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SMM Daily Review - 2010/9/20 Base Metals Market
Sep 21,2010 10:05CST
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SHANGHAI, Sept. 21 (SMM) --
With the upcoming Mid-Autumn holiday, Shanghai Stock Exchange Composite Index (SSE Composite Index) generally moved below 2,600 points for the whole trading day, as market was still overshadowed by expectations of interest rate hikes. The weak performance of SSE Composite Index indicates strong market concerns over macro-economic policies in the future. However, domestic base metals market responded slowly to the market talk of higher interest rate, and instead climbed higher along with a weak US dollar, and a loosing monetary policy in the US and many other economies. The December delivery copper contract on the SHFE market opened at RMB 60,030/mt, standing above the RMB 60,000/mt market again, and with the lowest level for the day at RMB 59,920/mt. The most actively-traded copper contract held steady at the RMB 60,000/mt mark, but trading sentiment was not brisk due to rising margins for trading with the arrival of the holiday, and so trading volumes were down from a day earlier. Meanwhile, SHFE December delivery copper contract closed down slightly at the tail of the trading, given weak performance in China's domestic stock market, and positions experienced declines, a sign of increased risk aversion sentiment with the approach of the holiday. 

There are only two trading days this week for the upcoming Mid-Autumn holiday. The long sentiment was strong on Monday's spot market, and with brisk downstream inquiries. Although copper prices rose above RMB 60,000/mt, cargo-holders kept offers firm. Downstream producers were forced to accept high prices for stock replenishment, as high-quality copper represented its firmness to be traded at discounts of negative RMB 0/mt. Transactions for high-quality copper were made in the RMB 60,100-60,200/mt range for the day. The price gap between standard-quality and high-quality copper was very limited on Monday, and traded prices for standard-quality copper were at around RMB 60,100/mt. Spot copper prices maintained firm at above RMB 60,000/mt. Although futures and spot copper prices in China failed to advance further, cargo-holders represented unwillingness to move goods, as there is a possibility that LME copper prices will hit a new recent high when domestic copper market is closed for the holiday, and as China's domestic stock market will likely rebound in the post-holiday market. However, downstream producers were wary of purchases.

At present, there is lack of upward momentum for copper prices to break through the RMB 60,000/mt mark, and with low acceptance from downstream producers. Hence, SMM believes that copper prices will continue to fluctuate at the price level, and will likely move higher, once LME copper market advances more.

Positively affected by LME aluminum prices, SHFE aluminum prices opened higher on Monday, with SHFE 1012 aluminum contract prices opening at RMB 15,725/mt. SHFE 1012 aluminum contract prices fluctuated higher, with the highest level and lowest level at RMB 15,790/mt and RMB 15,690/mt, respectively, and finally prices closed at RMB 15,760/mt, up RMB 90/mt, or up 0.57%. Most traders were optimistic toward market outlook in view of strong LME aluminum prices, production cuts at aluminum producers, and stock replenishment ahead of the holidays. Short positions fell significantly before the Mid-Autumn and National Day holiday in order to avoid risks, while long positions remained relatively firm.

Downstream producers showed high interest in replenishing stocks ahead of the holidays. Meanwhile, the rising aluminum prices stimulated buying interest, keeping spot market sentiment relatively brisk, with spot discounts in east China narrowing to between RMB 40-80/mt. Production cuts at aluminum producers in Guangxi and Guizhou provinces caused supply tightness in south China, and slight premiums appeared in the market against SHFE current-month aluminum contract prices, and some traders were even unwilling to move goods, with overall trading sentiment bullish.   

Downstream producers in domestic lead market did not make large-scale stock replenishment recently due to the restrictions on electricity supplies. However, buying interest was boosted from the rising LME lead market for two consecutive days, leading to brisk purchases by downstream producers, especially at relatively low price levels between RMB 16,400-16,450/mt. Main transactions for lead in the Shanghai market were done in the RMB 16,400-16,550/mt range on Monday.

Most market players expect a rising LME lead market amid other metals' gains, but can not tell how much positive impact from higher LME lead prices will be passed onto domestic lead market. Some enterprises hold optimistic views toward domestic lead market. While others expect great resistance for domestic lead prices to rise if the rising room for LME lead prices is limited. The pessimistic ones believe that domestic lead prices will be unable to gain due to downstream producers' low buying interest at high prices, even if LME lead prices surge during the holiday period in domestic lead market.    

SHFE 1101 zinc contract prices opened higher on Monday. The US dollar index moved lower at around 81.26, supporting LME zinc prices to struggle at USD 2,200/mt. Strengthening LME zinc prices drove SHFE 1101 zinc contract prices higher, with prices mainly fluctuating between RMB 18,225-18,325/mt, and finally prices ended at RMB 18,270/mt. Trading volumes fell by 60,000 lots to 1.22 million lots, while positions increased slightly by 6,000 lots to 319,926 lots, with short position momentum stronger than long position momentum. 

Spot zinc prices tracked SHFE 1101 zinc contract prices trends. In the Shanghai spot market, #0 zinc was traded between RMB 17,550-17,600/mt, while #1 zinc was traded between RMB 17,500-17,550/mt. In the Guangdong spot market, #0 zinc was traded between RMB 17,550-17,650/mt, with some brands traded at RMB 17,700/mt. Downstream producers were reluctant to accept current higher prices, and although there were signs of stock replenishment ahead of holiday in the market, overall trading sentiment was neutral.

As to this round of price gains, 33% of market players believe SHFE 1101 zinc contract prices have broken through the RMB 18,000/mt due to continuously weakening US dollar index, and found solid support at this level, so they predict SHFE 1101 zinc contract prices will likely rise further to RMB 18,500/mt. 43% of market players believe market sentiment will remain cautious ahead of holiday, and SHFE 1101 zinc contract prices will fluctuate above RMB 18,000/mt. The remaining 23% of market players believe spot markets were quiet as SHFE 1101 zinc contract prices climbed for several consecutive days, so they predict speculative funds will exit the market after profit-taking, and SHFE 1101 zinc contract prices will likely fall to RMB 18,000/mt as a result.   

LME tin prices opened at USD 23,500/mt and closed at USD 23,500/mt last Friday, up USD 100/mt from a day earlier, with the highest price at USD 23,800/mt and the lowest price at USD 23,475/mt. Daily trading volumes were 243 lots and positions were 17,532 lots. On Monday, LME tin prices opened at USD 23,550/mt during the Asian trading hours, and climbed to test USD 23,702/mt due to support from a 0.2% decline of the US dollar index. LME tin inventories were up by 30 mt to 13,655 mt. China's high-rank officials announced last Friday to stick to relatively loose monetary policy, supporting sentiment in the commodity market.

In the Shanghai tin spot market, mainstream traded prices were flat from last Friday. Tin from Yunnan Tin Group was traded between RMB 149,600-150,000/mt, with very sparse transactions at RMB 150,000/mt. Tin from Gejiu Non-Ferrous Metals Processing Company was traded at RMB 149,000/mt, with transactions for other unknown brand tin being done RMB 148,000-148,500/mt. Trading sentiment was not negatively affected by the upcoming Mid-autumn Festival holiday and the National Day holiday, and transactions were moderate. LME tin prices have climbed by 13% to a 2-year high over the past two weeks and are unlikely to climb robustly technically. In addition, there are only limited trading days available this week. In this context, SMM believes that tin prices will largely remain stable this week.

LME base metal prices largely finished with gains last Friday, but a weak euro late pared certain early gains. LME nickel prices ended at USD 23,265/mt last Friday, up by 0.58%. On Monday, LME base metals ended with gains across the board during the Asian trading hours, boosted by a weak US dollar index. LME nickel prices opened at USD 23,300/mt, with limited trading volumes during the early morning trading session, and later climbed to test 23,400/mt after falling to the lowest at USD 23,200/mt, presenting a narrow fluctuation trend. With the US dollar index falling to test 81.046, LME nickel prices climbed to test USD 23,517/mt. LME nickel inventories were down by 168 mt to 119,244 mt.

In the Shanghai nickel spot market, transactions were relatively brisk. Market players were still bullish towards nickel price outlook, and transactions were brisk. Traded prices of nickel from Jinchuan Group were between RMB 172,000-172,500/mt, up RMB 1,000/mt and traded prices of nickel from Russia were between RMB 171,300-171,500/mt, up RMB 750/mt from a day earlier. According the result from SMM survey, more than 95% of market players were optimistic towards nickel price outlook before or after the Mid-autumn Festival holiday and the National Day holiday, with bullish sentiment growing.       


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