in a narrow band in the short term.
Spot discounts in east China widened rapidly to between RMB 160-180/mt after the delivery date of SHFE 1009 aluminum contract, boosting downstream fabricators' buying interest, and transactions were moderate as a result. However, buyers chose to stand on the sidelines later following slipping SHFE aluminum prices, and trading sentiment turned weak in response.                

Domestic lead prices still got stuck and stayed unchanged on Thursday. LME lead market was quiet on Thursday, and with slight price changes, making no contributions to domestic lead market. Downstream producers exhibited low buying interest at the current high prices. On the other hand, lead smelters did not increase their sales, given expectation of launching of lead futures market in China and production losses from energy savings and emission cuts. Both smelters and downstream producers are waiting for a clearer market direction. Lead was generally traded between RMB 16,300-16,450/mt in the Shanghai market on Thursday. Transactions at high prices met great resistance, while low-priced deals got certain support.  
SHFE 1101 zinc contract prices fluctuated widely on Thursday, with prices mainly moving narrowly around the daily moving average in the morning session. The SSE Composite Index moved at low levels near 2,600 points in the midday, and the US dollar index advanced to 82, both driving SHFE 1101 zinc contract prices lower below the daily moving average, with prices even dipping to as low as RMB 17,635/mt. At the tail of trading, the US dollar index fall to 81.32, and LME zinc prices picked up as well, both allowing SHFE 1101 zinc contract prices to reverse previous losses, and SHFE 1101 zinc contract prices finally closed at RMB 17,785/mt. Trading volumes of SHFE 1101 zinc contract increased by 70,000 lots to 1.59 million lots, while positions increased by 20,000 lots to 320,000 lots, with short momentum gaining.
In the Shanghai spot market, #0 zinc was traded between RMB 17,150-17,250/mt, with spot discounts of RMB 400/mt against SHFE 1101 zinc contract prices, while #1 zinc was traded between RMB 17,100-17,200/mt. Market players stayed out of the market given wide fluctuations in SHFE zinc prices, keeping spot transactions neutral. In the Guangdong spot market, #0 zinc was traded between RMB 17,250-17,300/mt, while #1 zinc was traded between RMB 17,200-17,250/mt. Downstream buying interest was low, and overall trading sentiment was sluggish.

LME tin prices opened at USD 22,525/mt and closed at USD 23,150/mt on Wednesday, up USD 645/mt from a day earlier, with the highest price at USD 23,200/mt and the lowest price at USD 22,500/mt. Daily trading volumes were 500 lots and positions were 17,346 lots. On Thursday, LME tin prices opened at USD 23,070/mt, testing the highest at USD 23,410/mt and touching the lowest at USD 22,850/mt. Congolese government restriction on local tin ore exports reduces global tin supply, with strong fundamentals supporting tin prices to climb further. LME tin inventories were up by 60mt to 13,580mt. 
Spot tin prices in the Shanghai market rose along with LME tin price surge. Traded prices of tin from Yunnan Tin group were around RMB 150,000/mt and traded prices of unknown brand tin were around RMB 148,000/mt. With regard to smelter, Yunnan Tin group kept offers at RMB 155,000/mt and other smelters lifted prices to extent as well. However, downstream consumers’ acceptance towards tin price surge was low, resulting in moderate trading sentiment in the market. LME tin prices rose robustly, while domestic tin prices were quiet. Market players largely adopted a wait-and-see attitude towards tin price outlook, and it still takes time to tell whether or not tin prices still have momentum to rise further. 
Due to weaker-than-expected US data and speculation that China will step up measures to cool its property market, LME base metal prices mostly ended with losses. However, LME nickel prices closed 0.03% higher at USD 23,203/mt. On Thursday, LME nickel prices opened at USD 23,225/m and were weighed down to test USD 22,886/mt due to China’s stock market plunge from strong US dollar and stronger expectation of interest rate hike in China. During the Asian afternoon trading hours, LME nickel prices began to climb when the US dollar index fell to test USD 22,886/mt after advancing, but fluctuated narrowly when advanced to USD 23,100/mt. LME nickel inventories were down 96 mt to 119,760 mt.
In the Shanghai nickel spot market, transactions were sluggish. Transactions between traders were not brisk, but purchasing interest from downstream consumers to replenish stocks improved. Mainstream traded prices of nickel from Jinchuan Group were between RMB 171,500-172,000/mt, down RMB 150/mt. Mainstream traded prices of nickel from Russia were between RMB 170,700-171,000/mt, unchanged from a day earlier due to limited supply in domestic market.


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