SHANGHAI, Dec. 27 (SMM) -- Last week, the Dow Jones Industrial Average, Nasdaq Composite Index, and Standard & Poor's 500 Index set new highs as the US economic data shows the economic recovery is still on track. Meanwhile, crude oil prices, an important indicator for macro economy, also fluctuated higher to set a new high. The euro-zone debt crisis helped US dollar index remain firm, and both the US dollar index and base metals prices climbed last week, but the conditions of strong LME base metals prices and weak SHFE base metals prices continued due to tight cash flows at the end of year and rising inflationary pressure in China. Last week, SMMI.Pb and SMMI.Ni fell by 0.47% and 0.88%, respectively. However, the bullish SMMI.Cu, SMMI.Al, and SMMI.Zn allowed SMMI to close with a gain of 0.05% last Friday, with the SMMI once rising by 1.18% over the past week. Last week, SMMI.Cu, SMMI.Al, and SMMI.Zn rose by 0.15%, 0.19%, and 0.28%, respectively.
SHFE copper prices were weaker than LME copper prices over this past week. SHFE 1103 copper contract prices failed to climb above the RMB 70,200/mt, and only reached RMB 70,000/mt on Wednesday as LME copper prices reached a new high. SHFE copper prices generally fluctuated in the RMB 68,000-70,000/mt range, but trading volumes remained low. Positions for SHFE 1104 copper contract prices were on the increase, with prices fluctuating at high levels.
Last week, LME copper prices fell back after reaching USD 9,392/mt, and while positions were up as a whole, trading volumes were low at around 9,000 lots in the pre-holiday market. LME copper prices are expected to remain strong given slower growth in LME copper inventories, strong recent upward price movements, as well as recently waning negative correlation between the US dollar and copper prices. Struggles between longs and shorts will ease with the arrival of the Christmas holiday. In this context, SMM believes that LME copper prices will generally fluctuate at around USD 9,300/mt in the coming week.
SHFE aluminum prices advanced in tandem with LME aluminum prices, but gains were relatively weaker, with prices meeting resistance at RMB 16,800/mt. There is little chance SHFE aluminum prices will increase significantly next week given limited support from LME aluminum prices. SMM predicts SHFE aluminum prices will continue to fluctuate at high levels if market sentiment remains positive.
Last week, spot aluminum prices in east China climbed gradually in tandem with SHFE aluminum prices, but suppliers were actively moving goods for cash at the end of year, resulting in very sufficient supply in the market. In this context, aluminum prices were stagnant after rising to above RMB 16,200/mt, with spot discounts widening to RMB 200/mt or above against SHFE current-month aluminum contract prices. Downstream processors only made purchases at lower prices due to tight cash flows at the year-end. Overall trading sentiment was weak over the past week.
Last week, China's domestic lead markets suffered severely from tight capital. Early in the week, prices in domestic lead markets were around RMB 17,000-17,100/mt, but later fell to around RMB 16,850/mt over the weekend. Although Henan province began electricity restrictions again last week, companies restricted from power supply were fewer and affected lead output was less, compared with the period of late October when power was limited for energy conservation and emission reductions goals. Besides, smelters were exhibiting high selling interest in order to generate cash flow, and downstream producers were also slow to purchase due to the current tight capital. In this context, domestic lead prices failed to stabilize above RMB 17,000/mt.
SHFE 1103 zinc contract prices moved between RMB 18,500-19,000/mt tracking LME zinc price trends last week, with prices meeting pressure at 60-day moving average but finding support at 5-day and 10-day moving averages. In spot markets, spot zinc was generally traded between RMB 18,200-18,500/mt, with spot discounts between RMB 600-650/mt last week. Downstream buyers were purchasing modestly at lower prices, but traders cut purchases due to unfavorable spot discounts. Market players were taking a wait-and-see attitude towards future price trends.
SHFE zinc contract prices for three-month delivery should continue fluctuating next week, with prices moving between RMB 18,500-19,000/mt, and with solid support at RMB 18,000/mt. Spot zinc prices are expected to fluctuate between RMB 18,000-18,500/mt in the coming week. Transactions will not improve next week since downstream enterprises are purchasing on an as-needed basis due to tight cash flow.
Early last week, prices in China's domestic tin markets continued to fall from a week earlier due to weak consumption, with the lowest price falling to RMB 159,200/mt, but trading sentiment was still lackluster. Later, traders raised their offers following higher LME tin prices and due to low supplies in domestic tin markets. Despite weak transactions, domestic tin prices were still firm, with the lowest price for minor brand tin rising to RMB 160,500-161,000/mt. Recently, transactions for mainstream brand tin were low due to the high price levels; and transactions for minor brand tin were also limited given the unclear market outlook. Coupled with basically ample stock replenishment at downstream producers, strong wait-and-see sentiment was kindled in markets.
Nickel fundamentals were weak last week. LME nickel inventories continued to grow, with total inventories amounting to 136,308 mt, up 4,890 mt from a weak earlier. Nickel import and export data released by China Customs also weighed on LME nickel prices. China's imports of laterite nickel ore hit a new high and grew 14.18% MoM and 81.54% YoY, signs of significant increases in China's NPI capacity. Meanwhile, China's imports of refined nickel were down by 36.76% MoM. These figures show China's demand for NPI is stronger than demand for refined nickel. According to stainless steel export data, China's exports of stainless steel using NPI as the raw material increased by 30.78% YoY.
In the Shanghai nickel spot market, prices fell along with LME nickel prices. Average nickel spot prices fell to RMB 182,620/mt, down by RMB 2,320/mt from a week earlier. Given that downstream demand was weak, transactions were still quiet.
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/mt for #304 hot-rolled stainless steel coil, and RMB 12,220/mt for #430 cold-rolled stainless steel coil. With the Christmas holiday beginning in the US and Europe, trading sentiment became quiet in futures markets, and a brief withdrawal of funds began to weigh down base metal prices. On December 22nd, LME nickel pries plunged by USD 500/mt, negatively affecting transactions. Transactions of stainless steel were quiet, with most market players adopting a wait-and-see attitude.
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