SMM Daily Review – 2010/12/9 Base Metals Market

SHANGHAI, Dec. 10 (SMM) –

Copper
The LME copper market overnight closed at USD 8,985/mt after advancing to USD 9,000/mt. As a result, SHFE copper market opened higher on Thursday, and the copper for delivery in three months opened at RMB 67,600/mt, and then fluctuated narrowly at around the daily moving averages. From the midday, SHFE 1103 copper contract prices gained after LME copper prices advanced to USD 9,066/mt, and set a new record high of USD 9,075/mt, reaching as high as RMB 67,950/mt. However, SHFE three-month delivery copper contract prices failed to rise above RMB 68,000/mt, and fell back to RMB 67,110/mt, with prices generally moving around RMB 67,500/mt for the trading day. Finally, SHFE 1103 copper contract prices closed at RMB 67,420/mt, up as much as RMB 1,400/mt or 2.12%. Positions for SHFE three-month delivery copper contracts were up 12,988 lots to 212,200 lots, and trading volumes climbed above 300,000 lots to reach 305,000 lots. SHFE copper market will likely open at high levels on Friday, but the resistance at the RMB 68,000/mt mark will remain strong, as China will announce a slew of major economic data on Saturday, and the cautious attitude will dominated market trading. 

SHFE current-month copper contract prices gained by more than USD 1,000/mt on Thursday, and spot discounts expanded to negative RMB 250-300/mt on Thursday as a result. Transactions for high-quality copper were modest. As copper prices rose above RMB 66,000/mt, downstream producers were wary of purchases along with high prices and tight cash flow. Hence, less than 30% of trading volumes were made by downstream producers, and buyers were generally those with ample cash flow, and hoped to secure profits from trades at spot premiums before the delivery date. Therefore, transactions dropped from a day earlier, with traded prices between RMB 66,100-66,300/mt. SHFE copper prices advanced at the midday, and spot copper prices reached as high as RMB 66,500/mt, with no deals reported, and copper prices fluctuated at around RMB 66,250/mt in the afternoon business. Although LME copper prices hit a new record high, market didn’t report strong buying interest, since cargo-holders with optimistic outlook were unwilling to move goods at large spot discounts, and since others stood on the sidelines due to potential risks, and since part of small and medium-size producers were restricted by tight cash flow. Despite SHFE copper prices don’t gain as much as LME copper prices, LME copper market may continue to advance. 

Aluminum
SHFE 1103 aluminum contract prices opened higher at RMB 16,545/mt positively affected by soaring LME aluminum prices, but later fell rapidly due to profit-taking by long investors and low optimistic sentiment. In addition, the weakening Shanghai Stock Exchange composite index also weighed down SHFE aluminum prices, and SHFE 1103 aluminum prices moved lower gradually, with the highest level and the lowest level at RMB 16,570/mt and RMB 16,430/mt, respectively, and finally prices closed at RMB 16,450/mt, up 0.24%. Trading sentiment improved slightly, and positions of SHFE 1103 aluminum contract increased by 4,408 lots. However, additional positive news is still needed for SHFE aluminum prices to rally, with special focus on the upcoming China’s economic data and whether or not China raises interest rates.

Spot aluminum prices in east China edged higher following SHFE aluminum prices, slightly boosting buying interest, while traders in south China were active in transactions. limited goods priced RMB 15,990/mt were available in east China, but most traders kept offers firm at RMB 16,000/mt, with actual traded prices mostly between RMB 16,000-16,030/mt, and overall trading sentiment improved slightly.

Zinc
On Thursday, SHFE 1103 zinc contract prices opened slightly higher at RMB 18,555/mt boosted by LME zinc prices, and dipped to between RMB 18,400-18,450/mt later. In the midday, SHFE 1103 zinc contract prices rallied to between RMB 18,450-18,500/mt boosted by the stronger Shanghai Stock Exchange composite index and rising LME zinc prices, with prices once hitting a high of RMB 18,575/mt. In the afternoon trading, since the Shanghai Stock Exchange composite index dropped, SHFE 1103 zinc contract prices fell to between RMB 18,400-18,450/mt and finally closed at RMB 18,430/mt, up RMB 90/mt, or up 0.49%, with prices standing above the 5-day moving average. But the overall transaction was weak. Trading volumes decreased by over 10,000 lots to 645,868 lots, and total positions decreased by 32,400 lots to 249,280 lots. The market players mainly took a wait-and-see attitude, and a large number of short positions left the market after profit-taking.

SHFE 1103 zinc contract prices fluctuated between RMB 18,400-18,500/mt on Thursday. In spot markets, #0 zinc was traded between RMB 17,850-17,900/mt, with discounts of RMB 580-600/mt against SHFE 1103 zinc contract prices, but trading volumes at higher prices were limited; #1 zinc was traded between RMB 17,800-17,850/mt. Downstream buyers purchased modestly, and transactions were mainly made between traders, and the overall transaction was weak. The situation was opposite In Tianjin spot market, traded prices were higher between RMB 18,050-19,000/mt, since several major suppliers reduced supplies to Tianjin market, resulting in tight supply of goods in the market.

Lead
After LME lead prices broke through USD 2,400/mt, trading sentiment in China’s domestic lead markets improved slightly on Thursday, but was still considered quiet. In this context, prices in domestic markets failed to make any breakthrough. Traded prices were around RMB 17,150/mt in Shanghai markets, while smelters made transactions between RMB 17,200-17,250/mt.

Tin
Traded prices in Shanghai tin markets rose above RMB 159,500/mt on Thursday boosted by limited market supply. Tin from Gejiu Zili Metallurgy Company and other large tin smelters was traded between RMB 160,000-160,500/mt, and unknown brand tin was traded between RMB 159,500-159,800/mt. The limited market supply and some cargo-holders’ relatively high costs led to higher offers, and other market players raised offers in response, causing higher mainstream prices generally. However, downstream producers are cautious in view of the unexpected price increases, keeping overall trading sentiment still muted.

Nickel
On Thursday, LME nickel market opened at USD 24,200/mt and remained volatile on Thursday, with the highest price at USD 24,400/mt and the lowest price at USD 24,130/mt. LME nickel inventories were down by 396 mt to 131,196 m. The US dollar slipped from 80 to 79.72 and then rebounded to around 79.97. Negative correlation between the US dollar and base metal prices is waning recently. After rallying consecutively this week, LME base metal prices were volatile on Thursday, but still remained above USD 24,000/mt. 
Trading sentiment was active in the Shanghai nickel spot market following several days’ consecutive rally of LME nickel prices. Transactions between traders were brisk. Mainstream traded prices of nickel from Jinchuan Group were between RMB 179,500-180,000/mt and mainstream traded prices of nickel from Russia were between RMB 178,000-178,500/mt. Downstream purchases are mainly from electroplating industry.

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