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SMM Daily Review - 2011/2/23 Base Metals Market
Feb 24,2011 09:32CST
smm insight

SHANGHAI, Feb. 24 (SMM) –

Depressed by a lower closing in the LME copper market overnight, SHFE 1105 copper contract prices, the most active one, opened down by RMB 1,620/mt at RMB 72,380/mt, falling below the 30-day moving averages. After a low open, the copper for delivery in three months in the SHFE market experienced brief rallies due to position closing by shorts, but then quickly slid below RMB 72,000/mt. Despite brief rebounds of China's Shanghai composite index, SHFE three-month copper contract prices continued to fluctuate weakly at around RMB 72,000/mt, with great resistance at the daily moving averages, down as low as RMB 71,580/mt. In the afternoon session, SHFE three-month copper contract prices fell further, and finally closed at RMB 71,700/mt, down RMB 2,300/mt, or a loss of 3.11%. Positions for SHFE three-month copper contract prices were down 5,542 lots to 182,032 lots, and trading volumes were down 748 lots to 198,250 lots, a sign of negative market sentiment. SMM believes that SHFE 1105 copper contract prices will test its support at the 60-day moving averages of RMB 70,000/mt in the short term.

In the spot market, copper futures prices dropped by more than 2% in the morning session after a low open, adding to market pessimism. Spot discounts were offered between negative RMB 450-300/mt. Traded prices for standard-quality copper were between RMB 71,100-71,200/mt, and negative RMB 71,200-71,350/mt for high-quality copper. Cargo-holders didn't narrow spot discounts despite price losses in the SHFE copper market, and downstream producers were not in hurry to purchase goods in the morning following price declines, resulting in low trading sentiment in the morning, with no bargain hunting happened as market expected. With further declines in copper futures prices, cargo-holders were still eager to move goods, and downstream producers started to enter the market for bargain hunting, with spot discounts in the afternoon business larger than those in the morning. Traded prices for high-quality copper fell to RMB 70,750-71,100/mt, and negative RMB 70,650-71,000/mt for standard-quality copper. Some smelters were unwilling to move goods at low levels, but the overall trading sentiment improved from morning levels. During the past three weeks after the Chinese New Year holiday, spot traded prices fell as much as over RMB 3,000/mt, with declines exceeding 4%.

If spot prices drop further to RMB 70,000/mt, market sentiment turns mixed towards the outlook. Most market players believe that downstream buying interest will improve gradually, since prices have dropped to the price band seen in the pre-holiday market after sharp declines. Downstream demand will help support prices at RMB 70,000/mt. However, some players believe that prices will have further room to fall due to no solid technical support so far, and prices may slid below RMB 70,000/mt, and try to find support at RMB 68,000/mt. Coupled with expanding discounts in a supply surplus market, the copper market will not see a rosy picture.

Negatively affected by LME aluminum prices overnight, SHFE aluminum prices tumbled on Wednesday, with SHFE 1105 aluminum contract prices opening significantly lower at RMB 17,040/mt. As the Shanghai Stock Exchange composite index failed to rebound, and other base metals prices were weak, SHFE 1105 aluminum contract prices kept fluctuating in a narrow band, with prices finally closing at an intraday low of RMB 17,010/mt, down RMB 270/mt compared with the previous trading day, or down 1.56%. Trading volumes of SHFE 1105 aluminum contract were 40,966 lots, and total positions fell by 2,232 lots. Long investors were cautious toward transactions after SHFE aluminum prices opened significantly lower due to sluggish spot consumption, and SHFE 1105 aluminum contract prices faced pressure at RMB 17,100/mt, so SMM predicts SHFE 1105 aluminum contract prices will struggle at the resistance level of RMB 17,100/mt in the short term.

Traded prices for spot aluminum in east China were between RMB 16,680-16,720/mt, with discounts of RMB 80-120/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices kept fluctuating after opening significantly lower on Wednesday, and downstream consumption remained weak. Spot aluminum prices declined sharply as well, and market transactions were mainly made between traders. Meanwhile, some traders were staying on the sidelines. Overall trading sentiment was sluggish. Spot aluminum prices in south China fell continuously to between RMB 16,650-16,670/mt, with discounts widening to RMB 40/mt over spot prices in Shanghai. Downstream processors made limited purchases at lower prices, while middlemen were making transactions actively given widening aluminum price spread between in south China and in Shanghai. In this context, supplies were sufficient, and buying interest was higher, keeping overall trading sentiment brisk.

On Wednesday, SHFE zinc prices opened lower at RMB 19,200/mt tracking LME zinc prices overnight, and then moved along with the Shanghai Stock Exchange composite index during the day. SHFE zinc prices touched a daily high of RMB 19,620/mt later and then fell to RMB 19,250-19,450/mt, with prices finally closing at RMB 19,330/mt, down RMB 615/mt, or down 3.08%, and with prices standing above the 60-day moving average. Trading volumes significantly decreased by over 270,000 lots to 709,812 lots, and total positions decreased by 14,788 lots to 322,744 lots. A large number of short positions left the market after profit-taking.
In spot markets, #0 zinc was traded between RMB 18,750-18,800/mt in the morning session, with discounts of RMB 600-620/mt against SHFE 1105 zinc contract prices. Spot discounts expanded to RMB 650-700/mt in the midday in response of the rising SHFE zinc prices. #1 zinc was traded around RMB 18,650/mt. Transactions were still limited despite improved from last week. Traders were adopting a wait-and-see attitude due to unfavorable discounts while cargo holders were also unwilling to sell goods, resulting in transactions quiet.

In China’s domestic lead markets, traders quoted offers slightly lower on Wednesday due to LME lead prices fluctuating at a low of USD 2,530/mt, with offers for well-known branded lead at RMB 17,550/mt. Some downstream producers were staying on the sideline and purchased limitedly in view of sharp losses in LME lead prices overnight. Transactions were made at around RMB 17,300/mt for lead from Gejiu, Yunnan province, and at RMB 17,500/mt for well-known branded lead. Despite low prices, traders’ selling volumes were limited, with most transactions made for well-known branded lead.

In Shanghai tin markets, mainstream prices fell below RMB 200,000/mt on Wednesday, with tin from Gejiu Zili Metallurgy Company, and other minor branded tin traded between RMB 198,500-200,200/mt. Generally, transactions were muted on Wednesday. Traders said there were many inquirers, but actual transactions were limited as downstream producers’ wait-and-see sentiment grew. Spot prices in Shanghai tin markets tumbled following brief downward corrections in LME tin prices, but any room for prices losses is expected to be limited on support of supply shortage.

LME nickel prices opened at USD 29,250/mt and closed at USD 28,450/mt on February 22nd, down by USD 950/mt from a day earlier, with the highest price at USD 29,300/mt and the lowest price at USD 28,450/mt. Daily trading volumes were 2,978 lots and positions were 100,160 lots. Commodity prices were still weighed by Middle East unrest. Coupled with tightening concern from China, performance of base metal prices was still sluggish on February 23rd. LME nickel prices opened at USD 28,450/mt on February 23rd during the Asian trading hours and fell below 20-day moving average after slight rally. Prices later rounded to USD 28,300/mt, expected to test support at 20-day moving average.  LME nickel inventories were down by 522 mt to 129,198 mt.

Trading sentiment was relatively quiet in the Shanghai nickel spot market. Prices were relatively higher in the morning trading session, with traded prices of nickel from Jinchua Group between RMB 214,5000-215,000/mt and traded prices of nickel from Russia between RMB 213,500-214,000/mt. Correction of LME nickel prices dampened market sentiment, with sluggish transactions reported. LME nickel prices slipped by USD 500/mt during the Afternoon trading hours, with traded prices of nickel from Jinchuan Group between 213,500-214,000/mt and lowest traded prices of nickel from Russia at RMB 212,500/mt. Transactions further contracted in the afternoon trading hours.


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