SMM Daily Review - 2011/2/24 Base Metals Market

SHANGHAI, Feb. 25 (SMM) –

Copper
SHFE 1105 copper contract prices, the most active one, opened slightly up by RMB 100/mt at RMB 72,100/mt on Thursday, and then reached RMB 72,500/mt due to withdrawal of short positions. However, position increases by shorts later sent SHFE copper prices down rapidly to the yesterday's low level before the end of trading at the midday. In the afternoon session, the copper for delivery in three months in the SHFE market fluctuated weakly at around RMB 71,200/mt, down as low as RMB 71,020/mt. At the tail the trading, the rallies of stocks prices and LME copper prices helped SHFE copper market narrow daily declines. Finally, the copper for delivery in three months in the SHFE market closed at RMB 71,420/mt, down RMB 580/mt, or a loss of 0.81%. Positions for SHFE three-month copper contract prices were up 376 lots to 182,408 lots, and trading volumes were up 4,450 lots to 202,700 lots. Technically, SHFE copper market is now on a downward track, and SMM believes that SHFE 1105 copper contract prices will continue to fall, and test support at the RMB 70,000/mt mark.

In the spot market, discounts were offered between negative RMB 450-350/mt in the morning business as SHFE copper prices experienced narrow fluctuations. Traded prices for standard-quality copper were between RMB 71,050-71,150/mt, and RMB 71,150-71,250/mt for high-quality copper. As SHFE copper market dived before the end of trading at the midday, cargo-holders were able to close positions, and had to stand on the sidelines, with falling offers, and transactions briefly came to a standstill.  Since SHFE copper prices fell further in the afternoon session, spot discounts narrowed, with offers for standard-quality copper at negative RMB 300/mt, and negative RMB 270元-250/mt for high-quality copper. Traded prices fell to between RMB 70,400-71,000/mt. Downstream purchases increased when prices were below RMB 71,000/mt. Generally speaking, the overall trading sentiment improved from a day earlier. Spot supply in the afternoon business fell, and spot discounts narrowed compared with previous days.  Market attention is now paid to whether or not spot copper prices will hold at RMB 70,000/mt. Downstream producers are still waiting for lower prices for purchases.

Aluminum
SHFE 1105 aluminum contract prices briefly climbed to RMB 17,090/mt after opening slightly lower at RMB 17,030/mt on Thursday, and later kept fluctuating narrowly above RMB 17,000/mt. SHFE 1105 aluminum contract prices tumbled to a low of RMB 16,920/mt in the afternoon session due to weak market transactions. At the tail of trading, SHFE 1105 aluminum contract prices rebounded rapidly as many short investors exited the market after profit-taking, with prices finally closing at RMB 17,055/mt, up RMB 5/mt compared with the previous trading day, or up 0.03%. Trading volumes of SHFE 1105 aluminum contract were 31,430 lots, and total positions fell by 4,550 lots. The Shanghai Stock Exchange composite index fluctuated widely and finally closed with gains, helping improve market confidence. As a result, SHFE base metals prices rebounded, and SHFE aluminum prices declined slower than other base metals prices previously and made stronger gains later due to market optimism toward future aluminum consumption. However, since current spot consumption remains sluggish, SHFE current-month aluminum contract prices closed with declines, so SMM predicts SFHE 1105 aluminum contract prices will test the pressure at RMB 17,100/mt in the short term.

Traded prices for spot aluminum in east China were between RMB 16,670-16,700/mt, with discounts of RMB 100-130/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices fell slightly after fluctuating weakly in the morning session, and spot aluminum prices fell slightly to RMB 16,700/mt in response. Downstream consumption remained weak, and only a small number of middlemen made purchases at lower prices, and traders kept staying on the sidelines. As a result, overall trading volumes were limited. As SHFE aluminum prices plummeted in the midday, mainstream traded prices for spot aluminum fell again, with the lowest traded prices already falling to RMB 16,620/mt. Traders became unwilling to move goods given steady declines in aluminum prices, and buying interest was also low, resulting in limited trading volumes in afternoon trading. 

Zinc
On Thursday, SHFE zinc prices fluctuated between RMB 19,400-19,550/mt in the morning session then fell on news of increasing unrest in the Middle East. The US dollar index rebounded to 77.33 from 77.15, and LME zinc prices fell to USD 2,460/mt in response. As a result, SHFE zinc prices slumped to RMB 19,000 level in the midday, with prices once falling to RMB 18,945/mt. Supported by long positions, SHFE zinc prices closed with slight gains at RMB 19,140/mt, down RMB 250/mt, or down 1.29%. Trading volumes decreased by over 60,000 lots to 643,648 lots, and total positions decreased by 7,150 lots to 315,594 lots.

In spot markets, #0 zinc was traded between RMB 18,800-18,850/mt, with discounts of RMB 650/mt against SHFE 1105 zinc contract prices, and with prices trading as low as RMB 18,780/mt in the morning session. #1 zinc was traded between RMB 18,650-18,700/mt. Downstream buyers purchased modestly while traders mainly took a wait-and-see attitude give spot discounts of RMB 650/mt, leaving the overall transaction weak. Spot discounts narrowed to RMB 550-600/mt along with the falling SHFE zinc prices, and with transactions mainly made with discounts of RMB 600/mt against SHFE 1105 zinc contract prices. Traded prices were around RMB 18,500/mt, and with trading volumes limited.

Lead
In China’s domestic lead markets, traders maintained offers firm on Thursday with extending affects of SHFE lead futures market launching. Besides, traders accelerated buying in view of stable LME lead prices in the morning session, mainly targeting at well-known branded lead. Therefore, high-end prices in domestic lead markets were driven up, with transactions for lead from Gejiu, Yunnan province made at RMB 17,300/mt; well-known branded lead were traded between RMB 17,500-17,550/mt, with some transactions even made at RMB 17,600/mt. Some downstream producers kept sensible and purchased on an as-needed basis, keeping transactions moderate. In the afternoon, market players’ wait-and-see sentiment escalated as LME lead prices fell, leaving transactions return quite.

Tin
In Shanghai tin markets, mainstream prices continued to drop on Thursday amid sluggish transactions and falling LME tin prices, with prices for tin from Gejiu Zili Metallurgy Company, and some minor branded tin between RMB 196,500-198,500/mt; some tin from Yunnan Tin Group was traded at RMB 201,800/mt. Despite constantly dipping prices, transactions failed to improve. Traders said inquirers were limited, with strong wait-and-see sentiment in the market. Some tin smelters cut offers in view of falling futures prices, but restrained selling volumes. High raw material prices and limited spot inventories at some tin smelters supported and kept spot tin prices relatively firm. 

Nickel
LME nickel prices opened at USD 28,450/mt and closed at USD 28,500/mt on February 23rd, up by USD 50/mt from a day earlier, with the highest price at USD 28,713/mt and the lowest price at USD 27,998/mt. Daily trading volumes were 3,139 lots and positions were 101,058 lots. Market concern that oil price surge may dampen global economy growth, which will continue to weigh on base metal prices unless the Middle East unrest is settled. LME nickel prices opened at USD 28,610/mt during the Asian trading hours on February 24th, and slipped sharply from 17:00, with prices hitting the lowest at USD 27,610/mt. LME nickel inventories were up by 444 mt to 129,642 mt.

In the Shanghai nickel spot market, trading sentiment was quiet due to LME nickel price slump. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 214,500-215,300/mt range, and mainstream traded prices of nickel from Russia were in the RMB 213,500-214,000/mt range. Traded prices were relatively higher in the morning session and lower in the afternoon session. Transactions were largely done among traders, with few downstream purchases entering market.

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