SHANGHAI, Dec. 13 (SMM)--
The copper for delivery in three months in the SHFE market fell slightly to RMB 67,750/mt after opening at RMB 67,770/mt on Monday, and then rallied to RMB 68,520/mt. China's stocks markets rose on Monday, as the further increases in the reserve requirement ratio by China's Central Bank eased market fears over the interest rate hikes in China, and as China's Central Economic Work Conference held over this past weekend released positive signals. Supported by rising stocks prices, SHFE copper prices advanced from 13:30, with SHFE 1103 copper contract prices setting a daily high level of RMB 69,200/mt. SHFE three-month copper contract prices generally fluctuated at around RMB 68,920/mt before ending at RMB 68,780/mt, with prices moving above the daily averages for the whole trading day. Both positions and trading volumes increased on Monday. Trading volumes reached 258,730 lots, and positions were up 12,350 lots to 346,740 lots, a sign of improved sentiment after players believed that it is now a brief end to all negative news.
In the spot market, spot discounts were between negative RMB 70-150/mt. Market supply was limited, as some cargo-holders were unable to move goods due to losses, and as some traders and smelters were reluctant to move goods with spot discounts at around negative RMB 100/mt before the upcoming delivery date. Downstream producers were wary of purchases as copper prices were above RMB 67,000/mt. In addition, some traders were depressed by tight cash flow at the year's end, all bringing market transactions into a stalemate. However, offers remained firm. As LME copper prices advanced further after 11:00 am, transactions of high-quality copper improved, with brisk purchases, and so cargo-holders immediately offered small discounts. But, price increases of domestic standard-quality copper were limited, with some discounts remaining between negative RMB 100-150/mt. Transactions in the morning business were mainly done between RMB 67,000-67,200/mt, while traded prices improved to RMB 67,200-67,500/mt in the afternoon.
Market players generally take an optimistic view towards price movements this week. As spot supply is tightening, spot supply tightness will support copper prices. In addition, easing concerns over the possibility of interest rate hikes in China will further push up copper prices. LME copper prices will have further upward room to rise after breaking through the USD 9,100/mt mark, and may climb above USD 9,200/mt this week. However, some players are cautious towards the outlook, believing LME copper prices will fluctuate at the USD 9,000/mt mark, as the 5.1% increase of CPI in November indicates there is still possibility that China may lift interest rates within this year, despite of recent increases in the reserve requirement ratio. Those players believe that SHFE copper prices will remain slow to rise, but will point to RMB 70,000/mt.
Domestic market concerns over interest rate increases eased after China's central bank said on December 10th that it would lift the bank reserve requirement ratio by 50 basis points from December 20th. SHFE 1103 aluminum contract prices opened slightly lower at RMB 16,400/mt on Monday, but later advanced steadily driven up by other base metals prices, and stabilized above short-term moving averages. SHFE 1103 aluminum contract prices climbed further to RMB 16,585/mt in the afternoon session, and finally closed at RMB 16,510/mt. Transactions improved significantly, and total positions increased by 6,300 lots. Market optimism was still low, and SHFE 1103 aluminum contract prices will test the support at the short-term moving averages in the short term.
Spot market sentiment improved slightly supported by soaring SHFE aluminum prices, but market optimism was still limited. According to SMM sources, most of market players were pessimistic toward future aluminum prices, believing that aluminum prices will be negatively affected given tight cash flow at the year-end, and will keep fluctuating in the near future in view of intense struggles between long and short positions. Traders in east China were eager to move goods for cash, and downstream buying interest improved slightly, with most deals in east China made between RMB 16,010-16,030/mt.
Markets were eased on news that China announced to raise the deposit reserve ratio instead of the interest rate last Friday. On Monday, SHFE 1103 zinc contract prices opened at RMB 18,520/mt and soared to RMB 19,000/mt boosted by the Shanghai Stock Exchange composite index during the day, with prices once touching RMB 19,200/mt. SHFE 1103 zinc contract prices finally closed at RMB 19,040/mt, up RMB 605/mt, or up 3.28%, with prices standing above the 5-day moving average. Trading volumes increased significantly by 160,000 lots to 710,444 lots, and total positions increased by 17,548 lots to 266,430 lots, with long position momentum flat at short position momentum.
SHFE 1103 zinc contract prices opened high and moved higher, with prices surging to RMB 19,000/mt, spot zinc prices rose in response. In Shanghai spot market, #0 zinc was traded at RMB 18,300/mt, with discounts of RMB 650/mt against SHFE 1103 zinc contract prices; some brands of zinc were traded at RMB 18,350/mt. #1 zinc was traded around RMB 18,200/mt. Downstream buyers took a wait-and-see attitude at higher prices, and transactions were mainly made between traders. The similar situation was also found in Guangdong spot market, #0 zinc was traded between RMB 18,350-18,400/mt, and #1 zinc was traded between RMB 18,200-18,300/mt.
As to zinc price trends, 57% of the market players believe that since SHFE zinc prices didn't rise along with the stronger copper and LME zinc prices, and SHFE 1103 zinc prices were strongly supported at RMB 17,500/mt, with prices having broken RMB 19,000/mt, SHFE 1103 zinc contract prices should continue rising this week and will stabilize at RMB 19,000/mt. In addition, zinc spot prices should hardly rise due to sufficient inventories at downstream buyers previously and the traditional sluggish season in the year-end. As a result, zinc spot prices should meet resistance at RMB 18,500/mt; 13% of the market participants believe that SHFE zinc prices should hardly stabilize at RMB 19,000/mt since the US dollar index still fluctuates around 80. SHFE three-month zinc contract prices will fell from RMB 19,000/mt. Moreover, spot zinc will unlikely be traded above RMB 18,500/mt. The remaining 30% believe that SHFE zinc prices will hardly stabilize at RMB 19,000/mt, and will likely fall this week, but any decline will be limited given support at a low of RMB 17,500/mt. As a result, SHFE zinc prices should dip to RMB 18,000/mt. Meanwhile, zinc spot prices will likely fall below RMB 18,000/mt since downstream buyers reduced purchase at RMB 18,000/mt.
In China's domestic lead markets, traded prices rose slightly to around RMB 17,200/mt on Monday with the upward LME lead prices, but trading volumes failed to increase. At present, market players generally believe strong support at RMB 17,000/mt, but hold mixed views toward the market trend in the near future. Some market players believe downstream producers to improve their buying interest this week and domestic lead prices to be boosted in response amid the confirmed rising trend for base metals prices, given strong upward momentum for LME lead prices after opening on Monday, as well as strong performance LME zinc and copper prices. However, over half of market players believe domestic lead prices to fluctuate in a limited range in the short term amid the current weak demand and relatively strong supply in markets, given smelters' willingness to move goods for cash generation at the close of the year, and from downstream producers' possible capital tightness. Besides, power battery producers express reduced orders, while start-up battery producers believe their orders to increase significantly if the weather becomes colder.
In China's tin markets, trading sentiment improved on Monday. China's stock markets rose generally and consumers' confidence improved as well, given strong LME copper prices and the relatively moderate monetary policy from China's Central Bank, which chose to increase the reserve requirement ratio (RRR) again instead of lifting the interest rate. Downstream producers increased their buying interest; while some leading tin producers were unwilling to move goods given they have basically completed their sales task for this year. Hence, goods supply in markets are mainly from traders, with brands of Jinlong, Kaiyuan, Xiangxi, Jinxing, Jinhai, Tianti, and tin from Yunnan Tin Group etc., and traded prices are mainly RMB 159,800-161,500/mt.
The National Bureau of Statistics published last Saturday China's CPI rose to 5.1% in November, leaving inflation expectations unchanged in markets. The current severe inflation makes market players to believe non-ferrous metals prices to rise further in the near future. Hence, cargo-holders believe domestic tin prices to rise to RMB 163,000/mt, amid the current growing inflation expectations and limited goods supply.
In the Shanghai nickel spot market, transactions were brisker as recent concern over interest rate hike eased to certain extent. 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 178,200-178,500/mt.
Based on the results of SMM survey, 66% market players believed in bullish price outlook, holding that base metal prices will be boosted given that market concern over interest rate hike eased to certain extent following China Central Bank's raise of reserve requirement ratio (RRR).
17% market players believed in neutral price outlook. The remaining 17% market players believed in bearish price outlook. Their reasons are as follows: According to economic data released on Saturday, PPI in November was up by 6.1% YoY, and CPI in November was 5.1% YoY. China's Central Bank raised bank reserve requirement ratio (RRR) again to record high of 18.5% before the announcement of economic data, indicating that liquidity will be further tightened and further regulatory policies may be adopted. In addition, European debt crisis will still be the vital factor capping base metal prices.
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