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SMM Daily Review - 2011/2/22 Base Metals Market
Feb 23,2011 09:49CST
smm insight

SHANGHAI, Feb. 23 (SMM) –

SHFE 1105 copper contract prices, the most active one, opened slightly down by RMB 10/mt at RMB 74,260/mt on Tuesday, and then briefly reached RMB 74,980/mt after opening. As China's stocks fell below 2,900 points, SHFE copper market slid along with declines in the SHFE zinc market from the second session in the morning. Meanwhile, the US dollar index broke 78.20, weighing on LME copper prices, and so SHFE copper market dropped further.  In the afternoon session, SHFE three-month copper contract prices fell as low as RMB 73,300/mt, and then moved narrowly at around RMB 73,400/mt, with daily price difference as high as RMB 1,280/mt. Finally, the copper for delivery in three months in the SHFE market closed at RMB 73,580/mt, down RMB 690/mt, or a loss of 0.93%. Positions for SHFE three-month copper contract prices were down 3,842 lots to 187,574 lots, and trading volumes were up 34,348 lots to 198,998 lots. Although SHFE three-month copper contract prices closed at the 20-day moving averages, prices briefly fell below the mark, and the short-term support is pointing to the 30-day moving averages.

In the spot market, discounts were offered between negative RMB 550-400/mt with falling prices in the SHFE copper market.  With price declines accelerating, cargo-holders briefly stopped moving goods before the end of trading at the midday. Traded prices for standard-quality copper were between RMB 72,700-73,100/mt, and negative RMB 72,800-73,300/mt for high-quality copper in the morning business. As SHFE copper prices continued to drop in the afternoon, spot discounts failed to narrow greatly. Traded prices for standard-quality copper fell to RMB 72,300-72,500/mt, and dropped to RMB 72,400-72,600/mt for high-quality copper in the afternoon business. During the trading day, the price difference between the high and low-end neared RMB 1,000/mt, a sign of strong selling interest among cargo-holders, and downstream producers made only moderate purchases at low prices.  Market supply remained sufficient, and the overall transactions were not good.

As LME aluminum price set a new high overnight, SHFE 1105 aluminum contract prices opened higher at RMB 17,315/mt on Tuesday, and later briefly climbed to RMB 17,440/mt. However, as the Shanghai Stock Exchange composite index failed to hold steady at 2,900 points, stronger short position momentum caused SHFE 1105 aluminum contract prices to plummet. Although SHFE 1105 aluminum contract prices found some support at RMB 17,150/mt, prices still failed to reverse previous losses and finally closed at RMB 17,170/mt, down RMB 135/mt compared with previous trading day, or down 0.78%. Trading volumes of SHFE 1105 aluminum contract were 75,502 lots, and total positions increased by 5,620 lots. Spot aluminum consumption was sluggish, and financial markets experienced wide fluctuations. In addition, SHFE zinc prices mainly driven up by speculative funds recently also tumbled on Tuesday, and positions of SHFE zinc contract even fell by 63,242 lots. In this context, SMM predicts SHFE aluminum prices will struggle at RMB 17,200/mt in the short term due to weak consumption and lower speculative funds.

Traded prices for spot aluminum in east China were between RMB 16,790-16,830/mt, with discounts of RMB 120-160/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices fell significantly to below RMB 17,000/mt during spot trading hours on Tuesday, and spot aluminum prices declined in response. Market supplies were sufficient, but downstream buying interest was low, with mainstream traded prices falling rapidly to below RMB 16,800/mt. Middlemen showed low interest in purchases at lower prices, and the wait-and-see sentiment dominated market players, with overall trading sentiment extremely sluggish as a result.

On Tuesday, SHFE 1105 zinc contract prices opened at RMB 20,420/mt and moved between RMB 20,300-20,500/mt during the morning session, and with prices dipping to RMB 19,150/mt in the midday dragged down by the stronger US dollar index and the weakening LME zinc prices as well as the slumping Shanghai Stock Exchange composite index, down 4.2%. In the afternoon, SHFE 1105 zinc contract prices rallied to RMB 19,500-19,700/mt and finally closed at RMB 19,740/mt at the 30-day moving average. Trading volumes decreased by 10,000 lots to 970,682 lots, and total positions decreased significantly by 58,812 lots to 337,532 lots. A large number of short positions left the market after profit-taking. SHFE zinc prices will fall to test the 10-day moving average on Wednesday

In spot markets, spot zinc prices fell significantly along with SHFE zinc prices. #0 zinc was traded around RMB 19,400/mt, with discounts of RMB 20,300-20,500/mt when SHFE 1105 zinc contract prices fluctuated between RMB 20,300-20,500/mt in the morning session. Then traded prices of #0 zinc fell to RMB 19,200/mt along with the falling SHFE zinc prices, and with discounts of RMB 800/mt. The market was taking a wait-and-see attitude at lower prices in the midday, and spot discounts narrowed to RMB 600/mt. #0 zinc was then traded as low as RMB 19,100/mt. #1 zinc was offered around RMB 19,000/mt in the midday, but with transactions limited. SHFE zinc prices rallied in the afternoon. #0 zinc was offered around RMB 19,100/mt, but with transactions still quiet.

In China's domestic lead markets, increasing downstream producers exited the market on Tuesday after LME lead prices fell by around USD 70/mt in the morning session. Transactions fell from a day earlier, but traders still kept offers firm and were unwilling to move goods, with offers for well-known branded lead even at RMB 17,650/mt, but actual traded prices were RMB 17,400-17,600/mt. In the afternoon, some traders cut offers by RMB 50/mt to RMB 17,350/mt in view of a still weak LME lead market. But offers for well-known branded lead remained firm at RMB 17,600/mt, possibly given that it can be traded in the SHFE lead futures market. Domestic lead prices rise rapidly after approval of the SHFE lead futures market launching, but downstream producers were sensible, largely purchasing on an as-needed basis, and preferred to buy lead from Gejiu, Yunnan province which has price advantages compared with over high-priced well-known branded lead.

In Shanghai tin markets, transactions were muted on Tuesday. Mainstream tin smelters were awared of recent weak trading volumes, but still maintained offers unchanged at RMB 205,000/mt amid long sentiment and high raw material prices, without showing possibilitis of negotiation. Despite still limited supply in Shanghai tin markets, downstream produces were more wary of purchasing after tin pirces rose to RMB 200,000 fearing LME tin pirces fell. Therefore, no transaction was made for tin from Hunan province, Yunnan Tin Group, Gejiu Zili Metallurgy Company and Nanshan, Yunxiang branded tin which was quoted between RMB 211,000-212,500/mt. 

Supported by the news that Vale shut furnaces at its Copper Cliff smelter, LME nickel prices fluctuated between USD 29,050-29,400/mt on Monday and hit a 34-month high. Daily trading volumes were 1,303 lots and positions were 99,669 lots. On Tuesday, the US dollar strengthened as a tool to hedge against risks from unrest in the Middle East, weighing on global equity market and base metal prices. In response, LME nickel market opened at USD 29,250/mt and declined all the way to the lowest at USD 28,630/mt after reaching USD 29,300/mt, with prices fluctuating around USD 28,800/mt close to the end of Asian trading hours. LME nickel inventories were up by 498/mt to 129,720 mt.

Trading sentiment was moderate in the Shanghai nickel spot market. Traders raised offers of nickel from Jinchuan Group to RMB 220,000/mt in the morning trading hours due to overnight LME nickel price hike, with traded prices of nickel from Russia at RMB 217,500/mt and traded prices of nickel from Russia at RMB 218,500/mt. Price slump of LME nickel prices in the afternoon trading hours dampened market sentiment, with sparse purchases from downstream consumers and traders.


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