SHANGHAI, Nov. 29 (SMM) --
On the evening of November 19th, the PBOC announced to lift the reserve requirement ratio for banks by 50 basis points from November 29th, the fifth increases so far this year. After this adjustment, the reserve requirement ratio of banks will reach a record high of 18%. China’s central bank made the fourth increase of reserve requirement ratio on November 10th, effective November 16th, lifting the standard ratio for banks to 17.5%. China’s action to raise the reserve requirement twice and interest rate once within one month indicates a shift to tight monetary policy from the loosing one in the country, and China may take more measures to tighten its money supply in the future. Meanwhile, tension between DPRK and South Korea continued, and the US dollar was on upward track, weighing on base metal prices. SMMI were still on downward track last week, with weekly decline by 2.1%. Zinc led this round price tumble, with SMMI.Zn down by 3.89%. Prices for copper, aluminum and lead also slipped, with SMMI. Cu, SMMI. Al and SMMI. Pb down by 2.56%, down by 1.19% and down by 1.16% respectively.
SHFE copper prices generally moved around the 60-day moving average during the past week. SHFE 1103 copper contract prices, the most active, fluctuated narrowly at around RMB 62,000/mt after hitting a low RMB 60,920/mt on Tuesday.
Spot trading sentiment was weak last week, with steady supply from domestic copper smelters, but market supply increased from the previous level along with arbitraging trades and cash-generation sales at the month-end. Operating rates at downstream producers were stable, but falling copper prices last week did stimulate some downstream purchasing activity. However, downstream producers generally believed it was not right time for bargain hunting due to price volatility, preferring instead to build stocks only at prices below RMB 60,000/mt, keeping overall trading sentiment weak.
Copper prices cannot easily advance in the coming week due to the stronger US dollar and market concerns over possible tighter monetary policies in China, but since copper prices are finding solid support at the low end of the current price band, future price declines will be limited. If no significant news is announced, LME copper prices will move between USD 8,168/mt and USD 8,340/mt, fluctuating between the 60-day and 10-day moving averages.
Particular attention should be paid to China’s Central Economic Work Conference to be held in earlier December. The conference will set guidelines for China’s economic policies for 2011, and any significant changes would affect financial markets.
SHFE aluminum prices also fluctuated narrowly, with deals mainly made between RMB 16,100-16,300/mt. Investors were both cautious and pessimistic, keeping trading sentiment sluggish. SHFE aluminum prices trends are unclear, and actions by China's Central Bank to tighten credit are also adding uncertainty to aluminum price trends. In this context, SMM predicts SHFE aluminum prices will fluctuate between the 5-day and 60-day moving averages in the near term.
In east China, spot aluminum prices fell gradually in response to SHFE aluminum prices, but market supplies of lower-priced goods were limited since suppliers were unwilling to move goods. Spot discounts narrowed gradually to zero against SHFE current-month aluminum contract prices, but spot premiums once appeared ahead of weekend. Traders kept prices firm at RMB 16,000/mt early last week, but their offers fell slightly on Friday. Downstream producers preferred to stand on the sidelines when aluminum prices fluctuated at low levels, and they only showed higher interest in entering the market when aluminum prices fell below RMB 16,000/mt and SHFE aluminum prices showed signs of rebounding on Wednesday, but most of them only made inquiries but were reluctant to make deals. Later, aluminum prices failed to rebound, further depressing downstream buying interest.
Prices in China’s domestic lead markets fell last week in response to weak LME lead prices. Last Tuesday, some traders rushed to move goods in view of sharp declines in LME lead prices, with some transactions made below RMB 17,000/mt. Despite smelters’ low selling interest, lead prices were still low given traders dumped goods at lower prices after profit-takings. Most downstream producers chose to stay out of the market, due to the volatile LME lead prices in recent two weeks, keeping trading sentiment muted. Most transactions in domestic lead markets were made between 17,000-17,400/mt last week.
Although LME tin prices slipped, nickel prices in the Shanghai nickel spot market were relatively firm, with mainstream spot prices between RMB 158,000-160,000/mt. Downstream producers’ wait-and-see sentiment growing amid downward pressure of LME tin prices, coupled with sluggish demand, made transactions quiet in domestic tin spot market. Tin from Yunnan Zili Gejiu Metallurgy, Gejiu Non-Ferrous Metals Processing Company and Nanshan Tin Industry Co., Ltd dominated market supply, and other brand tin was rarely seen in the market. Low-priced goods that entered in the market in the previous weeks have been consumed out, leaving limited supply of goods in the market. Since major tin suppliers like Yunnan Tin group and Yunnan Chengfeng Non-Ferrous Metals Co., Ltd kept offers high and moved limited goods in the market, overall supply reduced significantly. Unknown brand tin suppliers admitted frankly that their inventories for finished goods were low, and most goods were directly shipped to regular clients, resulting in supply shortage in the market. In this context, domestic tin spot market will stagnate amid domestic supply shortage and downward LME tin price.
The average price in the Shanghai nickel spot market from 19-25 November was RMB 173,650/mt, down RMB 3,650/mt from a week earlier. Although LME nickel prices made solid gains last week, a bearish sentiment still prevailed in the market due to the lack of clear market guidance given slumping prices over the past two weeks, the lingering European debt crisis, and credit tightening in China. In this context, transactions remained sluggish in the Shanghai nickel spot market and traders replenished stocks cautiously. The, Shanghai/LME nickel price ratio recently turned positive, creating opportunities for importing nickel and resulting in 800 mt of nickel from Russia arriving in Shanghai last week.
According to the most recent statistics, total inventories were 170.1 kt at 26 warehouses in the Wuxi stainless steel market, down by7.4%, and include 12.2 kt of #200 stainless steel, 131.5 kt of #300 stainless steel, and 26.4 kt of #400 stainless steel. Last week, Taigang Stainless Steel prices for #304 stainless steel were unchanged, but prices were up by RMB 100/mt for #430 stainless steel. Currently, prices are RMB 25,220/mt for #304 cold-rolled stainless coil, RMB 24,420/mt for RMB #304 hot-rolled stainless steel coil, and RMB 12,020/mt for #430 cold-rolled stainless steel coil. LME nickel prices have been volatile, with transactions for stainless steel weak as a result. Although shortages of stainless steel exist in some markets, domestic market players were not optimistic towards the short term market outlook and end-users made purchases for stainless steel cautiously due to unstable economic and political factors, both in China and abroad.
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