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SMM Daily Review - 2010/12/29 Base Metals Market
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SHANGHAI, Dec. 30 (SMM) --
The copper for delivery in three months in the SHFE market briefly reached RMB 69,440/mt after opening at RMB 69,150/mt on Wednesday, but then fell back to fluctuate at around RMB 69,100/mt. After 9:40 am, SHFE three-month copper contract prices rebounded slightly to RMB 69,150/mt, but fell as low as RMB 68,700/mt at around 10:40 am due to falling stocks prices. At around 11:00 am, SHFE three-month copper contract prices rallied rapidly to RMB 69,100/mt. In the afternoon session, the most actively-traded copper contract prices in the SHFE market moved higher along with rallying stocks prices, and finally closed at RMB 69,510/mt, up RMB 510/mt, or a gain of 0.67%. Positions for SHFE 1103 copper contract prices were down 6,260 lots, while positions for SHFE 1104 copper contract prices were up 10,838 lots. Trading volumes in the SHFE copper market were down 31,460 lots, but positions were up 4,618 lots on Wednesday. Domestic stocks market rallied on Wednesday, but still lacked rising momentum. As LME copper market resumes trading, SHFE copper market will look for more direction from the LME copper market. In the short term, SHFE three-month copper contract prices are expected to fluctuate at around RMB 68,900/mt, and may test RMB 70,000/mt.

In the spot market, transactions were mainly made between RMB 67,700-68,150/mt. At around 10:30 am, SHFE current-month copper contract prices fluctuated at around RMB 68,400/mt, and spot discounts for high-quality copper were between negative RMB 380-420/mt, and negative RMB 500-600/mt for standard-quality copper. SHFE current-month copper contract prices dropped at around 10:40 am along with falling stocks prices, but then rallied after brief declines. During this period, spot discounts for high-quality copper narrowed to negative RMB 350-380/mt, while discounts for standard-quality copper remained at around negative RMB 550/mt. Downstream producers slightly increased purchases on Wednesday along with consumption of the existing inventories, stock replenishment for production during the New Year holiday, and stable copper prices, improving market trading sentiment. However, most downstream producers still purchased goods on an as-needed basis. Transactions are not expected to improve significantly during the last two trading days of the year, given tight flow pressure at the year-end, weak demand, and high copper prices.      

SHFE 1103 aluminum contract prices kept fluctuating narrowly around the 5-day moving average on Monday after opening slightly higher at RMB 16,725/mt, with the highest level and the lowest level at RMB 16,690/mt and RMB 16,760/mt, respectively, and finally closed at RMB 16,745/mt, up 0.24%. Trading volumes of SHFE 1103 aluminum contract were 27,012 lots, and total positions increased by 1,580 lots. SHFE aluminum prices still failed to keep pace with other base metals prices on Monday, and SMM predicts SHFE aluminum prices will test the support at the 5-day moving average in the short term.

Spot aluminum prices in east China climbed to between RMB 16,220-16,240/mt following SHFE aluminum prices, with spot discounts narrowing to between RMB 150-180/mt. Market supplies remained tight, since some traders stood on the sidelines due to tight cash flows, and some traders were reluctant to move goods in anticipation of higher aluminum prices after the New Year's Day holidays. Downstream processors made purchases on an as-needed basis, and overall trading volumes were moderate. SMM predicts spot trading sentiment will unlikely improve on the last two trading days ahead of the holiday.   

In China's domestic lead markets, trading sentiment improved on Wednesday boosted by the strong LME lead market. Downstream producers showed higher interest, and some traders were reluctant to move goods, planning to sell at higher prices. Most transactions were made between RMB 16,900-17,000/mt on Wednesday. At present, capital pressures in domestic lead markets are easing gradually, and some smelters are less willing to move goods compared with several days ago, given that they have repaid loans for this year. In response, domestic lead prices are expected to rise after a month of continuous price declines, if LME lead prices keep the upward momentum.

On Wednesday, SHFE zinc prices fell slightly after opening. SHFE 1103 zinc contract prices rebounded after dipping to a low of RMB 18,970/mt, and broke 60-day moving average, with prices mostly moving between RMB 19,050-19,150/mt. At the end of trading, SHFE three-month zinc contract prices rallied boosted by the stronger Shanghai Stock Exchange composite index and surging LME zinc prices, with prices finally closing at RMB 19,365/mt, up RMB 400/mt, or up 2.11%. Total positions decreased significantly at the end of trading, with positions finally decreasing by 5,134 lots to 218,112 lots, and trading volumes decreased by over 6,000 lots to 530,402 lots. Total positions of SHFE 1104 zinc contract prices increased by 11,742 lots to 143,518 lots, and trading volumes increased by nearly 100,000 lots to 290,050 lots, with the turnover rate of 202%.

On Wednesday, SHFE 1103 zinc contract prices fell slightly and then surged to RMB 19,265/mt, with prices breaking the 60-day moving average, but fell later above RMB 19,000/mt. Zinc spot prices rose in response. #0 zinc was traded between RMB 18,300-18,350/mt, with discounts of RMB 800/mt against SHFE 1103 zinc contract prices, and with most transactions made at the low-end. Some imported zinc was traded between RMB 18,150-18,200/mt, with discounts of RMB 900-1,000/mt against SHFE 1103 zinc contract prices; #1 zinc was traded between RMB 18,250-18,300/mt. Zinc prices found resistance to rise and downstream buyers purchased modestly, with overall transaction weak. At the end of trading, spot discounts extended as a result of the soaring SHFE zinc prices, with discounts of domestic #0 zinc of RMB 900-1,000/mt, and traded prices of #0 zinc were around RMB 18,400/mt. Traders increased purchasing due to extended discounts, but still purchased modestly due to tight cash flow.

In Shanghai tin markets, traded prices basically kept stable on Wednesday. Most transactions were made for unknown brand tin such as Nanshan, Jinlong, and Weitai brand at around RMB 160,800/mt, with a small number traded at RMB 160,500/mt; well-known brand tin such as tin from Yunnan Tin Group was traded at RMB 162,000/mt. Overall trading sentiment remained quiet, with downstream producers purchasing on an as-needed basis. Higher prices in domestic tin markets are mainly impeded by the weak demand.

It is speculated that funds may flight into COMEX market during two days' closure in LME market. COMEX copper prices hit a record high, and market assumed that LME copper prices may lead price rally among other base metals. Based on base metal performance in SHFE market, it seems that market has already absorbed news of China's interest rate hike. In addition, a string of upbeat news also spread from the US, including positive manufacture data as well as partial alteration of the Fed Reserve's voting right.

In the Shanghai nickel spot market, transactions were still lackluster. Mainstream traded prices of nickel from Jinchuan Group were around RMB 183,500/mt and mainstream traded prices of nickel from Russia were around RMB 182,700/mt in the morning trading session. With LME nickel prices advancing in the afternoon trading hours, mainstream traded prices of nickel from Jinchuan Group were between RMB 183,700-184,000/mt and mainstream traded prices of nickel from Russia were around RMB 183,000/mt. Downstream demand was weak, and consumers' purchasing interest was not high. Traders' views were divided concerning price outlook, and power of longs and shorts was balanced, resulting in wait-and-see trading sentiment.     


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