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SMM Daily Review - 2010/9/28 Base Metals Market
Sep 28,2010 10:40CST
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SHANGHAI, Sept. 28 (SMM) --


Compared with LME copper market, SHFE copper market represented weak performance on the first trading day after the Mid-Autumn Festival holiday. During the holiday period in China, LME copper prices totally gained over 3%, while SHFE copper market opened gap at high by 2%. SHFE 1101 copper contract, the most actively-traded copper contract opened at RMB 61,050/mt, and dropped to around RMB 60,600/mt after briefly reaching RMB 61,280, down as low as RMB 60,250/mt during spot trading hours. Later, bargain hunting helped prices rise, and finally closed at RMB 60,600/mt, up RMB 820/mt, up 1.37%. Positions for SHFE January Delivery copper contract grew by 14,686 lots, but remained below 100,000 lots. Long sentiment on Monday’s market was not strong, resulting in stronger performance in the LME copper market than in the SHFE copper market. Moreover, movements in China’s domestic stock markets were also weak. Market risks remain as the National Day holiday is around the corner. During the period before the holiday, LME copper prices will continue to point to the USD 8,000/mark, and SHFE copper prices will see RMB 61,500/mt as the short-term target after standing steadily at RMB 60,000/mt, and may test RMB 62,000/mt.

In the spot market, SHFE copper price’s falling back from a high and not strong long momentum depressed downstream producers and speculators’ sentiment, and most chose to adopt a wait-and-see attitude as a result. The SHFE/LME copper price ratio fell further due to weaker performance in the SHFE copper market than LME copper market, and so losses for imports expanded to above RMB 2,000/mt, restricting importer trading and hedging activities. Some speculators were eager to move high-quality goods for cash generation at slight spot discounts of negative RMB 50/mt, including CCC-P, Jinchuan (high-purity), Guiye, and ENM; supply of domestic standard-quality copper was very limited, with spot discounts reported at negative RMB 80-100/mt. However, market transactions were depressed by low market trading sentiment, causing traded prices to fall from RMB 60,450-60,550/mt to RMB 60,350-60400/mt. When copper prices in the SHFE market moved lower, spot copper prices held RMB 60,400/mt, a sign of optimistic outlook among cargo-holders. SMM believes that spot copper prices will continue to fluctuate at RMB 60,000/mt, given no further breakthroughs in the LME copper market before the holiday so far, and strong caution towards higher prices in domestic copper market. On Monday, prices of #1 scrap copper were heard at around RMB 54,300/mt, and transactions were also sluggish. The price gap between refined and scrap copper has increased to above RMB 6,000/mt, which will depress consumption for refined copper. However, arrivals of scrap copper will drop after October, and imports of scrap copper will continue to decrease. Declines in scrap copper imports will help scrap copper prices keep firm, and so prices of scrap copper will rally with rising refined copper prices, and this will support higher refined copper prices in response.


SHFE 1012 aluminum contract prices opened higher at RMB 15,985/mt on Monday, but still lacked upward momentum, with prices mainly fluctuating in a narrow band after falling from a high open in the morning session, and with the lowest prices reported at RMB 15,810/mt. The steadily rising Shanghai Stock Exchange Composite Index and continuous measures to conserve energy and cut emissions at aluminum producers both allowed aluminum prices to show better performance than SHFE copper and zinc prices in the afternoon session, with SHFE 1012 aluminum contract prices again climbing to above RMB 15,900/mt and finally closing at RMB 15,930/mt, up RMB 240/mt compared with the previous trading day, or up 1.53%. Both trading volumes and positions of SHFE 1101 aluminum contract grew gradually. Aluminum prices still have upward momentum amid tightening market supply, with special eye on LME aluminum price trends.

Suppliers were optimistic toward aluminum prices. According to a SMM survey, more than 50% of enterprises believe the optimism generated by energy conservation and emission reductions will continue to drive up aluminum prices. Traders in east China kept offers firm, and showed high interest in moving goods at higher prices, with most deals made at a discounts of RMB 50-80/mt. However, downstream aluminum processors were cautious about climbing aluminum prices, but still held high interest in inquiries. In south China, offers quoted by suppliers have hit RMB 15,900/mt supported by tightening supplies of spot aluminum.

SHFE aluminum prices opened higher but moved lower in the morning session, and spot aluminum prices also fell slightly, but deals were still made between RMB 15,750-15,800/mt. Downstream producers showed little interest in making purchases, keeping overall market sentiment moderate. As downstream producers were unwilling to accept spot aluminum prices between RMB 15,500-16,000/mt, some market players believe a lack support from downstream buying will limit any increases in aluminum prices, and aluminum prices will likely struggle between RMB 15,500-15,800/mt ahead of National Day holidays, with spot aluminum prices lagging behind SHFE aluminum prices.     


Transactions in domestic lead spot market were moderate on Monday, and mainstream traded prices were between RMB 16,550-16,700/mt, with difficulties in making deals at high-end prices.

Generally speaking, market players are optimistic towards outlook. Optimists believe that losses in LME lead prices on Monday are normal, and LME lead prices will rally again after the round of losses, and this will boost domestic lead prices. Downstream producers who did not replenish stocks before the Mid-Autumn Day may actively enter the market this week, which will help improve domestic lead prices. However, some other market players believe that downstream producers always take a wait-and-see attitude, and with low buying interest at high prices. Hence, any price gains in the domestic lead market will be relatively slower than those in the LME lead market.

In this context, transactions in domestic lead market on Monday were affected by the two different market sentiment, and with mixed performance reported. Some buyers insisted entering the market, while some others kept standing on the sidelines; some sellers still kept their offers firm, while some others moved goods at high prices.

Based on traded prices in the domestic lead market, currently domestic lead prices continued to track the rising pace of LME lead prices cautiously, but the growth was much slower compared with gains in the LME lead market during the Mid-Autumn Day. 


LME zinc prices again stood above USD 2,200/mt after China's Mid-Autumn Festival holidays, and positively affected by LME zinc prices, SHFE 1101 zinc contract prices opened high but moved lower, with prices struggling at the RMB 18,000/mt mark and mainly moving below the daily moving average, and finally prices closed at RMB 18,095/mt, up RMB 110/mt. Although SHFE 1101 zinc contract prices moved above all the moving averages, trading volumes significantly decreased by 240,000 lots to 710,000 lots, and total positions decreased by over 6,000 lots to 250,000 lots, with long positions falling significantly after profit-taking, indicating market players generally took a cautious attitude ahead of the National Day holiday.

In the spot market, zinc gained following SHFE 1101 zinc contract prices. In Shanghai spot market, #0 zinc was traded between RMB 17,600-17,650/mt, with a discount about RMB 550/mt against SHFE 1101 zinc contract prices, and a portion of imported zinc was traded around RMB 17,550/mt. #1 zinc was traded between RMB 17,550-17,600/mt. Overall transactions were brisk as downstream buyers replenished stocks ahead of the National Day holiday. By contrast, transactions were relatively weak in Guangdong spot market. Although traded prices in Guangdong were flat at those in Shanghai, downstream buying interest was low, keeping spot transactions limited.

As to zinc price movements this week, 70% of market players believe that market players will still take a wait-and-see attitude ahead of the National Day holiday, and SHFE 1101 zinc contract prices may fluctuate narrowly between RMB 18,000-18,200/mt this week. 30% of market players believe that the US dollar index has already fallen below 80 and lacked upward momentum, and LME zinc prices may climb to USD 2,300/mt after holding steady at USD 2,200/mt as a result. In domestic markets, downstream producers will replenish stocks ahead of the National Day holiday, and the possible bullish spot market sentiment will help push up SHFE zinc prices, and SHFE 1101 zinc contract prices are expected to surge to RMB 18,500/mt this week.


LME tin prices opened at USD 23,590/mt and closed at USD 23,600/mt last Friday, up by USD 10/mt from a day earlier, with the highest price at USD 23,950/mt and the lowest price at USD 23,450/mt. Trading volumes were 227 lots and positions were 17,340 lots. On Monday, LME tin prices opened low at USD 23,565/mt and advanced later. LME tin prices extended gains during the Mid-Autumn Festival holiday and hit a new high at USD 23,600/mt, which is mainly boosted by significant slip of the US dollar and prospect of strong demand. LME tin inventories were 13,555 mt, down by 110 mt.

Tin prices in the Shanghai tin spot market advanced to certain extent amid LME tin price surge. Tin from Yunnan Tin group was traded around RMB 150,500/mt, while tin from Gejiu Non-Ferrous Metals Processing Company and Gejiu Zili Metallurgy was traded between RMB 149,500-150,000/mt. Traded prices of unknown brand tin were between RMB 148,200-148,500/mt. Downstream purchasing interest was not high given the price increase and stock replenishment was not brisk, resulting in moderate trading sentiment. It is known that demand for tin ingot reduced to certain extend as production at some downstream tinplate producers is negatively affected due to government efforts to meet energy conservation and emission reduction goal. LME tin prices constantly hit new highs, but domestic tin prices only advance marginally. Purchasing interest from downstream consumers is not high, providing limited upward momentum for tin prices. It is expected that domestic tin prices will largely remain stable in the following week.


LME nickel prices ended with gains on September 25 from soft US dollar versus the euro and firm equity market. On September 25, LME nickel prices opened at USD 22,500/mt, and closed at USD 23,000/mt last Friday, up USD 270/mt from a day earlier, up by 1.19% or up by USD 270/mt from a day earlier, with the highest price at USD 23,101/mt and the lowest price at USD 22,500/mt.  Daily trading volumes were 1,142 lost and positions were 96,615 lots. LME nickel inventories were up by 534 mt to 120,594/mt.

Most LME base metal prices slipped due to mild profit-taking during the Asian trading hours on Monday, but LME nickel prices resisted decline trend. LME nickel prices opened at USD 23,005/mt, reaching the highest at USD 23,184/mt and touching the lowest at USD 22,874/mt, exhibiting upward momentum. LME nickel inventories were up by 438 mt to 121,032 mt. It is expected that trading sentiment of LME nickel is expected to be quiet this week given the upcoming National Day holiday.

In the Shanghai nickel spot market, demand was still weak, so purchases from downstream consumers were sparse. Stock replenishments before the National day holiday were not brisk, and transactions were largely done between traders. Traded prices of nickel from Jinchuan Group stabilized between RMB 171,500-172,000/mt, and traded prices of nickel from Russia were between RMB 171,000-171,200/mt, up RMB 350/mt. According to SMM official survey, more than 50% market players remain optimistic towards LME nickel price outlook. 


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