SHANGHAI, Dec. 16 (SMM)--
Depressed by falling LME copper prices, the copper for delivery in three months in the SHFE marked opened low at RMB 68,700/mt on Wednesday. After opening, SHFE three-month copper contract prices briefly reached RMB 69,200/mt, and then fell back after LME copper prices dropped at around 9:38 am and 10:00 am (Beijing time), down as low as RMB 67,610/mt. SHFE three-month copper contract prices felt pressure at the daily moving averages after 10:00 am, and finally closed at RMB 67,880/mt, down RMB 1,120/mt, or a drop of 1.35%. Trading volumes on Wednesday increased slightly by 1,802 lots from the previous trading day, and positions were up 1,812 lots, a sign of cautious attitude both among longs and shorts. The US dollar index is expected to find solid support at the 30-day moving averages based on technical analysis, and this will add to the possibility of price corrections in the copper market.
Wednesday was the last trading day of SHFE 1012 copper contract, and the price gap between SHFE current-month and 1101 copper contract prices was generally kept between RMB 600-700/mt, briefly reaching RMB 1,000/mtIn the spot market. As SHFE copper prices dropped, and meanwhile SHFE near-term copper contract prices were stronger than SHFE forward-month copper contract prices, spot trades were made at premiums. Spot premiums for high-quality copper were between positive RMB 100-150/mt, while premiums for domestic standard-quality copper were at around positive RMB 50/mt. Transactions were generally made in the RMB 67,200-67,400/mt range in the morning business. SHFE copper prices accelerated its downward trend in the afternoon, and spot premiums for high-quality copper rose to positive RMB 150-200/mt, with traded prices holding between RMB 67,100-67,400/mt. At the closing, the price gap between SHFE 1012 and 1101 copper contract prices narrowed to RMB 300/mt.
SHFE copper market will see further corrections on Thursday after a new contract month starts, and spot trades are not expected to be made at premiums, but any discounts will not be large, with discounts expected between negative RMB 150-200/mt. Market supply will likely increase on Thursday, if cargos previously used for hedging are able to enter the market, but supply of imported goods will remain limited, and market supply will still be dominated by domestic goods.
The rising LME aluminum market overnight helped SHFE aluminum market open high on Wednesday, and strengthened despite of weakness in the SHFE copper and zinc markets, climbing above the 30-day moving averages during the session to reach RMB 16,695/mt. However, SHFE aluminum market finally lost most gains due to continuously weak movements in the neighboring base metal markets, to close at RMB 16,540/mt, only up RMB 15/mt. Trading volumes in the SHFE aluminum market improved on Wednesday, but the lack of upward momentum raised doubts about its sustainability, with pressure at the 60-day moving averages remaining.
Spot transactions in East and South China represented marked difference on Wednesday. As the delivery date is coming, and the premiums for SHFE 1101 aluminum contract over SHFE 1012 aluminum copper contract were as high as positive RMB 200/mt in the morning, traders in East China were generally unwilling to move goods due to optimistic outlook, and buyers showed brisk buying interest due to the belief that SHFE aluminum prices will advance after a new contract month begins. However, limited market supply restricted the overall trading volumes. Traded prices in East China gained with higher SHFE aluminum prices, advancing from RMB 16,020-16,060/mt to RMB 16,050-16,080/mt. In marked contrast with performance in East China, purchasing interest was low in South China, as the local aluminum prices were originally high, with no positive effect from the upcoming delivery date. Transactions were generally made between RMB 16,230-16,250/mt in the local.
SHFE zinc prices opened low and moved lower on Wednesday. SHFE 1103 zinc contract prices opened at RMB 18,965/mt, and moved between RMB 19,000-19,050/mt in the morning session. Dragged down by LME zinc prices, SHFE three-month zinc contract prices slid soon to between RMB 18,750-18,850/mt later, and further fell along with LME zinc prices at the end of trading, with prices finally closing at RMB 18,470/mt, down RMB 675/mt, or down 3.53%. Trading volumes decreased by over 30,000 lots to 841,420 lots, and total positions slightly increased by 2,556 lots, with long position momentum stronger.
SHFE 1103 zinc contract prices broke RMB 19,000/mt mark and moved between RMB 18,800-18,500/mt on Wednesday. In the spot market, #0 zinc was traded between RMB 18,150-18,200/mt, with discounts of RMB 600-630/mt against SHFE 1103 zinc contract prices; #1 zinc was traded between RMB 18,100-18,150/mt. Downstream buyers purchased modestly at lower prices, and traders reduced purchasing as spot discounts narrowed. As a result, the transaction was weak. Spot discounts narrowed to between RMB 500-520/mt when SHFE 1103 zinc contract prices dipped to a low between RMB 18,550-18,650/mt near the end of trading, and offers of #0 zinc were at RMB 18,100/mt. In this context, downstream buyers began to stay out of the market, and some traders were unwilling to sell goods. The transaction was even weaker in the afternoon.
In China's domestic lead markets, traded prices fell further on Wednesday with slipping LME lead prices. Traders cut offers slightly from a day earlier to around RMB 17,150/mt in the morning, and later traded prices fell to RMB 17,050 in the afternoon, and some deals for lead in Gejiu, Yunnan province were even closed at RMB 17,000/mt, exhibiting instability at this level. Downstream producers were still purchasing cautiously, possibly due to weak orders, or from expectations of lower domestic lead prices. In general, trading sentiment in China's domestic lead markets is expected to keep muted in the short term.
On Wednesday, traded prices in China's domestic tin markets fell slightly. Traders kept offer firm in the morning, but cut offer later amid downstream producers' lower buying interest due to falling LME tin prices, and transactions returned quiet. Tin of mainstream brands such as Nanshan, Xiangxi, Feidie, Jinlong, and tin from Yunnan Tin Group were traded between RMB 159,800-160,500/mt, while some deals for Xiangxi brand tin were made at RMB 159,500/mt. Downstream producers held less optimistic views toward higher domestic tin prices due to recent volatile LME tin prices, triggering wait-and-see sentiment again.
On Wednesday, LME nickel market opened at USD 24,625/mt, and then climbed to USD 24,780/mt during the early trading hours. With the US dollar index climbing from 79.525 to 79.78, LME nickel prices fell all the way to test USD 24,292/mt. Later, LME nickel prices rebounded to certain extent to USD 24,425/mt when the US dollar index fell to around 79.63 again. Barclays Capital expected that nickel prices shall continue advancing and test significant resistance level of USD 25,200/mt. The launch of physical-backed ETF last week is expected to absorb 20 kt of LME nickel inventories, which is positive for LME nickel prices.
In the Shanghai nickel spot market, transactions were still largely done among traders, while downstream demand was still quiet. Deals were done relatively brisk in the morning trading hours. Traded prices of nickel from Jinchuan Group were between RMB 181,500-182,000/mt and mainstream traded pries of nickel from Russia were between RMB 180,500-180,800/mt. Transactions become quiet in the afternoon trading hours when LME nickel prices slipped. Market views were mixed on price outlook. As of mid-day of Wednesday, LME nickel for delivery in three months has advanced by 31%, and any momentum for significant gains is weak. In this context, market sentiment was cautious when LME nickel prices slipped in the afternoon trading hours.
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