SMM Daily Review - 2011/3/10 Base Metals Market

SHANGHAI, Mar. 11 (SMM) –

Copper
Depressed by the diving LME copper prices, SHFE 1105 copper contract prices, the most active one, opened down RMB 1,660/mt at RMB 69,940/mt on Thursday. After the low opening, SHFE three-month copper contract prices fluctuated weakly at the daily moving averages, down as low as RMB 69,070/mt, and the high-end of the day was only at RMB 69,990/mt. Finally, the copper for delivery in three months in the SHFE market closed at RMB 69,230/mt, down RMB 2,370/mt, or a loss of 3.31%. Positions for SHFE three-month copper contract prices were down 5,600 lots, while trading volumes were up 36,856 lots. Positions for SHFE 1106 copper contract prices were up more than 14,000 lots on Thursday. SHFE three-month copper contract prices slid below the previous fluctuating band after a sharply low open. SHFE three-month copper contract prices will likely test its support at RMB 69,000/mt in the short term. 

In the spot market, a drop of 3% at its opening price in the SHFE copper market helped increase spot premiums. During the first session, SHFE copper prices moved at around RMB 69,000/mt. Spot premiums were offered between positive RMB 100-150/mt, attracting buying interest from both downstream producers and speculators at low prices. Spot supply was ample on Thursday along with arbitrage trading. As a result, spot premiums for standard-quality copper were down to positive RMB 50-80/mt, and positive RMB 100/mt for high-quality copper. Traded prices for standard-quality copper were between RMB 69,100-69,300/mt, and RMB 69,150-69,400/mt for high-quality copper on Thursday. Purchasing activity was brisk at low prices, and the number of downstream producers entering the market for purchases increased, helping goods volumes out of Shanghai warehouses increase this week.

Aluminum
Negatively affected by falling LME aluminum prices, SHFE 1105 aluminum contract prices again opened significantly lower at RMB 16,700/mt on Thursday. The Shanghai Stock Exchange composite index opened low and moved lower in the morning session, with resistance at 3,000 points gaining strength, causing SHFE base metals prices to be weak. In the afternoon session, SHFE 1105 aluminum contract prices climbed to a high of RMB 16,860/mt due to higher spot aluminum costs and LME aluminum prices which kept struggling around USD 2,600/mt this week, with prices continuing to reverse previous losses. However, SHFE 1105 aluminum contract prices lost previous gains at the tail of trading due to persistent market pessimism, with prices finally ending at RMB 16,785/mt, down RMB 5/mt compared to the previous trading day, or down 0.03%. SHFE forward aluminum contracts prices were stronger than SHFE nearby aluminum contracts prices given weak market fundamentals, and SHFE 1105 aluminum contract prices hit the 5-day moving average, but faced strong pressures, and SMM predicts SHFE 1105 aluminum contract prices will test the resistance at RMB 16,800/mt in the short term.

Traded prices for spot aluminum in east China were between RMB 16,440-16,460/mt, with discounts of RMB 0-10/mt against SHFE current-month aluminum contract prices. SHFE current-month aluminum contract prices again tumbled in the morning session, weighing down spot aluminum prices and increasing traders’ unwillingness to move goods at lower prices. Buying interest was low as well, with overall market sentiment extremely sluggish. Spot aluminum prices climbed in response to SHFE aluminum prices in the afternoon session, with limited deals made between RMB 16,460-16,480/mt, but spot aluminum prices still faced strong pressure from RMB 16,500/mt due to weak consumption. 

Lead
On Thursday in China’s domestic lead markets, market confidence faded further amid base metals sharp losses. Traders hurried to cut offers after LME lead prices fell by USD 100/mt overnight, with domestic lead prices down from RMB 17,150-17,300/mt in the morning to RMB 17,050-17,200/mt in the afternoon. Downstream producers sales was weaker than expected, and coupled with stronger short sentiment from negative performance in base metals markets, most were standing on the sidelines, resulting in sluggish transactions.

Zinc
On Thursday, SHFE 1105 zinc contract prices opened lower at RMB 17,775/mt, dragged down by LME zinc prices overnight, and mostly moved between RMB 17,650-17,750/mt during the day. Finally, SHFE 1105 zinc contract prices closed at RMB 17,735/mt, down RMB 510/mt, or down 2.8%, which is the lowest level since November 2010. Total positions decreased by 6,450 lots to 228,708 lots, and trading volumes increased by 20,000 lots to 321,920 lots. Total positions of SHFE 1106 zinc contract increased by 14,248 lots to 117,436 lots, and trading volumes increased by nearly 30,000 lots to 126,890 lots. SHFE zinc prices fell to as low as RMB 17,250/mt, which was the lowest level in late November 2010.

Since SHFE zinc prices fell from RMB 18,000/mt after opening pushed down by LME zinc prices overnight, spot zinc prices fell in response. #0 zinc was traded between RMB 17,300-17,350/mt in the morning session, with discounts of RMB 350-400/mt against SHFE 1105 zinc contract prices. Transactions were moderate, with downstream buyers increasing purchases at lower prices and arbitragers moving goods aggressively. SHFE zinc prices rose slightly in the midday, with #0 zinc traded between RMB 17,350-17,400/mt, and with #1 zinc traded between RMB 17,250-17,300/mt. Zinc prices in Guangdong and Tianjin markets were even firm, with #0 zinc traded between RMB 17,500-17,600/mt in Guangdong market and stabilizing at RMB 17,600/mt in Tianjin market. Zinc prices were firm in Tianjin market since goods supplies were available directly from smelters.

Tin
On Thursday in Shanghai tin markets, transactions were lackluster, with weak buying power due to basically ample stocks at downstream producers. Coupled with consecutive dips in LME tin prices recently, markets were generally dominated by wait-and-see sentiment. Tin smelters insisting on offers above RMB 200,000/mt felt feeble. Transactions for tin from Gejiu Zili Metallurgy Company and Yunnan Tin Group were made between RMB 198,500-199,500/mt, and almost no transaction was made for minor branded tin such as Nanshan and Jinlong branded, etc.

Nickel
LME nickel futures contract for delivery in three months opened at USD 26,900/mt, reaching the highest at USD 27,315/mt and closed at USD 26,176/mt on March 9. Libya tension led to crude oil rice surge, fueling expectation of inflation and waning demand for metal. In this context, investors sold off base metals in order to avoid risk. In response, LME nickel slipped significantly, and closed at an intraday low at USD 26,176/mt, down by USD 849/mt from a day earlier. Daily trading volumes were 3,017 lots and positions were 111,363 lots. LME nickel futures contract for delivery in three months opened at USD 26,110/mt during the Asian trading hours, and fluctuated widely between USD 25,750-26,290/mt on March 10. LME nickel inventories were down by 54 mt to 128,604 mt.

Affected by LME nickel price stumble, traders' willingness to move goods was strong and their offers were lower than Jinchuan Group's ex-works nickel prices. However, market purchases were still weak, and buying only improved slightly when LME nickel prices rebounded slightly in the midday. Traded prices of nickel from Jinchuan Group were in the RMB 202,500-202,800/mt and mainstream traded prices of nickel from Russia were around RMB 201,000/mt. When LME nickel prices slipped in the afternoon trading hours, panic sentiment was growing due to increasing uncertainties. Prices and trading volumes were both lower, with traded prices of nickel from Russia around USD 200,500/mt and traded prices of nickel from Jinchuan Group were in the RMB 201,500-202,000mt. Traders pin their on economic data to be announced on Wednesday night, which may be positive and will lend support to market.

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