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SMM Daily Review - 2011/2/9 Base Metals Market
Feb 10,2011 11:15CST
smm insight

SHANGHAI, Feb. 10 (SMM) --


Boosted by LME copper prices breaking through USD 10,000/mt on Wednesday, SHFE 1105 copper contract, the most active one, opened RMB 420/mt higher at RMB 76,000/mt on Thursday. Shorts sold their positions after SHFE 1105 copper contracts falling to RMB 75,120/mt due to higher interest rate in China. Later, prices slumped after rising to RMB 76,440/mt in five minutes. In general, SHFE 1105 copper prices kept fluctuating narrowly around day-moving averages in the morning session, and tumbled below moving averages in the afternoon negatively affected by weaker Shanghai Stock Exchange Composite Index, and still lacked strength to rally at the tail of trading. Finally, SHFE 1105 copper contract closed RMB 510/mt higher at RMB 75,540/mt, up 0.68%. Positions increased by 4,078 lots to 145,932 lots, and trading volumes increased by 3,280 lots to 105,504 lots, indicating limited transactions after the Chinese New Year holiday. SHFE copper prices make breakthrough after fluctuating for a month before the holiday, and are expected to keep rising after the holiday with limited affects from higher interest rate in China. Technically, SHFE copper prices are showing an upward trend currently. Besides, base metals will experience the first peak-demand period after the Chinese New Year holiday, and a new round of stock replenishment will strongly support SHFE copper prices. However, SMM expects SHFE copper prices will test whether or not solid support is available at high price level in the short term.

In Shanghai copper spot markets, traded prices for standard-quality copper were between RMB 74,000-74,100/mt, and traded prices for high-quality copper were between RMB 74,050-74,350/mt on Wednesday. Spot discounts were between negative RMB 250-400/mt in the morning as SHFE copper prices fell after a high opening. Although spot discounts narrowed in the afternoon due to lower SHFE copper prices, with discounts of negative RMB 200-300/mt and RMB 150-200/mt for standard-quality and high-quality copper, respectively, most market players were unwilling to accept copper prices at RMB 74,000/mt. Wednesday was the first trading day after the Chinese New Year holiday, and most copper smelters were still closed, while importers were staying out of the market due to the low SHFE/LME copper price ratio which was considered unfavorable for imports. In this context, market supply was mainly dominated by domestic high-quality copper. Traders had difficulties in moving goods as their goods were locked due to losses in hedging from current high SHFE copper prices, while buyers were largely standing on the sidelines due to current high copper prices, keeping transactions muted. China’s central bank lifted the interest rate again on Wednesday, which will directly affect cash flows in markets. In this context, some market players who want to purchase are expected to be hampered by limited cash flows. In addition, current high SHFE copper prices and unclear market trend also dampen trading sentiment further in Shanghai copper spot markets.


At the eve of fist post-holiday trading day, China’s central bank unexpectedly raised interest rate by 0.25 basis points, effective as of February 9th. This move dampened long sentiment, and trading sentiment became cautious. Shanghai stock exchange composite index slipped further after slipping through 2800 points and domestic base metal prices largely ended with losses after a high open. Most actively traded SHFE aluminum contract fell sharply to below RMB 16,800/mt after opening at USD 17,150/mt due to profit-taking from longs, and slipped again after slight rebound. Slipping pace of SHFE aluminum contract slowed to certain extent, with price finally closing at RMB 16,995/mt, down by 0.41%. Although SHFE aluminum contract price slipped sharper compared to that of copper and zinc and technical corrections are needed in the short term, market expectation towards aluminum prices is still bullish in the medium term as downstream processors will gradually resume production after Chinese New Year holiday.
Traded prices were between RMB 16,720-16,750/mt in the Shanghai aluminum spot market, but transactions were extremely sluggish. Some traders already come back after holiday and some traders still suspend business, while most downstream producers haven’t resumed production. Purchases were few in the market due to weak demand for aluminum ingot. Meanwhile, buyers also adopted a wait-and-see attitude by virtue of weak aluminum prices and high aluminum inventories after the Chinese New Year holiday.


Boosted by the strong LME lead market, # 1 refined lead prices were between RMB 17,100-17,300/mt on Wednesday reported on SMM. Downstream producers in China’s domestic lead markets have not resumed production despite the Chinese New Year holiday ending. Besides, LME lead prices fell after a high opening, trading sentiment in China’s domestic lead markets kept still muted. Despite limited transactions, offers were still firm and even higher compared with pre-holiday levels, with well-known brand lead traded at RMB 17,200/mt and lead from Gejiu, Yunnan province traded at around RMB 17,100/mt. High offers indicate optimism about market outlook, so SMM expects domestic lead prices will keep stable and even rise in the short term after markets absorbing affects from higher interest rates. 


On Wednesday, SHFE three-month zinc contract prices opened higher at RMB 19,640/mt, but then fell after opening due to China’s rate hike, with prices closing at RMB 19,250/mt, the settlement price of the previous trading day. SHFE zinc prices were still above all the daily moving averages, and with prices finding support at RMB 19,100/mt but meeting resistance at RMB 19,500/mt. Trading volumes decreased by 24,508 lots to 155,304 lots, and total positions decreased by 100,876 lots to 148,062 lots. The market was absorbing China’s rate hike, while SHFE 1105 zinc contract prices were becoming more actively traded. It is the traditional weak demand period for zinc, and speculations that China will take further tightening monetary policies continue due to the rate hike by China’s central bank. In this context, zinc prices should fluctuate at high levels.

SHFE zinc prices opened higher but then fell on Wednesday, failing to boost spot zinc prices. In the morning session, #0 zinc was traded between RMB 18,800-18,850/mt. As SHFE zinc prices fell slightly in the midday, spot zinc prices fell to RMB 18,800/mt, with discounts of RMB 600/mt against SHFE 1104 zinc contract prices. #1 zinc was offered RMB 18,650-18,700/mt, but with transactions limited. LME zinc prices rose significantly while SHFE zinc prices barely rose during Chinese New Year holiday, so traders were unwilling to sell goods. Buyers did not hurry to purchase due to sufficient stocks. As a result, the overall transaction was weak.


Transactions were weak on Wednesday as most traders were still on holiday. Smelters were still unwilling to sell goods, believing tin prices should rise. Spot tin prices rose due to short supplies and that LME tin prices rose to USD 31,000/mt during Chinese New Year holiday, boosting spot zinc prices. Some of brands such as “Yunxiang”, “Jinhai”, and “Yunshan” were traded at RMB 186,000-187,000/mt.


LME nickel market opened at USD 28,225/mt during the Asian trading hours on February 10th, and fluctuated narrowly above USD 28,000/mt, with the highest price at USD 28,350/mt and the lowest price at USD 28,075/mt. China’s interest rate hike dampened trading sentiment to certain extent, and slip of Shanghai stock exchange composite index also dragged down base metal prices. The US dollar index fluctuated below 78. LME nickel inventories were 132,330 mt, down by 606 mt.

In the Shanghai nickel spot market, transactions were quiet, as some traders were still off on holidays. Jinchuan Group raised ex-works nickel prices by RMB 7,000/mt to RMB 215,000/mt during Chinese New Year holiday, boosting spot nickel prices to great extent. Traded prices of nickel from Jinchuan Group were between RMB 216,000-216,500/mt, while traded prices of nickel from Russia were between RMB 215,500-216,000/mt.


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