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SMM Daily Review - 2010/12/21 Base Metals Market
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SHANGHAI, Dec. 22 (SMM) –
Supported by rising LME copper prices, the copper for delivery in three months in the SHFE market opened at RMB 69,100/mt on Tuesday, but slid as low as RMB 68,380/mt after 10:30 am due to low trading sentiment and market cautious attitude. After 11:00 am, copper prices rallied quickly, erasing earlier losses. SHFE three-month copper contract prices fluctuated higher in the afternoon session, and finally closed at RMB 69,250/mt, up RMB 430/mt, or a gain of 0.62%. Trading volumes for SHFE 1103 copper contract prices were down sharply by more than 60,000 lots, and positions fell by 4,540 lots, while positions for SHFE 1104 copper contract prices were up by 6,070 lots, a sign that SHFE 1104 copper contract is gradually becoming the most actively-traded one. SHFE forward-month copper contracts posted larger price gains than SHFE near-term contracts, an indication of cautiously long sentiment in the market. SHFE copper prices will likely remain strong in the short term. After SHFE copper market closed, LME copper prices set a new record high of USD 9,326/mt. If LME copper market overnight remains strong, SHFE copper market will follow suit on Wednesday, but a cautious attitude should be adopted for further gains.

In the spot market, traded prices fell at first, and then rallied on Tuesday. When SHFE copper market represented stable performance in the earlier session, spot discounts for high-quality copper were negative RMB 350/mt, and negative 450/mt for standard-quality copper, with transactions made between RMB 67,700-67,900/mt. During major spot trading hours when SHFE copper prices fell rapidly by around RMB 500/mt, spot discounts narrowed slightly to negative RMB 300-350/mt, with traded prices down to RMB 67,300-67,500/mt. Some traders stopped selling goods, and transactions were depressed. As SHFE copper prices rallied rapidly later, and moved higher in the afternoon session, spot discounts expanded, with discounts at above negative RMB 400/mt for high-quality copper, and negative RMB 500/mt for standard-quality copper. Some downstream producers entered the market for purchases along with the consumption of existing inventories and fears of further price gains, helping traded prices rise to RMB 67,800-68,000/mt. In general, transactions were mainly done by traders. Spot transactions are expected to remain sluggish in the short term due to soaring copper prices and low demand, and spot copper prices will hardly climb above RMB 68,000/mt due to lack of support from demand and cash. 

SHFE aluminum prices slipped first but rallied later on Tuesday. SHFE 1103 aluminum contract prices opened slightly higher at RMB 16,605/mt, and were weaker in the morning session, but later reversed previous losses in the afternoon session driven up by the climbing Shanghai Stock Exchange composite index, with the highest level and the lowest level at RMB 16,640/mt and RMB 16,560/mt, respectively, and finally SHFE 1103 aluminum contract prices ended at RMB 16,630/mt, up RMB 30/mt. Trading sentiment remained weak, and positions for SHFE 1103 aluminum contract fell slightly by 1,228 lots, and SMM predicts SHFE 1103 aluminum contract prices will test the support at the 60-day moving average in the short term.

In spot markets, buyers adopted a wait-and-see attitude earlier due to falling SHFE aluminum prices, and they still showed little buying interest even when SHFE aluminum prices rebounded in afternoon trading. Traders in east China were eager to move goods for cash, and offers at RMB 16,100/mt were heard in the market, and buying interest improved slightly at this price level, with overall market sentiment still lackluster.

In China’s domestic lead markets, trading sentiment continued to be sluggish on Tuesday. Downstream producers were unable to purchase aggressively due to the current capital pressures, and smelters and traders were worrying downstream producers may postpone payments, keeping trading sentiment muted. Despite gains in LME lead prices, traders in domestic lead markets quoted offers lower from a day earlier due to the lackluster transaction, and from increased supply of “Gejiu” lead at RMB 16,950/mt. In general, mainstream prices were RMB 17,000-17,100/mt, with transactions mainly done at low-end prices. At present, domestic lead prices are unable to rise following the upward LME lead market, only barely stabilizing at around RMB 17,000/mt. However, SMM expects domestic lead prices to rise with the strong LME lead market in the foreseeable future, given downstream producers’ stock replenishment before the Spring Festival, as well as waning affects from negative factors at the end of the year. 
SHFE zinc prices fluctuated widely on Tuesday. SHFE 1103 zinc contract prices surged to RMB 19,010/mt from RMB 18,800/mt, and fell to between RMB 18,850-18,900/mt. In the midday, SHFE 1103 zinc contract prices dipped to RMB 18,650/mt dragged down by sliding LME zinc price. Later, SHFE three-month zinc contract prices pared some losses due to the weakened US dollar index and rebounding LME zinc prices, and finally closed at RMB 18,960/mt, but with prices still meeting pressure at 60-day moving average. Trading volumes decreased by 50,000 lots to 695,540 lots, and total positions decreased by 11,344 lots to 265,306 lots, with short position momentum stronger.

SHFE zinc prices fluctuated widely on Tuesday, with prices once hitting RMB 19,010/mt after opening and then falling to between RMB 18,850-18,900/mt. Zinc spot prices fluctuated in response. In the morning session, #0 zinc was traded between RMB 18,250-18,300/mt, with discounts of RMB 600-650/mt against SHFE 1103 zinc contract prices. Since SHFE 1103 zinc contract prices slumped to RMB 18,650/m in the midday, spot discounts narrowed to RMB 550/mt, and #0 zinc was traded between RMB 18,150-18,200/mt. Later, spot discounts rallied to RMB 600/mt along with rebounded SHFE zinc prices, and #1 zinc was traded between RMB 18,050-18,150/mt. The market took a wait-and-see attitude due to wildly fluctuating zinc prices, and the transaction was lackluster. In the afternoon, trading sentiment improved as SHFE 1103 zinc contract prices stabilized between RMB 18,800-18,900/mt, and as traded prices of #0 zinc rallied to RMB 18,300/mt.

In Shanghai tin markets, mainstream prices kept stable on Tuesday, but low-end prices fell further. Tin of Nanshan and Jinlong brand was traded between RMB 159,200-159,500/mt, and Jinhai brand tin, as well as tin from Yunnan Tin Group was traded between RMB 160,000-161,300/mt. Goods at around RMB 159,500/mt were preferred by downstream producers, while supplies of high-end priced goods were relatively limited. In general, overall trading sentiment was moderate on Tuesday. SMM expects any room for domestic tin prices to fall further will be limited in the short term, due to smelters’ firm offers.

LME nickel prices advanced during the Asian trading hours on Tuesday, but trading volumes were thin. Vice Premier Wang Qishan called for effort to strengthen ties and to promote stable and healthy economic development between China and the EU, boosting market sentiment. LME nickel prices opened at an intraday low at USD 24,650/mt and later climbed all the way to USD 24,895/mt. With the US dollar index falling from 80.27 to 80.52, LME nickel price fell to USD 24,770/mt but later rebounded to USD 24,850/mt. LME nickel inventories were up by 1,698 mt and positions were 134,508 mt.

In the Shanghai nickel spot market, trading sentiment was still moderate, and transactions were still largely done among traders. Mainstream traded prices of nickel from Jinchuan Group were around RMB 183,250/mt, down by RMB 500/mt, and mainstream traded prices of nickel from Russia were around RMB 182,250/mt, down by RMB 300/mt.


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