SHANGHAI, Dec. 3 (SMM) – The November PMI was 55.2% in China, the fourth-month increase and above 50% for 21 months since March 2009, up 0.5% from a month earlier. In response, SMMI rebounded significantly last week, up 3.11%. Zinc and copper lead the rise, with SMMI.Zn up 4.83% and SMMI.Cu up 4.01%. The PMI purchasing price keep rising all the way, despite China’s interest rate increases in October, and higher reserve requirement ratio (RRR), as well as relevant price guidelines for curbing commodity prices. It is expected aggressive quantitative easing monetary policies to be published, and stricter price management tools may be introduced in the future. Meanwhile, the US dollar index was boosted by higher risk-aversion sentiment from concerns on the European debt issue, and fell back after hitting as high as 81.5. In this context, base metals markets found support at low prices and rebounded. SMM expects base metals prices to keep fluctuating at high levels in the short term.
Last week, prices for copper for delivery in three months in the SHFE copper market rose for a fourth straight trading day and despite falling back on Friday, still set a weekly high of RMB 65,520/mt on Thursday. Spot trading sentiment improved over this past week. Domestic copper smelters maintained normal production and since most cargo-holders hoped to increase cash flow before the year end, market supply was sufficient. Operating rates at downstream producers remained stable last week. With the easing of power restrictions, downstream processing enterprises were able to return to full production. Downstream purchasing interest was also stimulated when copper prices stabilized after earlier drops. Trading volumes expanded and overall trading sentiment turned positive.
Technically, LME copper prices have broken through the resistance level of USD 8,500/mt and have moved above USD 8,700/mt. Although long sentiment remains strong, there is no solid support for these latest gains. Any further upward momentum will be weak and strong resistance will be felt at high-end prices. However, LME copper prices will fall slowly, if at all, due to stronger market fundamentals. SMM believes that LME copper prices will move between USD 8,200-8,700/mt in the coming week.
SHFE aluminum prices also rebounded over the past week, but upward momentum for SHFE aluminum was significantly weaker than other base metals prices due to limited inflows of speculative funds and sluggish trading sentiment. SHFE 1103 aluminum prices even showed signs of falling when reaching RMB 16,560/mt. Upward momentum in SHFE aluminum prices is limited due to a lack of speculative funds, and from expectations that China will raise interest rates to combat inflation. In this context, SMM predicts SHFE 1103 aluminum contract prices will fluctuate between the 5-day and 60-day moving averages in the near term.
Downstream processors were neutral when aluminum prices fell below RMB 16,000/mt to between RMB 15,860-15,910/mt given tight cash flow at the year-end and month-end, as well as from current sluggish aluminum prices. As aluminum prices recovered later, only a limited number of traders were interested in purchasing, keeping overall spot market sentiment lackluster.
Base metals markets met strong resistance early last week, due to the ongoing European debt issue and the stronger US dollar index which hit as high as 81.444, with LME lead prices falling to hit a low of USD 2,190/mt. Last Wednesday, the appetite for risk improved due to strong manufacturing data from China and the US, as well as the strong US home sales data, stopping the US dollar index from rising. LME lead prices, along with neighboring metals, rose in response, and advanced above USD 2,350/mt, hitting as high as USD 2,367/mt. Market will absorb current negative economic factors in the coming week, and trading sentiment is expected to improve from recent two weeks. China will hold the Central Economic Working Conference in the coming week and the November economic data will be released, keeping metals markets fluctuating widely. SMM expects LME lead prices to fluctuate between USD 2,200-2,350/mt in the coming week.
SHFE three-month zinc contract prices moved between RMB 17,000-17,600/mt early last week, and then surged above RMB 18,000/mt on Thursday as LME zinc prices rallied to USD 2,200/mt. SHFE three-month zinc contract prices finally closed the week at RMB 18,360/mt. In spot markets, prices were mostly between RMB 16,800-17,000/mt early last week. On Thursday, as SHFE zinc prices rose, spot zinc prices surged to RMB 17,400/mt, even hitting a high of RMB 17,700/mt in afternoon trading. Downstream buyers purchased at lower prices, but transactions were mainly made between traders after zinc spot prices soared on Thursday.
SHFE three-month zinc contract prices should rise to between RMB 18,500-19,000/mt given the upward momentum of LME zinc prices. In spot markets, spot discounts were growing as SHFE zinc prices rose. Although downstream purchasing interest was low due to higher spot prices, traders can still make profits by buying spot zinc and selling SHFE zinc contracts given expanding spot discounts. As a result, spot transactions will likely be made mainly between traders and smelters will also increase supply due to rising spot zinc prices.
Mainstream prices in China’s domestic tin markets fell from RMB 158,000 to 157,000/mt last week, and rallied slightly last Friday boosted by strong LME tin market. The weak domestic tin prices were due mainly to low consumption. Capital is tight before the year-end, coupled with volatile LME tin prices, leaving downstream producers to stay out of the market. Affected by power restrictions and exports, supply of tin ingot has sharply reduced recently, lending some support to domestic tin prices. Both demand and supply are expected to keep sluggish in the short term.
The average price in the Shanghai nickel spot market from 26 November - 2 December was RMB 175,600/mt, up by RMB 1,950/mt from a week earlier. Jinchuan Group raised ex-works nickel prices again by RMB 3,000/mt, to RMB 178,000/mt. Transactions were still sluggish due to the cost advantage of NPI, and deals were still largely done among traders. The LME nickel price rally early last week was without fundamental support and market sentiment was still unsettled, with players adopting a wait-and-see attitude amid price increases in spot markets. Last week, transactions for nickel from Russia were more active than for nickel from Jinchuan Group. Jinchuan nickel inventories were low and prices were firm in late November, while Russia nickel prices were lower and supply was ample.
According to the most recent statistics, total inventories were 191.9 kt at 26 warehouses in the Wuxi stainless steel market, up 12.8%, and include 12.1 kt of #200 stainless steel, 149.8 kt of #300 stainless steel, and 30 kt of #400 stainless steel. Last week, settlement prices from Taigang Stainless Steel were unchanged from a week earlier. Prices were 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.
Last week, LME nickel prices were moving along an upward track due to support from positive economic data as well as growing confidence that European debt issues are coming under control. The US dollar began to slip and base metal prices rebounded strongly. Stainless steel market players remained neutral to the latest price rally as price increases in spot stainless steel markets were limited.