SMM Daily Review - 2011/2/18 Base Metals Market

SHANGHAI, Feb. 21 (SMM) –

Copper
SHFE 1105 copper contract prices, the most active one, opened up by RMB 90/mt at RMB 75,200/mt on Friday, and experienced narrow fluctuations in the morning session after a high open, with resistance at RMB 75,000-75,200/mt, and support at RMB 74,800/mt. The copper for delivery in three months in the SHFE market fell below RMB 74,800/mt when trading closed at midday. SHFE three-month copper contract prices continued to drop in the afternoon session, down as low as RMB 73,820/mt. Finally, SHFE 1105 copper contract prices fell to RMB 73,850/mt, down RMB 1,260/mt, or a loss of 1.68%, the largest decline in over one month, with price difference between high and low-end at RMB 1,520/mt during the trading day. Positions for SHFE three-month copper contract prices were down 9,022 lots to 197,778 lots, and trading volumes were up 17,200 lots to 168,292 lots. Technically, SHFE copper market is expected to continue to experience corrections, and may test support at RMB 73,500/mt.

In the spot market, spot discounts were between negative RMB 500-350/mt at around 10:30 am. SHFE copper market experienced wild fluctuations after opening, a sign that prices need to correct at high levels, and cargo-holders, with eagerness to generate cash, expanded spot discounts to negative RMB 600-400/mt. Traded prices for standard-quality copper were between RMB 73,800-73,950/mt, and negative RMB 73,900-74,000/mt for high-quality copper. However, downstream producers chose to stand on the sidelines due to price corrections, resulting in low buying activity. Coupled with low arbitrage trading, transactions were weak. Continuous price declines in the SHFE copper market in the afternoon session raised worries among cargo-holders, and so they remained eager to move goods, and spot discounts failed to narrow. Hence, traded prices for standard-quality copper fell to between RMB 72,900-73,550/mt, and negative RMB 73,000-73,750/mt for high-quality copper, leaving price gap over RMB 1,000/mt. Downstream producers increased purchases when prices were at RMB 73,000/mt in the afternoon business, helping improve transactions. With price corrections and large spot discounts, smelters showed no intention to move goods. According to data released by Shanghai Futures Exchange (SHFE), copper inventories were up 16,865 mt last week, with increment accumulating 31,812 mt, bringing total inventories up to 161,062 mt. Copper prices will face further downward pressure along with rising inventories, and no improvement in demand. 

Aluminum
SHFE aluminum prices opened higher but moved lower on Friday, and SHFE 1105 aluminum contract became the most active contract the same day. SHFE 1105 aluminum contract prices opened slightly higher at RMB 17,205/mt, and later kept moving below the daily moving average. SHFE 1105 aluminum contract prices fell significantly in the afternoon session as the Shanghai Stock Exchange composite index fell below 2,900 points, and finally prices closed at an intraday low of RMB 17,110/mt, down RMB 80/mt compared with the previous trading day, or down 0.47%. Trading volumes of SHFE 1105 aluminum contract were 22,702 lots, and total positions increased by 3,626 lots. Recently, rising domestic inflationary pressures increased investor expectations of more tightening policies in China, and market confidence was depressed again. SHFE aluminum prices kept fluctuating in a narrow band after the Chinese New Year holiday as downstream consumption failed to recover, and SMM predicts SHFE 1105 aluminum contract prices will struggle at the 5-day moving average in the short term.

Traded prices for spot aluminum in east China were between RMB 16,740-16,770/mt, with discounts of RMB 120-150/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices opened higher but moved lower on Friday, reducing middlemen interest in making transactions. Downstream buying interest was even lower, but spot aluminum supplies were sufficient, causing mainstream traded prices to fall gradually, and only limited deals were made in the morning. A small number of traders moved goods at lower prices between RMB 16,720-16,730/mt in the midday due to tight cash flow pressures resulting from China's tightening policies, attracting some middlemen to make some transactions, but overall market transactions were weak on Friday. 

Zinc
Last Friday, SHFE 1105 zinc contract prices opened higher at RMB 20,025/mt and then fell to RMB 19,950/mt in the morning session. Boosted by LME zinc prices, SHFE 1105 zinc contract prices touched a daily high of RMB 20,250/mt, but then fell to RMB 20,000-20,200/mt, and with prices even sliding to RMB 19,950-20,100/mt in the midday and finally closing at RMB 19,945/mt above all the daily moving averages. Trading volumes increased by over 40,000 lots to 924,526 lots, and total positions increased by 22,492 lots to 315,436 lots, with long positions increasing significantly.

SHFE 1105 zinc contract prices rose to RMB 20,000/mt level, and spot zinc prices rose in response. Traders purchased actively when spot discounts expanded to RMB 850-900/mt, and some brands were traded as much as RMB 19,300/mt. Goods holders were unwilling to move goods. Other brands were traded between RMB 19,200-19,250/mt. #1 zinc was traded between RMB 19,100-19,150/mt. Downstream buyers’ buying interests were low, and transactions were mainly made between traders.

Lead
In China’s domestic lead markets, downstream producers were unclear about market outlook last Friday as LME lead prices kept fluctuating around USD 2,600/mt. Coupled with weak downstream demand, transactions in domestic lead markets failed to improve substantially. However, domestic lead prices rose in response to active transactions among traders, with mainstream traded prices between RMB 17,100-17,350/mt in Shanghai, and offers for well-known branded lead were even as high as RMB 17,400/mt earlier. Lead smelters kept high selling interest with low offers, as electricity restrictions on most smelters in Henan province had already ended. Only a small number of smelters reported to escape electricity restrictions three months later, but any affects on market supply are expected to be limited, due to small range of power restrictions and currently soft demand.

Tin
In Shanghai tin markets, traded prices last Friday were generally unchanged from a day earlier, with some transactions made at lower prices. Transactions for tin from Yunnan Tin Group, Gejiu Zili Metallurgy Company and some minor branded tin were made between RMB 202,000-203,500/mt, some transactions for Nanshan and Weitai branded tin were made at RMB 201,500/mt. Some transactions were made at lower prices, due mainly to declines in LME tin prices, and from some smelters’ lower offers. Most market players retained long sentiment last Friday, and spot prices in Shanghai tin markets are expected to keep firm in the short term.

Nickel
LME nickel prices opened at USD 28,701/mt and closed at USD 28,621/mt, down by USD 109/mt from a day earlier, with the highest price at USD 28,800/mt and the lowest price at USD 28,000/mt. Daily trading volumes were 3,060 lots and positions were 96,645 lots. LME nickel prices moved stably during the morning trading hours after opening at USD 28,675/mt on February 18th, and began to slip in the afternoon trading hours due to stronger US dollar, with prices hitting the lowest at USD 28,250/mt. LME nickel inventories were down by 528 mt to 129,396 mt.

In the Shanghai nickel spot market, prices continued to slip and transactions were sluggish. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 215,500-216,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 214,800-215,000/mt range, deals at RMB 214,500/mt also reported in the market. LME nickel prices are experiencing corrections, dampening trading sentiment in the spot market. Few downstream consumers entered market, and deals were largely done among traders.

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