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SMM Daily Review - 2011/2/14 Base Metals Market
Feb 15,2011 09:40CST
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SHANGHAI, Feb. 15 (SMM) --
Supported by rising LME copper prices, SHFE 1105 copper contract prices, the most active one, opened high by RMB 600/mt at RMB 76,120/mt on Monday. Along with profit-taking after a high open, SHFE three-month copper contract prices dropped to the low level of RMB 75,430/mt seen last Friday, returning to the 5-day moving averages. However, buying activity helped support prices. Coupled with a weaker US dollar index, SHFE three-month copper contract prices rallied all the way. In the afternoon session, the copper for delivery in three months in the SHFE market was limitedly supported despite that Shanghai stock index broke the 2,900 points, with prices generally moving at around RMB 76,000/mt. At the tail of the trading, SHFE three-month copper contract prices rallied after being supported at the daily moving averages. Finally, SHFE 1105 copper contract prices closed at RMB 76,270/mt, up RMB 330/mt, or a gain of 0.43%. Positions for the most actively-traded copper contract were up significantly by 14,428 lots to 195,850 lots, while trading volumes dropped by 23,212 lots to 132,888 lots. China will announce major economic data fro January soon, and the CPI will likely set a new high in view of rising commodity prices from the holiday factor, with the reading expected to be 5% or above. If so, China will likely raise the reserve requirement ratio again in response to the rising inflation. Copper prices are expected to remain strong until to April and May, but will likely experience slightly larger corrections during the period, and prices will continue to fluctuate in the short term. 

In the spot market, copper in Shanghai was offered between RMB 0/mt and positive RMB 120/mt on Monday. Transactions for standard-quality copper were made in the RMB 74,150-74,250/mt range, and RMB 74,250-74,400/mt for high-quality copper. As Monday was the last trading day before the delivery date, high-quality copper was offered at premiums of positive RMB 100/mt at 10:30 am, and premiums for standard-quality copper were also up to around positive RMB 30/mt. At 11:00 am, premiums for high-quality copper rose to positive RMB 120/mt, and some traders held no goods in hand due to strong sales. At around 11:30 am, the price difference between SHFE 1102 and 1103 copper contract prices was above RMB 600/mt. Some cargo-holders were not eager to move goods, preferring to take a wait-and-see attitude. As prices in the SHFE copper market lacked the rising momentum in the afternoon session, premiums for high-quality copper expanded to positive RMB 100-150/mt, with domestic goods dominating market supply. Arbitragers were active in the market on Monday, since the price difference between SHFE near-term and forward copper contract prices expanded to RMB 2,000/mt. However, downstream producers showed no interest in purchases due to high prices, and meanwhile some producers remain closed, resulting in limited downstream purchases.

According to the SMM survey of price movements during the current week, approximately 67% of market players in the survey remain positive towards the outlook. With strong LME copper prices, SHFE copper market still has further upward room to keep the rising trends. In addition, positive signs are available technically, with prices pointing to USD 10,400-10,500/mt after breaking USD 10,160/mt. Another 27% of market players take a neutral attitude, believing transactions are mainly made by arbitragers, and consumption is not good now, lending no strong support for LME copper prices at USD 10,000/mt. On the other hand, they don’t believe that SHFE copper prices will drop despite of declines in the LME copper market, since the peak demand period is going to arrive in China. The rest of players are pessimistic, as SHFE copper prices made no positive response to the rising stock prices on Monday, and meanwhile many factors remain closed, with limited demand.  

SHFE 1104 aluminum contract prices fell to an intraday low of RMB 17,020/mt in the morning session after opening slightly lower at RMB 17,080/mt. Later, SHFE 1104 aluminum contract prices climbed to RMB 17,150/mt following strengthening Shanghai Stock Exchange composite index, and finally closed at RMB 17,125/mt, up RMB 25/mt compared to the previous trading day, or up 0.15%. Trading volumes of SHFE 1104 aluminum contract were 6,942 lots, and total positions increased by 7,286 lots. SHFE 1104 aluminum contract prices kept struggling around RMB 17,100/mt on Monday, and China’s CPI for January will be released on Tuesday, and market concerns over rising inflationary pressure intensified. In this context, any room for SHFE aluminum prices to rise will be limited in the short term, with prices expected to fluctuate around RMB 17,100/mt.

Traded prices for spot aluminum were between RMB 16,780-16,810/mt in east China, with discounts of RMB 0-20/mt against SHFE current-month aluminum contract prices. SHFE current-month aluminum contract prices rebounded rapidly after opening, and later fluctuated below the daily moving average. Traders were eager to move goods as the delivery date nears, resulting in sufficient supply of spot aluminum, but downstream producers and middlemen showed little buying interest. Deals were made with slight discounts, and transactions were lackluster.

According to a SMM survey, 45% of market players were optimistic toward future aluminum prices, believing bullish LME aluminum prices and gradual recovery of domestic aluminum consumption will help drive up aluminum prices. 55% of market players were neutral toward aluminum market outlook. Arrivals of aluminum ingot increased significantly during the Chinese New Year holiday, and market supplies were sufficient, while downstream consumption will recover fully until February 17th. Meanwhile, China’s economic data for January will be released, and heavy inflationary pressure will force China’s Central Government to introduce more tightening policies, which will hamper any gains in aluminum prices.

Views about domestic lead prices this week are mixed. There were 53% of market players believing domestic lead prices to keep fluctuating. LME lead prices already rose before the Chinese New Year holiday, and fluctuated at high levels during the holiday period, with unstable price gains. Although most downstream producers are reopening this week, the production is expected to be unable to resume normal in the short term due to possible absence of employees. In addition, many downstream producers are still waiting for guide from LME and domestic lead prices, and mainly consuming inventories. Therefore, whether or not lead demand will grow in the short term is still unclear, so these market players are cautious about higher domestic lead prices.

There are 40% market players optimistic about domestic lead prices this week. Despite China raised interest rate last week, they believe that markets manage to absorb the news rapidly and will be affected limitedly. Besides, some downstream producers already reopened last week and inquirers increased from last Friday, a sign of improved transactions. Increased orders from downstream producers will boost lead consumption, which will drive domestic lead prices up. 

Market players pessimistic about domestic lead prices accounted for 7% in the total. They believe China’s action of raising interest rate will further squeeze cash flows in markets, which may depress market confidence. Besides, they are also worrying whether or not CPI due for release this Tuesday will rise.

On Monday, SHFE three-month zinc contract prices dipped to RMB 19,380/mt after opening, and then rebounded to above the daily moving average, with prices mostly moving between RMB 19,550-19,600/mt during the day. The US dollar index fell between 78.2 and 78.4 at the end of trading, boosting LME zinc prices. As a result, SHFE three-month zinc contract prices rallied at the end of trading, with prices finally closing at RMB 19,675/mt above the 5-day moving average. Trading volumes increased by over 10,000 lots to 420,760 lots, and total positions increased by over 6,000 lots to 220,794 lots, with short position momentum stronger.

SHFE zinc prices fluctuated at high levels on Monday, and spot zinc transactions improved post-holiday. #0 zinc was traded between RMB 18,800-18,830/mt, with discounts of RMB 800/mt against SHFE 1105 zinc contract prices, and with traded prices at RMB 18,780/mt in the morning session. #1 zinc was traded between RMB 18,700-18,750/mt, with transactions brisk. But transactions were mainly made between traders buying spot zinc and selling SHFE zinc contracts, while purchases from downstream buyers were limited as they have not restarted production yet.

LME zinc prices surged during the Chinese New Year holiday, while SHFE zinc prices rose slightly post-holiday. With regard to zinc price trends, 26% of market players believe that downstream enterprises restarting operation will boost spot transactions. In addition, LME copper prices are maintaining upward momentum. In this context, SHFE three-month zinc contract prices will rise to RMB 19,500-20,000/mt this week, and spot zinc prices are expected between RMB 18,800-19,500/mt.

17% of market players believe that spot transactions will not improve since most downstream enterprises have built stocks prior to the holiday. SHFE zinc prices are expected to fall from RMB 19,500/mt. SHFE three-month zinc contract prices are expected to move between RMB 18,000-19,000/mt this week, and spot zinc prices should fall below RMB 18,000/mt.

Among the remaining 57%, some believe that SHFE three-month zinc contract prices will fluctuate around RMB 19,500/mt this week as the market mainly take a wait-and-see attitude upon the release of CPI on February 15th. But transactions will be mainly made between traders since spot transaction will not improve this week. The remaining are uncertain of price trends yet.

In Shanghai tin markets, prices continued to rise on Monday amid a supply shortfall and a strong LME tin market. Transactions were made in a wide price range as traders constantly raise offers, with traded prices for tin from Yunnan Tin Group, and Gejiu Zili Metallurgy Company and some minor branded tin between RMB 193,500-197,000/mt. Most tin smelters were unwilling to move goods waiting for higher tin prices. Coupled with limited market supply, spot prices rose rapidly. SMM expects prices in Shanghai tin markets to keep rising in the short term.

LME nickel market opened at USD 28,225/mt during the Asian trading hours on Monday. Boosted by weaker US dollar and significant growth of China’s stock markets, base metal prices, including LME nickel prices, all surged. LME nickel prices opened with slight losses, but advanced all the way to hit the highest at USD 28,700/mt later. LME nickel inventories were down by 690 mt to 130,422 mt. Weighed by slight rebound of the US dollar, LME nickel prices are expected by experience corrections technically in the short term, with prices receiving support at USD 27,500/mt and meeting resistance at USD 29,000/mt. In this context, LME nickel price many fluctuate in the short term, but bullish trend will not change in the long term.

In the Shanghai nickel spot market, traded prices were flat from a day earlier, with traded prices between RMB 215,500-216,000/mt for nickel from Russia and at RMB 216,500/mt for nickel from Jinchuan Group in the morning trading session. With the domestic nickel prices advancing with LME nickel prices in the afternoon trading session, offers of nickel from Jinchuan Group were largely at RMB 217,000/mt, but with limited transactions reported. With regard to market supply, nickel from Jinchuan Group still dominated market supply, with few imported nickel from Russia in the market. Transactions were largely made among traders, as downstream demand hasn’t fully recovered after holiday. Jinchuan Group’s nickel price at RMB 215,000/mt lent relatively strong support for spot nickel prices, and SMM expects that spot nickel prices will largely move above RMB 215,000/mt on February 15th.


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