SMM Daily Review - 2011/3/8 Base Metals Market

SHANGHAI, Mar. 9 (SMM) –

Copper
Depressed by the plunging LME copper prices, SHFE 1105 copper contract prices, the most active one, opened down RMB 1,910/mt at RMB 72,340/mt on Tuesday. Shortly after the opening, the copper for delivery in three months in the SHFE market fell below RMB 72,000/mt, with prices moving narrowly at around RMB 71,500/mt in the morning session. In the afternoon session, SHFE three-month copper contract prices slid below RMB 71,000/mt, down as low as RMB 70,260/mt, with declines briefly exceeding 5%. Finally, the copper for delivery in three months in the SHFE market closed at RMB 71,070/mt, down RMB 3,180/mt, or a loss of 4.28%. Positions for SHFE three-month copper contract prices were down 8,402 lots to 155,056 lots, and trading volumes were up 84,658 lots to 187,896 lots. Positions for SHFE 1106 copper contract prices were up 5,600 lots, a shift of cash flow. Technically, SHFE copper market is on a downward track. Markets became more concerned over the expectations of tightening measures, leaving weak support at RMB 70,000/mt for SHFE copper prices on Tuesday.

SHFE current-month copper contract prices dropped below RMB 72,000/mt after opening, with prices generally fluctuating at around RMB 71,500/mt before 10:00 am. In the spot market, high-quality copper was offered at premiums between positive RMB 20-50/mt in the morning business. Both speculators and downstream producers were active in purchases at lower prices, resulting in brisk transactions. Supply of standard-quality copper was limited, and the price difference between high-quality and standard-quality copper was less than RMB 50/mt. Transactions were made between RMB 71,200-71,300/mt. After 11:00 am, prices in the SHFE copper market accelerated its declines, triggering market panic sentiment. Speculators chose to stand on the sidelines, depressing market transactions. Spot premiums narrowed to RMB 0-positive RMB 20/mt, and traded prices dropped below RMB 71,000/mt. In the afternoon session, SHFE three-month copper contract prices were down briefly as much as 5%, and the market was dominated by shorts. Despite of no significant changes in spot premiums, traded prices slid to RMB 70,000/mt. Arbitragers were active in the market for cash generation, but few buyers entered the market for purchases. Some smelters refused to sell goods at low prices. Hence, the overall trading sentiment was weak for the whole day except in the morning session.

Aluminum
SHFE aluminum prices opened significantly lower following other base metals prices on Tuesday, with prices falling below all moving averages and testing a low set in November 2010. SHFE 1105 aluminum contract prices opened at RMB 16,735/mt, and fell slower than SHFE copper and zinc prices which have almost dipped by the daily price limits, supported by rising costs and optimistic expectations of future consumption. SHFE 1105 aluminum contract prices even reversed some losses in the morning session, with the highest level reported at RMB 16,785/mt. SHFE 1105 aluminum contract prices declined significantly slower than SHFE copper and zinc prices in the afternoon session, with the lowest level reported at RMB 16,655/mt. Finally, SHFE 1105 aluminum contract prices closed at RMB 16,695/mt, down 1.27%. Positions of SHFE 1105 aluminum contract declined by 5,208 lots, and positions of SHFE 1106 aluminum contract continued to increase by 4,018 lots. Recent sluggish spot aluminum consumption also weighed down SHFE aluminum prices, and SMM predicts SHFE 1105 aluminum contract prices will keep fluctuating in the short term.

Traded prices for spot aluminum in east China were between RMB 16,470-16,500/mt, with discounts of RMB 0-20/mt against SHFE current-month aluminum contract prices. SHFE aluminum prices opened significantly lower, dragging down spot aluminum prices to below RMB 16,500/mt. Profits from long-term aluminum ingot contracts were very limited, so cargo-holders in east China were unwilling to move goods at lower prices. Downstream processors adopted a wait-and-see attitude given declines in spot aluminum prices. As a result, overall market sentiment was extremely sluggish. In the afternoon session, some lower-priced goods in spot markets attracted middlemen to make purchases at lower prices, but current spot aluminum prices have approached purchasing costs at traders, so more traders preferred to stay out of the market. In south China, market sentiment was sluggish as well due to significant declines in aluminum prices, with most deals made between RMB 16,550-16,570/mt.

Lead
On Tuesday in China’s domestic lead markets, market confidence faded due to weak performance in base metals markets, and given that LME lead prices fell below daily moving averages. In response, cargo-holders were hurried to cut offers for sales, with well-known branded lead traded between RMB 17,450-17,500/mt in the morning. In the afternoon session, LME lead prices continued to tumble, so traders in domestic lead markets cut offers further to near RMB 17,400/mt, with offers for lead from Gejiu, Yunnan province as low as RMB 17,350/mt. Environmental protection inspections beginning last week spread to Henan province, restricting operating rates at local smelters. Coupled with weak LME lead prices, most downstream producers believe domestic lead prices may fall further in the near future, keeping trading sentiment quiet. In general, transactions in domestic lead markets were limited on Tuesday.

Zinc
On Tuesday, SHFE 1105 zinc contract prices opened lower at RMB18,510/mt dragged down by LME zinc prices overnight, with prices moving between RMB 18,300-18,400/mt in the morning session. In the midday, SHFE 1105 zinc contract prices led declines of other base metals tracking LME zinc prices, and fell below RMB 18,000/mt, down 5% nearly to the daily limit. At the end of trading, SHFE 1105 zinc contract prices finally closed at RMB 18,080/mt, down RMB 845/mt, or down 4.46%. Total positions of SHFE 1105 zinc contract decreased by 5,102 lots to 260,408 lots, and trading volumes increased by over 120,000 lots to 520,358 lots. Total positions of SHFE 1106 zinc contract increased by 12,488 lots to 97,414 lots, and trading volumes increased by over 40,000 lots to 120,794 lots.

SHFE zinc prices moved between RMB 18,325-18,425/mt in the morning session, and spot zinc fell to RMB 18,000/mt in response. #0 zinc was traded between RMB 17,900-17,950/mt, with discounts of RMB 400-420/mt against SHFE 1105 zinc contract prices. Some brands were traded around RMB 17,970/mt. #1 zinc was traded between RMB 17,850-17,900/mt. Smelters were unwilling to sell goods at lower prices, while traders were aggressively moving goods due to narrowing discounts. But downstream buyers purchased modestly given fluctuating zinc prices. Spot discounts narrowed to RMB 350-400/mt when SHFE zinc prices fell further in the afternoon, and with #0 zinc traded around RMB 17,600/mt. Downstream buyers increased purchases at lower prices, causing transactions to improve in the afternoon.

Tin
On Tuesday in Shanghai tin markets, prices did not suffer significant declines, but transactions were lackluster. In the morning, some minor branded tin, such as Nanshan, Jinlong and tin from Hunan province, traded between RMB 200,000-2010,000/mt, and tin from Yunnan Tin Group and Gejiu Zili Metallurgy Company traded between RMB 202,000-202,500/mt. Prices for tin fines remained at high levels despite falling LME tin prices, forcing tin smelters to keep offers at or above RMB 200,000/mt. In the afternoon session, price losses in the LME tin market escalated, resulting in wait-and-see sentiment among both traders and downstream producers in Shanghai tin markets.

Nickel
Downgrade of the Greece credit rating triggered renewed concern over the European debt crisis. In addition, the Libya tension sent crude oil price significantly higher. In this context, investors' concern over global economy recovery pace grew, weighing on base metal prices. In response, LME nickel prices fell from USD 29,020/mt to USD 27,300/mt and closed at USD 27,450/mt on March 7, down by USD 1,300/mt from a day earlier. Daily trading volumes were 3,433/mt, and positions were 108,869 lots. LME nickel futures contract for delivery in three months extended losses after opening at USD 27,450/mt during the Asian trading hours on March 8, slipped sharply. LME nickel inventories were down by 282 mt to 129,102 mt.

Jinchuan Group cut ex-works nickel prices by RMB 5,000/mt to RMB 211,000/mt on March 9, and offers from traders in the Shanghai nickel spot market were also lower. Only few buyers entered market in the morning trading hours, and overall trading sentiment was cautious. Mainstream traded prices of nickel from Russia were in the RMB 207,000-208,000/mt range, and mainstream traded prices of nickel from Jinchuan Group were in the RMB 208,500-209,500/mt. With the sharp slip of LME nickel prices, offers fell between RMB 206,000-208,000/mt, and trading sentiment was muted.

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