SHANGHAI, Dec. 20 (SMM) - On the evening of December 10th, China’s Central Bank announced to further raise the bank reserve requirement ratio by 50 basis points, effective December 20th. After the increase, the reserve requirement ratio for lenders hit a record high of 18.5%. According to the data released by China’s National Bureau of Statistics on December 11th, China’s CPI rose 5.1 % YoY in November, and newly-increased RMB loans reached RMB 564 billion in November, bringing the YTD loans from January to November to 7.4 trillion. As over cash liquidity has sent the commodity prices higher, China’s increases in the reserve ratio are in line with market expectations. In the short term, China will continue to feel higher pressure from rising commodity prices. Last week, SMMI edged down 0.61%, with SMMI. Zn leading the declines, down as much as 1.96%
SHFE copper prices rose slowly over this past week due to tight cash flow at the end of the year, fears over higher interest rates, and weak demand. As a result, the price gap between SHFE and LME copper markets expanded. SHFE 1103 copper contract prices rose to RMB 69,450/mt, but failed to surpass the previous high of RMB 70,200/mt. Prices fell below RMB 67,000/mt on Thursday, with prices generally moving between RMB 67,000-68,000/mt for the week.
Over this past week, LME copper prices fell back from previous highs, but found support at USD 9,000/mt. With the approach of the Christmas holiday, market players in the US and European markets will try to lock in profits before the holiday, which will weigh down copper prices. Particular attention should also be paid to rising LME copper inventories, especially the growth of stocks in Asia. These growing inventories in Asia are believed to be related to the choice by traders to re-export goods due to the unfavorable price ratio, as well as from goods delivered to Asian warehouses. If copper inventories continue to grow, copper prices will also come under increased downward pressure.
In summary, SMM believes LME copper prices will move between USD 8,900-9,100/mt in the coming week.
SHFE aluminum prices were slower to fall compared with SHFE copper and zinc prices. SHFE aluminum prices continued to fluctuate, after briefly advancing to RMB 16,695/mt. Although SHFE aluminum prices rose on Monday while other base metal prices fell, SHFE aluminum prices lack upward momentum and should continue to fluctuate for the remainder of the year. Spot aluminum prices returned RMB 16,000/mt in East China markets, and buyers were purchasing actively before the delivery date, as well as from optimistic outlooks and tight supply. However, after the delivery date, prices increases exceeded market expectations and buyers turned cautious as a result, leaving no significant improvement in overall trading volumes.
Last week, trading sentiment in China’s domestic lead markets was muted, due to tight capital at the end of the year and from lower orders received by lead-acid battery producers in cold weather. Early week, traders in domestic lead markets tried to raise offers to RMB 17,250/mt following gains in LME lead prices, but failed to consolidate due to the sluggish transactions. Midweek, prices in domestic lead markets fell to around RMB 17,000/mt due to declines in LME lead prices, with some “Gejiu” lead quoted below this level. In general, most transactions in domestic lead markets were done between RMB 17,000-17,200/mt last week.
With the slipping domestic lead prices, some downstream producers are beginning to purchase lead aggressively. Coupled with growing consumption on start-up batteries in colder weather, trading sentiment is expected to improve for the foreseeable future. SMM expects prices in domestic lead markets to be in the RMB 16,800-17,100/mt range this week.
Market concerns were eased on news that China would raise deposit reserve ratio again. In this context, SHFE three-month zinc contract prices also surged as high as RMB 19,335/mt, but then fell back to RMB 18,500/mt last Thursday. Traded prices for spot zinc were between RMB 18,500-18,200/mt at the beginning of last week, then fell below RMB 18,000/mt along with SHFE zinc prices last Thursday. Traders purchased actively at the beginning of last week with spot discounts between RMB 600-700/mt, but reduced purchasing last Thursday when spot discounts narrowed to RMB 500-550/mt, an unfavorable level for buying spot zinc and selling SHFE zinc contracts. Downstream buyers took a wait-and-see attitude, leaving spot transactions muted.
The US dollar index is expected to rally to between 80 and 81 next week, with only a limited chance of falling. In this context, LME zinc prices should fall to between USD 2,200-2,300/mt, with prices expected to find strong support at USD 2,200/mt. Trading sentiment is expected to be lackluster with the approach of the Christmas holiday. SHFE zinc contract prices for three-month delivery should fall to RMB 18,000-18,500/mt in the coming week, but with price supported at RMB 18,000/mt. Spot zinc should trade between RMB 17,500-18,000/mt in the coming week. Transactions will be quiet next week since smelters are unwilling to sell goods below RMB 18,000/mt, while downstream buyers would prefer to purchase at lower prices.
Last week, prices in China’s domestic tin markets rose before falling over the weekend. Early week, prices in domestic tin markets rose due to limited market supply and from the rising LME tin prices, with mainstream traded prices reported at RMB 160,300-161,500 last Tuesday. Market was dominated by unknown brand tin, while no fresh supply of major brand tin flooded in markets due to firm ex-works prices. Trading sentiment improved early last week.
Since last Wednesday, mainstream prices in domestic tin markets fell in response to slipping LME tin prices, as well as from increased supply of low-priced tin. The lowest traded prices were RMB 159,500/mt, while offers for tin from Gejiu Non-ferrous Metal Processing Company and Yunnan Tin Group kept firm at RMB 161,500-162,000/mt. Wait-and-see sentiment was rekindled in markets, and trading sentiment returned muted over the weekend.
Jinchuan Group raised ex-works nickel prices to RMB 181,000/mt last Tuesday, then on Friday raised prices again to RMB 184,000/mt. The average price in the Shanghai nickel spot market from 10-16 December was RMB 180,300/mt, up RMB 1,500/mt from a week earlier. Transactions, however, were still sluggish given weak downstream demand.
According to the most recent statistics, stainless steel inventories at 26 warehouses in Wuxi were 189.4 kt, down by 1.3%, and included 13.9 kt of #200 stainless steel, 148.8 kt of #300 stainless steel, and 26.7 kt of #400 stainless steel.
Last week, ex-works contract prices from Taigang Stainless Steel were stable. Prices were RMB 25,620/mt for #304 cold-rolled stainless coil, RMB 24,620 for #304 hot-rolled stainless steel coil, and RMB 12,220/mt for #430 cold-rolled stainless steel coil. Prices for stainless steel using nickel as a raw material were relatively resilient last week, but were unable to advance. Supply of stainless steel from steel mills increased slightly, but traders were reluctant to move goods at low prices since actual purchase costs were high. Demand remains stable, but without any signs of growing. Transactions were quiet due to stagnant sentiment.
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