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SMM Daily Review - 2011/2/21 Base Metals Market
Feb 22,2011 09:53CST
smm insight

SHANGHAI, Feb. 22 (SMM0 --  

SHFE 1105 copper contract prices, the most active one, opened down by RMB 220/mt at RMB 74,500/mt on Monday, and fluctuated at around the daily moving averages after a low open. After 10:30 am, the copper for delivery in three months in the SHFE market slid to RMB 73,690/mt due to the rising US dollar index, and then rallied along with bargain hunting after down to the 20-day moving averages for support and falling below the lowest level seen a week earlier. In the afternoon session, SHFE three-month copper contract prices rallied further along with rising stocks prices, with prices moving above the daily moving averages in the afternoon session, narrowing daily declines. Finally, SHFE three-month copper contract prices closed at RMB 74,630/mt, down RMB 90/mt, or a drop of 0.12%. Positions for SHFE three-month copper contract prices were down 6,362 lots to 191,416 lots, and trading volumes were down 20,842 lots to 164,650 lots. Technically, SHFE copper market is able to find support at the 20-day moving averages, and any declines will be limited, even if SHFE copper market will track declines in the LME copper market in the short term.

In the spot market, discounts were offered between negative RMB 500-350/mt in the morning business as SHFE copper prices moved lower after a low open. Traded prices for standard-quality copper were between RMB 72,750-73,050/mt, and negative RMB 72,850-73,200/mt for high-quality copper. Some downstream producers remained on the sidelines, believing prices would fall further, with limited purchases made at RMB 73,000/mt. Spot discounts expanded further in the afternoon business along with rising copper futures prices. Spot discounts for standard-quality were between negative RMB 600-550/mt, and negative RMB 480/mt for high-quality copper. Traded prices climbed above RMB 73,000/mt with rising copper futures prices. Stimulated by rising copper futures prices, downstream purchases increased, with improved market sentiment reported. Smelters were wary of selling goods due to low prices, while domestic and imported copper entered the market due to position closing. Hence, market supply was sufficient.

According to a SMM survey of this week's copper price movements, approximately 49% of market players are optimistic towards copper prices. First, the Dow Jones kept rising, and the US crude oil prices returned above USD 90/bbl, reaching as high as USD 92.26/bbl. Second, the US dollar index was under downward pressure, down below all moving averages, which should support the commodity market. Third, the approach of the seasonal peak demand period will also support higher copper prices. In addition, position building at low levels should also bolster copper prices. Hence, LME copper prices will likely return above USD 10,000/mt, and SHFE copper prices will test RMB 76,000/mt again. About 39% of market players in the survey believe that copper prices will continue to experience fluctuations this week. Currently, market players prefer to buy zinc and sell copper. Declines in positions in the SHFE copper market also indicate SHFE zinc market is more attractive for investors. Meanwhile, expanding spot discounts also suggest weak spot consumption. Significant increases in both LME and SHFE copper inventories in recent days have already weighed on copper prices. The rest of market players believe that copper prices will feel great resistance to rise further, given weak fundamentals and financial factors. However, any declines will be limited due to technical support, as the optimism towards mid-term movements will help support copper prices.

Positively affected by stronger LME aluminum prices, SHFE 1105 aluminum contract prices climbed continuously after opening higher at RMB 17,205/mt. The Shanghai Stock Exchange composite index returned to 2,900 points, boosting market confidence, and SHFE 1105 aluminum contract prices also gained strong upward momentum, with prices struggling around RMB 17,300/mt and finally closing at RMB 17,345/mt, up RMB 195/mt compared with the previous trading day, or up 1.14%. Trading volumes of SHFE 1105 aluminum contract were 107,176 lots, and total positions increased by 37,600 lots. Any impact on markets from China's move to increase the bank reserve requirement ratio for the second time in 2011 has weakened, and SHFE aluminum prices will likely rise further in view of gradual recovery of aluminum consumption, strengthening Shanghai Stock Exchange composite index, and stronger long position momentum. 

Traded prices for spot aluminum in east China were between RMB 16,810-16,850/mt, with discounts of RMB 150-180/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices advanced strongly to struggle at RMB 17,000/mt, and spot aluminum prices climbed in response and stabilized above last week's resistance level of RMB 16,800/mt. Traders moved goods aggressively, but downstream buying interest was low due to cash flow pressures, and only some middlemen made limited purchases. Spot discounts widened gradually, and overall trading volumes were limited. Spot aluminum prices in south China rebounded to between RMB 16,810-16,830/mt. Traders were eager to move goods, and downstream buying interest improved slightly compared with last week, and middlemen were also making transactions actively, resulting in slightly higher trading volumes.

According to a SMM survey, 33% of market players were optimistic toward future aluminum prices, believing strengthening LME aluminum prices and gradually improving domestic consumption will help push up aluminum prices. 40% of market players were neutral toward market outlook, believing sufficient spot supplies will hamper any increases in aluminum prices despite of improving domestic consumption. The remaining 27% of market players were pessimistic toward future aluminum prices, believing downstream producers and traders will face heavy cash flow pressures due to more monetary tightening policies in 2011, and any improvements in domestic consumption will be weaker than expected, which will cause aluminum prices to fall. 

SHFE zinc prices opened higher at RMB 20,100/mt on Monday, and then fell to hit a daily low of RMB 20,010/mt, and with positions increasing rapidly at the low end. SHFE zinc prices moving steadily between RMB 20,200-20,300/mt in the morning session, supported by long positions. Total positions increased to over 50,000 lots. In the afternoon, SHFE zinc prices surged to RMB 20,530/mt boosted by Shanghai Stock Exchange composite index and LME zinc prices, with prices pointing to the record high in October 2010, and with prices finally closing with declines at RMB 20,420/mt, up RMB 355/mt, or up 1.77%. Trading volumes increased significantly by over 60,000 lots to 985,380 lots, and total positions increased by 80,908 lots to 396,344 lots. SHFE zinc was still the most active metal.

In spot markets, spot zinc prices rose along with SHFE zinc prices. But the market took a cautious attitude at higher prices. #0 zinc was traded between RMB 19,400-19,450/mt, with discounts of RMB 900/mt against SHFE 1105 zinc contract prices. Other brands were traded between RMB 19,370-19,400/mt. #1 zinc was traded between RMB 19,270-19,300/mt. Downstream buyers’ buying interests were low at higher prices, and purchased only on an as-needed basis. Transactions were quiet when SHFE zinc prices rose in the afternoon, and spot discounts expanded to RMB 1,000/mt.

Zinc prices surged last week, especially SHFE zinc prices. However, market players are taking mixed attitudes towards zinc price trends this week. 40% of market players believe that zinc prices should continue to rise this week. Zinc prices are rising due to cash inflows, and total positions increased by over 50,000 lots this morning. Meanwhile, downstream plants are restarting operations now that the Chinese Lantern Festival is over, further supporting market fundamentals. In this context, SHFE 1105 zinc contract prices are expected to surge to RMB 21,000/mt, and spot discounts will expand in response. Spot zinc prices are expected between RMB 19,500-20,000/mt.

30% of market players believe that zinc prices will likely fall this week. Zinc prices rose mainly due to capital inflows. However, SHFE 1105 zinc contract prices have rose to RMB 20,500/mt, and are expected to meet resistance any higher. As a result, SHFE 1105 zinc contract prices should fall to RMB 19,500-20,000/mt, and spot zinc prices will fall to RMB 19,000-19,500/mt in response, causing downstream consumption to improve.

The remaining 30% are uncertain of zinc prices trends. They mainly take a cautious attitude, believing SHFE zinc prices should move between RMB 20,000-20,500/mt, and spot zinc prices will rise to RMB 19,300-19,800/mt in response.

In China's domestic lead markets, trading sentimetn improved on Monday boosted by approval of the SHFE lead futures market. Some optimistic downstream producers which consumed previous stocks entered the market to purchase, leading to improved transactions. Transactions between traders were still brisk and offers were up, with offers at RMB 17,200/mt for lead from Gejiu, Yunnan province and RMB 17,450-17,500/mt for well-known branded lead. In the afternoon, offers for well-known branded lead were raised to RMB 17600/mt boosted by continuely rising LME lead prices. Meanwhile, there were less quoters as many were unwilling to move goods with anticipation of higher prices.  Both lead smelters and downstream producers say they will not hoard lead ingots for speculations, but may be benefited from the hedging fuction of the lead futures market. Smelters were still selling, but controlled selling volumes, with offers firm. Most downstream producers were sensible and purchasing on an as-needed basis, with few hoarders. 

Optimists about this week’s domestic lead prices account 73%.Although the People’s Bank of China announced to raise the benchmark deposit interest rate again, markets are expected to absorb the news soon, and should be limitedly affected. Meanwhile, China Securities Regulatory Commission (CSRC) last Friday approved Shanghai Futures Exchange (SHFE) to start lead futures trading which boosts market confidence, and is also favorable for domestic lead prices.However, views about lead price prospects this week are mixed. 1/3 of the optimists believe the approval of SHFE lead futures market raises market confidence, and domestic lead prices likely rise to near RMB 18,000/mt this week, if LME lead prices retain strong gains. While the other 2/3 believe a period of time is still needed before the SHFE lead futures market opens formally, and domestic lead prices are still dependant on the supply-demand condition now. Although downstream producers already reopened, downstream demand for lead is still soft since many migrant workers have not yet returned. Therefore, these market players believe domestic lead prices to rise slowly, with prices expected above RMB 17,500/mt this week.

There are 27% of market players neutral about domestic lead prices movement this week.With various real estate regulatory policies in China, base metals demand, especially for copper, are restrained, causing base metals prices gains limited. In addition, downstream demand is lower than expected as many downstream producers are consuming lead stocks. With regard to the SHFE lead futures market, most sensible downstream producers say they will not hoard lead for speculations. In this context, these market players believe domestic lead prices to fluctuate around RMB 17,300/mt this week.

On Monday, prices in Shanghai tin markets fell, with transactions moderate. Transactions for tin from Yunnan Tin Group, Gejiu Zili Metallurgy Company and Weitai, as well as Nanshan branded tin were made at RMB 202,000-203,000/mt, and some transactions for tin from Hunan province were made at RMB 201,500/mt. LME tin prices suffered fluctuations at the end of last week, lacking upward momentum. Coupled with the current record-high domestic tin price levels, downstream producers showed low buying interest. The Shanghai tin market has ever closed flat. At present, domestic tin smelters still show low selling interest, and coupled with supply insufficient, spot prices in Shanghai tin markets find support. But slower gains in LME tin prices also slack support on higher domestic tin prices. In this context, SMM expects prices in Shanghai tin markets to mainly fluctuate this week.

LME nickel prices opened at USD 28,675/mt and closed at USD 29,100/mt on February 18th, down by USD 109/mt from a day earlier, with the highest price at USD 291,00/mt and the lowest price at USD 28,235/mt. Daily trading volumes were 3,566 lots and positions were 96,892 lots. During the Asian trading hours on February 21st, LME nickel prices largely advanced, with prices opening at USD 29,150/mt and reaching the highest at USD 29,425/mt, due to the news that Vale halted production at one of its smelters. Later, stronger US dollar index weighed LME nickel prices down. LME nickel inventories were down by 174 mt to 129,222 mt.

In the Shanghai nickel spot market, transactions were moderate in the morning trading session, but deals at high end prices were still few. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 217,000-217,500/mt range, and mainstream traded prices of nickel from Russia were in the RMB 216,500-217,000/mt range. With LME nickel prices expanded gains, spot prices were boosted to rise. The highest traded prices of nickel from Jinchuan Group were at RMB 218,000/mt, and traded prices of nickel from Russia rose to RMB 217,500/mt.

Technical support is available for LME nickel prices after experiencing brief correction. Coupled with fundamental support, upward momentum for LME nickel prices is growing. Supported by LME nickel prices, spot nickel prices are expected to grow as well. 


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