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SMM Daily Review - 2010/12/22 Base Metals Market
Dec 23,2010 09:17CST
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SHANGHAI, Dec. 23 (SMM) –

The copper for delivery in three months in the SHFE market opened high at RMB 69,900/mt on Wednesday, but then slid all the way after LME copper prices dropped to around USD 9,300/mt, with prices fluctuating downward for the whole trading day. In the afternoon session, LME copper prices dived, and price declines of the most actively-traded copper contract in the SHFE market accelerated as a result, down as low as RMB 68,350/mt. Finally, SHFE three-month copper contract prices closed at RMB 68,700/mt, down RMB 270/mt, or a drop of 0.39%. Positions were down significantly by 12,076 lots, and trading volumes dropped by 4,408 lots. Market sentiment remained cautious with regard to high prices along with profit-taking by longs, and shorts’ caution towards position building. Copper prices have been on an upward track recently, and high copper prices have depressed consumption. Coupled with tightening cash flow at the year-end, LME copper prices represented stronger performance than SHFE copper prices. SHFE copper market will continue to meet great resistance at the RMB 70,000/mt mark in the short term.

In the spot market, traded prices stood above RMB 68,000/mt on Wednesday, with transactions generally made between RMB 68,050-68,350/mt. Spot discounts were between negative RMB 400-500/mt in the morning business, larger than the level seen a day earlier. Although SHFE current-month copper contract prices moved lower, spot trading sentiment was low, with few inquiries, and cargo-holders were forced to expand discounts for sales. Spot discounts for standard-quality copper were between negative RMB 550-600/mt, while discounts for high-quality copper remained at negative RMB 400/mt. The accelerated price declines in the SHFE copper market in the afternoon helped narrow spot discounts. Discounts for high-quality copper were between negative RMB 350-400/mt, and negative RMB 450-500/mt for standard-quality copper, with traded prices failing to hold at RMB 68,000/mt, down to RMB 67,500-68,000/mt. However, transactions failed to improve. Soaring copper prices not only depressed downstream purchasing interest but also speculation interest, resulting in low trading sentiment. Under the context of the existing high prices, cash flow pressure at the year-end, weak domestic demand, and strong LME copper prices, the SHFE/LME copper price ratio has dropped further. Spot trading sentiment in domestic copper market will remain sluggish during the remainder of the year along with a strong wait-and-see attitude from both buyers and sellers. 

Positively affected by LME aluminum prices, SHFE aluminum prices opened significantly higher on Wednesday, with SHFE 1103 aluminum contract prices even climbing to RMB 16,710/mt after opening. Although SHFE base metals prices lost gains during the day, the strong buying at the low-end of price range helped support SHFE aluminum prices. SHFE 1103 aluminum contract prices hit a high of RMB 16,765/mt and dipped a low of RMB 16,655/mt, and finally ended at RMB 16,685/mt, up RMB 80/mt, the only metal making gains on Wednesday. Trading sentiment improved slightly, and positions of SHFE 1104 aluminum contract prices increased, but total positions still fell slightly. SHFE 1103 aluminum contract prices will continue to test the support at the 60-day moving average.

Spot aluminum prices climbed to between RMB 16,200-16,230/mt in east China, but buyers still made limited purchases due to rapid increases in aluminum prices recently. Traders in east China even lowered offers to below RMB 16,200/mt, but trading volumes remained limited, with market sentiment still lackluster. Sellers in south China were firm, and some traders were also unwilling to move goods in afternoon trading in anticipation of improving cash flows and higher aluminum prices after the New Year's Day, but buyers showed little buying interest, keeping trading sentiment sluggish.

In China’s domestic lead markets, trading sentiment remained sluggish on Wednesday and traded prices were little changed from a day earlier. Transactions were made at around RMB 17,000/mt in Shanghai markets, and smelters quoted offers at RMB 17,050-17,150/mt, but with limited trading volumes. Although domestic lead prices are hard to rise now, optimistic market players believe domestic lead prices to surge after the capital pressures ease in January 2011.

On Wednesday, SHFE 1103 zinc contract prices opened high but moved lower, with prices opening at RMB 19,100/mt but failing to stabilize at RMB 19,000/mt mark. Dragged down by the weakened Shanghai Stock Exchange composite index and falling LME zinc prices, SHFE 1103 zinc contract prices slumped and finally closed at RMB 18,760/mt, down RMB 100/mt, or down 0.53%, with prices still meeting pressure at 60-day moving average. Trading volumes significantly decreased by over 190,000 lots to 502,830 lots, and total positions decreased by 1,532 lots to 263,774 lots. Market players began to stay out of the market at higher prices.

SHFE 1103 zinc contract prices slid after opening and fluctuated around RMB 19,000/mt again on Wednesday. Spot transaction barely improved. #0 zinc was traded between RMB 18,250-18,300/mt, with discounts of RMB 600-650/mt against SHFE 1103 zinc contract prices; #1 zinc was traded between RMB 18,200-18,250/mt. Downstream buyers took a wait-and-see attitude, and the transaction was lackluster. Spot transaction was weaker in the afternoon even spot zinc was offered as low as RMB 18,100/mt. Market players chose to stand on the sidelines and only purchased at lower prices. Traders also took a wait-and-see attitude given spot discounts between RMB 600-650/mt, unfavorable for selling SHFE zinc contracts.

On Wednesday, trading sentiment remained lackluster in Shanghai tin markets. Few transactions were made for the high-end priced mainstream brand tin, and transactions for unknown brand tin were sluggish as well amid the current unclear market outlook. Downstream producers exhibited strong wait-and-see sentiment as they had already replenished ample stocks basically. Offers for some minor brand tin such as Guangsheng and Nanshan brand tin were RMB 160,000-160,500/mt; tin from Yunnan Tin Group and Gejiu Non-ferrous Metal Processing Company was quoted at RMB 161,000-161,500/mt. Overall trading volumes shrank sharply given the cautious sentiment in markets.

On Wednesday, LME nickel market opened at USD 24,700/mt, reaching the highest at USD 24,725/mt and touching the lowest at USD 24,570/mt. LME nickel inventories were up by 774 mt to 135,282 mt.

Funds flowed into other base metal markets but avoided to enter nickel market due to its poor fundamentals overnight. Market reached a consensus that global nickel is in oversupply. In addition, China’s NPI output will increase significantly and demand for nickel plate from steel mills will be weak. According to a report from BNP Paribas, nickel futures price outlook will not be optimistic in 2011 and 2012.

In the Shanghai nickel spot market, transactions of refined nickel were still sluggish following two days’ correction. Mainstream traded prices of nickel from Jinchuan Group were between RMB 183,300-183,500/mt and mainstream traded prices of nickel from Russia were between RMB 182,000-182,500/mt.


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