SMM Daily Review - 2010/12/24 Base Metals Market

SHANGHAI, Dec. 27 (SMM) --
Copper:
The copper for delivery in three months in the SHFE market slid all the way on December 24th after opening at RMB 68,910/mt, and stabilized at around RMB 68,300/mt at 9:10-10:00 am. SHFE three-month copper contract prices dived at 10:06 am, down as low as RMB 67,880/mt, and rallied at around 10:44 am, erasing earlier losses. Finally, SHFE three-month copper contract prices closed at RMB 68,950/mt, with the daily highest level of RMB 69,090/mt. Trading volumes were down 5,332 lots, and positions were down 4,102 lots. Price volatility in the SHFE copper market indicated unstable market sentiment before the Christmas holiday, and sluggish trading volumes in recent days suggested most market players chose to stay out of the market. Positions for SHFE 1104 copper contract prices were continuing to rise, up by 8,102 lots, and positions for all copper contracts were up 3,592 lots. SHFE three-month copper contract prices are expected to continue to fluctuate at above RMB 67,000/mt in the coming week.

Spot market transactions improved significantly on Friday, with traded prices up from lows. Spot discounts were between negative RMB 400-500/mt in the morning session, and deals were made between RMB 67,150-67,350/mt. During major spot trading hours, SHFE copper prices dived again, while spot discounts remained unchanged, and traded prices fell to RMB 67,000-67,150/mt. Downstream producers showed higher buying interest with prices near RMB 67,000/mt, with improved transactions. The price gap between standard-quality and high-quality copper remained large. When SHFE copper prices rallied to around RMB 68,000/mt, spot discounts for high-quality copper expanded to around negative RMB 500/mt, generating brisk speculative buying, and traded prices increased to RMB 67,300-67,700/mt as a result.

According to Shanghai Futures Exchange (SHFE), SHFE copper inventories were down 7,410 mt to 120,426 mt in the week ending December 24th, a sign that speculators with ample cash flow continued to represent high purchasing interest towards copper at large spot discounts. LME copper market will be closed next Monday for the holiday, and SHFE copper market will move independently. There is low possibility that SHFE copper market will advance, given slow rising pace in the SHFE copper market, depressed domestic stocks market, low trading sentiment, tight cash flow, as well as weak consumption. If LME copper market exhibits strong performance on Friday's evening, SHFE copper market will likely gain next Monday.

Aluminum:    
SHFE aluminum prices slipped first but advanced later on Friday. SHFE 1103 aluminum contract prices dipped steadily after opening slightly lower at RMB 16,755/mt, with prices dipping to a low of RMB 16,670/mt. Later, SHFE 1103 aluminum contract prices rallied following other base metals prices, and finally closed at RMB 16,740/mt, down RMB 0.27%. Positions increased slightly by over 500 lots. SHFE aluminum prices will lack upward momentum in the following week in view of weak LME aluminum prices, and are expected to test the support at short-term moving averages.    

Trading sentiment improved slightly in spot markets. Spot aluminum prices in east China fell along with SHFE aluminum prices, and some downstream producers increased purchases at lower prices for stock replenishment, with spot discounts narrowing slightly to between RMB 180-200/mt. Spot traded prices in east China were between RMB 16,170-16,200/mt on Friday.

Lead:
Last Friday, capital pressures in China's domestic lead markets became more severe. Despite upward LME lead prices, traded prices in domestic lead markets fell by RMB 50/mt further to RMB 16,800-16,900/mt. Some downstream producers wanted to buy lead at the current price levels but did not have enough capital on hand, keeping trading sentiment still muted.

Zinc:
Last Friday, SHFE 1103 zinc contract prices opened slightly higher at RMB 18,900/mt and then fell soon, with prices falling to as low as RMB 18,555/mt in spot trading hours. Boosted by the stronger Shanghai Stock Exchange composite index in the midday, SHFE 1103 zinc contract prices fluctuated around RMB 18,800/mt and finally pared intraday losses, with prices finally closing at RMB 18,860/mt, down RMB 15/mt, or down 0.08%. Positions of SHFE three-month zinc contracts increased by 9,462 lots, and total positions increased to nearly 260,000 lots. Trading volumes significantly increased to 498,538 lots from the previous day. SHFE zinc prices broke 10-day moving average and were expected to test 20-day moving average.

SHFE zinc prices weakened last Friday with SHFE 1103 zinc contract prices once falling to a low of RMB 18,555/mt. In spot markets, #0 zinc was traded between RMB 18,000-18,050/mt, with discounts of RMB 600/mt against SHFE 1103 zinc contract prices, and was traded below RMB 18,000/mt when SHFE zinc prices slumped; #1 zinc was traded between RMB 17,950-18,000/mt. Downstream buyers purchased at lower prices, and the transaction improved. Spot discounts remained unchanged when SHFE pared losses in the afternoon, and traded prices rallied to above RMB 18,000/mt.

Tin:
Last Friday, trading sentiment in China's domestic tin markets improved from a day earlier, amid continuously high LME tin prices. Downstream producers began to replenish stocks for the end of the year, but expressed to purchase only on an as-needed basis due to the current high prices. Transactions for tin of Weitai and Jinlong brand were made at RMB 160,500/mt; deals for Xiangxi brand tin were closed at RMB 161,000/mt; Yinsheng brand tin was traded at RMB 161,500/mt; while few transactions were made for well-known brand tin due to the firm prices. LME is closed on December 27th, so SMM expects domestic tin prices to keep steady this Monday.

Nickel:
Profit-taking by short positions following LME nickel prices' decline for two consecutive days, coupled with US dollar's slipping from 80.52 to 80.36, pushed LME nickel prices higher last Friday. LME nickel prices opened at an intraday low at USD 23,800/mt and climbed to the highest at USD 24,000/mt. LME nickel inventories were up by 570 mt to 136,878 mt. LME base metal prices fluctuated higher last Friday, while many Asian financial markets closed in advance before the Christmas Eve.

In the Shanghai nickel spot market, trading sentiment improved from previous days earlier. With LME nickel price advancing in the afternoon trading hours, transactions among traders increased, while downstream demand was still sluggish. Mainstream traded prices of nickel from Russia were between RMB 181,000-181,500/mt, and mainstream traded prices of nickel from Jinchuan Group were between RMB 182,300-182,500/mt.   

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