SMM Daily Review – 2010/2/25 Base Metals Market

SHANGHAI, Feb. 28 (SMM)--

Copper:
Supported by positive movements in the LME copper market, SHFE 1105 copper contract prices opened up RMB 360/mt at RMB 72,100/mt on Friday. Longs and shorts both took a cautious attitude amid the unclear market trend, with prices mainly moving at around RMB 72,000/mt in the morning session.  Later, SHFE three-month copper contract prices rallied, with rising China's Shanghai composite index, the US dollar index falling below 77, LME copper prices stabilizing at USD 9,550/mt. In the afternoon session, the copper for delivery in three months in the SHFE market rose to RMB 72,690/mt, and finally closed at RMB 72,590/mt, up RMB 850/mt, or a gain of 1.18%. Positions for SHFE three-month copper contract prices were down 96 lots to 182,312 lots, and trading volumes were down 56,024 lots to 146,676 lots. Although SHFE copper market stopped falling, further price corrections are still possible. As shown on technical indicators, SHFE three-month copper prices still meet resistance to break the moving averages, despite of closing higher after ending down for third straight days.  However, SMM believes that SHFE copper market will mainly experience consolidations next week, as prices appear to have fallen to the bottom technically, despite of no solid support available.

In the spot market, discounts in the Shanghai market 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 71,100-71,250/mt, and RMB 71,200-71,350/mt for high-quality copper. SHFE copper prices rallied in the afternoon session, but spot discounts remained due to brisk transactions. With rising copper futures prices, traded prices for standard-quality copper rose to RMB 71,350-71,550/mt, and RMB 71,450-71,650/mt for high-quality copper. The rallying prices in the SHFE copper market improved buying interest, especially for high-quality copper, and so supply of high-quality copper during major trading hours was unavailable. Brisk transactions were mainly done by downstream producers for production during the weekend.

According to data tallied by Shanghai Futures Exchange (SHFE), copper inventories were down 2,961 mt to 158,101 mt. Despite of declines in positions and trading volumes, bargain hunting in the spot market, downstream purchases in particular, helped consume the inventories. That also strengthened market expectations of positive consumption during the traditional peak demand period in March. 

Aluminum:    
SHFE aluminum prices climbed slightly following SHFE copper prices on Friday, with SHFE 1105 aluminum contract prices opening slightly higher at RMB 17,085/mt. Since the Shanghai Stock Exchange composite index kept fluctuating, and spot consumption was sluggish, transactions on the SHFE aluminum market were cautious, and SHFE 1105 aluminum contract prices lacked upward momentum, with prices hitting a high of RMB 17,110/mt and finally closing at RMB 17,095/mt, up RMB 75/mt compared with the previous trading day, or up 0.44%. Trading volumes of SHFE 1105 aluminum contract were 26,356 lots, and total positions increased by 5,566 lots. SHFE aluminum prices kept fluctuating narrowly, with strong support seen at RMB 17,000/mt, but aluminum consumption recovered slowly due to cash flow pressures, and SMM predicts SHFE 1105 aluminum contract prices will struggle at RMB 17,100/mt in the short term.

Traded prices for spot aluminum in east China were between RMB 16,640-16,670/mt, with discounts of RMB 150-180/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices climbed slightly to RMB 16,800/mt, but spot aluminum prices in Shanghai declined due to weak consumption, and as holders of brand name aluminum produced by non-CHALCO aluminum producers moved goods at lower prices for cash. As a result, spot discounts widened against SHFE current-month aluminum contract prices, and only middlemen made limited purchases at lower prices, with overall market sentiment sluggish. Supplies of lower-priced goods decreased in the afternoon session, helping support spot aluminum prices, and with most deals made around RMB 16,670/mt.

Zinc:
Last Friday, SHFE 1105 zinc contract prices fell after opening and moved between RMB 19,100-19,150/mt in the morning session. In the afternoon, SHFE 1105 zinc contract prices rose to RMB 19,350/mt boosted by the rising LME zinc prices and Shanghai Stock exchange composite index, but then closed with declines at RMB 19,250/mt, with prices standing at the 60-day moving average. Trading volumes decreased by 140,000 lots to 500,738 lots, and total positions decreased by 13,422 lots to 302,172 lots, a signal of cautious attitude of the market.

In spot markets, spot zinc prices fell as SHFE zinc prices moved lower at RMB 19,000/mt. #0 zinc was traded between RMB 18,550-18,600/mt, with discounts of RMB 600-650/mt against SHFE 1105 zinc contract prices, and with prices as low as RMB 18,500/mt. #1 zinc was traded around RMB 18,450/mt. Smelters were unwilling to sell goods while traders were moving goods aggressively. Downstream buyers purchased modestly at lower prices, but spot transactions were quiet since market players believed prices would fall. SHFE 1105 zinc contract prices rose to RMB 19,300/mt, and spot discounts were around RMB 600/mt. But the overall transaction was still lackluster.

Lead:
In China’s domestic lead markets, traders who transacted actively last Thursday were quiet last Friday amid unclear market outlook as LME lead prices were fluctuating around USD 2,500/mt. Downstream producers who were cautious previously showed even lower buying interest, largely exiting the markets. However, domestic lead prices kept firm, without significant changes, with lead from Gejiu, Yunnan province traded at around RMB 17,300/mt and well-known branded lead between RMB 17,500-17,550/mt. Offers for well-known branded lead were raised to RMB 17,600/mt a day earlier due to investors’ appetite, which did not happen last Friday.

Tin:
In Shanghai tin markets, mainstream prices continued to fall last Friday, but only slightly, with transactions for tin Gejiu Zili Metallurgy Company and some minor branded tin made between RMB 196,000-198,000/mt. Trading sentiment remained soft, but transactions for low-priced tin improved from two days ago.

Nickel:
LME nickel prices opened at USD 28,610/mt and closed at USD 27,775/mt on February 24, up by USD 50/mt from a day earlier, with the highest price at USD 28,610/mt and the lowest price at USD 27,130/mt. Daily trading volumes were 5,031 lots and positions were 101,458 lots. LME nickel prices opened at USD 27,600/mt on February 25th, and fluctuated weekly during the Asian trading hours to close lower than closing price on February 24. Affected by rebound of the US dollar, LME nickel prices early rallied but later slipped back, with prices rebounding to USD 27,873/mt in the afternoon trading hours and slipping to USD 27,450/mt at 17:30. LME nickel inventories were up by 780 mt to 130,422 mt.

Shanghai nickel spot market was extremely sluggish. Given that LME nickel prices slipped steadily, spot nickel also followed suit. Jinchuan Group cut ex-works nickel prices by RMB 5,000/mt to RMB 213,000/mt, accelerating price decline in the spot market. Traded prices were mixed. Generally speaking, traded prices of nickel from Jinchuan Group were in the RMB 209,000-211,500/mt range, and traded prices of nickel from Russia were in the RMB 208,000-209,000/mt range. Dip-buying interest was not strong, and trading sentiment was low, with strong wait-and-see sentiment from downstream consumers. 

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