SMM Daily Review - 2011/2/10 Base Metals Market

SHANGHAI, Feb. 11 (SMM) --

Copper

Affected by declines in LME copper prices on Wednesday, SHFE 1105 copper contract, the most active one, opened RMB 370/mt lower at RMB 75,170/mt on Thursday. Boosted by longs purchases and strong equity markets, SHFE 1105 copper contract prices rose robustly after opening, and kept fluctuating at around RMB 76,000/m in the morning session, hitting a high as RMB 76,180/mt. Besides, positions of single-month contracts increased by nearly 20,000 lots. In the afternoon, SHFE copper contracts began to fluctuate weakly following the weaker LME copper market, and even fell after longs sold out their positions, erasing previous gains. In general, SHFE 1105 copper contract closed RMB 340/mt higher at RMB 75,880/mt, up 0.45%. SHFE copper positions rose significantly by 25,038 lots to 170,970 lots, and trading volumes increased by 1,334 lots to 106,838 lots, and the market was mainly dominated by long sentiment. Despite failing to hold above RMB 76,000/mt, prices were still higher than Wednesday’s low level. Technically, day moving averages still shows upward trend, indicating rising momentum in SHFE copper prices in the short term, and prices will find support at around the 5-day moving average. Previously, SHFE copper prices failed to keep pace with rising LME copper prices, though prices are rising following the strong LME copper market after the holiday. Therefore, SHFE copper prices will suffer limited declines in the short term even though LME copper prices experience downward corrections at high price levels. In this context, SMM expects SHFE copper prices will continue to move higher and test stability of the 5-day moving average in the near term.

In Shanghai copper spot markets, mainstream traded prices for refined copper were between RMB 73,850-74,250/mt on Thursday, with standard-quality copper traded between RMB 73,850-74,100/mt and high-quality copper traded between RMB 73,950-74,250/mt. SHFE copper prices rose after a low opening, and spot discounts were between negative RMB 150-350/mt in the morning. Downstream producers were still on holiday and expected to reopen after February 17th. However, transactions improved on Thursday compared with a day earlier, due mainly to wide price gaps between forward and near-term futures contracts which attracted arbitragers with ample capital. Besides, several trading days are still left for delivery, and high-quality copper discounts were between negative RMB 150-200/mt in early hours on Thursday, considered favorable to move goods and more acceptable than standard-quality copper, so some cargo-holders began to be unwilling to sell. SMM expects copper inventories will increase significantly this week due to the Chinese New Year holiday, and transactions will be mainly done among some domestic smelters.

Aluminum

SHFE 1104 aluminum contract, the most active one, opened below 5-day moving average at RMB 16,940/mt, but prices rose rapidly and erased losses from dip-buying. Boosted by strong Shanghai Stock Exchange composite index, SHFE aluminum prices moved at high level, with prices reaching the highest at RMB 17,065/mt and closing at RMB 17,050/mt, up by RMB 10/mt from a day earlier. Daily positions increased by around 10, 000 lots, while positions gradually shifted to SHFE aluminum 1105 contract with the approach of delivery date. Positive expectation towards aluminum prices in the short term was not changed.

In the Shanghai aluminum spot market, increasing number of players entering market, coupled with rebound of SHFE aluminum prices, boost buyers’ purchasing interest. However, spot aluminum prices were weighed to certain extent by ample supply of spot goods. Traded prices slipped to RMB 16,710-16,750/mt, with spot discount at negative RMB 50-10/mt. Spot aluminum market in south China was relatively quiet compared to that in Shanghai, with slower recovery in downstream consumption and weak buying interest from buyers. Transactions were quiet, and traded prices of aluminum in Hainan were in the RMB 16,830-16,850/mt range.

Lead

In China’s domestic lead markets, most downstream producers were still on holiday and had not resumed production until Thursday. In response, demand for lead was weak. Coupled with declines in LME lead prices on Wednesday, domestic lead prices fell slightly on Thursday from a day earlier. Prices for # 1 refined lead were RMB 17,050-17,250/mt reported on SMM. Trading volumes in Shanghai lead markets improved slightly compared with a day earlier, but trading sentiment was still considered weak. Transactions for well-known brand lead were made between RMB 17,050-17,100/mt, and lead from “Gejiu”, Yunnan province was traded at RMB 16,950/mt. Supply of lead from “Gejiu” was limited, and transactions were mainly done for well-known brand lead.

Zinc

On Thursday, SHFE 1105 zinc contracts became the most active one. SHFE zinc prices opened lower at RMB 19,400/mt tracking LME zinc prices overnight. SHFE 1105 zinc contract prices opened low but moved higher boosted by Shanghai Stock Exchange composite index, and generally moved above the daily moving average during the day, and with prices hitting a daily high of RMB 19,660/mt. At the end of trading, SHFE 1105 zinc contract prices finally closed at RMB 19,585/mt, weighed by the falling LME zinc prices and the strengthened US dollar index. Trading volumes increased by over 60,000 lots to 253,918 lots, and total positions increased by 49,800 lots to 167,120 lots, with short position momentum stronger. The market mainly took a cautious attitude toward zinc price trends.

SHFE zinc prices opened low but moved higher with prices moving above the daily moving average in the morning session. Spot transactions improved but with trading volumes still limited. Mainstream traded prices of #0 zinc were between RMB 18,800-18,850/mt, with discounts of RMB 800/mt against SHFE 1105 zinc contract prices. Some brands were traded as much as RMB 18,900/mt. #1 zinc was traded between RMB 18,700-18,750/mt. Traders were aggressively selling goods, but some downstream buyers purchased modestly as they did not restart operation. Transactions in Guangdong market were even lackluster, with #0 zinc traded between RMB 18,700-18,800/mt.

Tin

On Thursday, transactions of tin were still weak in Shanghai market. Some traders continued to raise tin prices by virtue of firm LME tin prices and supply shortages. Some of “Yunxiang”, “Jinhai” and “Yunshan” brands were traded between RMB 189,000-190,500/mt, and downstream buyers purchased on an as-needed basis. Downstream enterprises purchased modestly as they were still on holiday or just restarted operation. As a result, transactions were still weak despite rising SHFE tin prices. Some traders were unwilling to purchase at higher prices. Smelters were seldom moving goods as they were optimistic about tin price trends, resulting in short goods supplies in the market.

Nickel

LME nickel market opened at USD 28,320/mt during the Asian trading hours on Thursday, but later slipped from the rebound of US dollar, with the highest price at USD 28,600/mt and the lowest price at USD 28,150/mt. LME nickel inventories were 131,898 mt, down by 432 mt.

Boosted by slight rally of LME nickel price overnight, mainstream traded prices of nickel in the Shanghai spot market were lifted to certain extent from a day earlier. Traded prices of nickel from Jinchuan Group were between RMB 217,500-218,000/mt, and mainstream traded prices of nickel from Russia were between RMB 216,500-217,000/mt. Overall trading sentiment was still quiet, and many traders were still on holiday.

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