SMM Weekly Review and Forecast (Mar. 7-11)

SHANGHAI, Mar. 14 (SMM) -- Recently, investor concerns intensified as the unrest in Libya caused crude oil to soar, while Moody’s Investors Service cut Greece’s credit rating and placed the country’s credit rating on review with further cuts possible, again triggering investor concerns over the European economic strength. In response, the US dollar index rebounded. Last week, base metals prices tumbled, with SMMI falling by 4.25%. Jinchuan Group cut nickel prices twice by RMB 13,000/mt last week, causing SMMI.Ni to fall by 6.05%, while SMMI.Zn dipped by 5.44% and SMMI.Cu dropped by 5.19%. SMMI.Al only fell by 0.3% supported by costs. According to reports from the ongoing NPC and CPPCC, China’s policy-makers are focusing on stabilizing prices, promoting economic transformation, curbing property markets, and adjusting personal income tax. China’s 12th Five-Year Plan will be favorable for social transformation and base metal consumption in the long term.

Copper:
Last week, growing unrest in Libya pushed gold prices higher and crude oil prices up to USD 108.25/bbl. Equity markets in the US and Europe tumbled, and a higher US dollar index also negatively affected investors, with longs choosing to close positions. LME copper prices plunged twice during the past week, falling below USD 9,500/mt and USD 9,300/mt on Monday and Wednesday, respectively, and with huge stop-loss selling accelerating price declines on Wednesday. On Thursday, LME copper prices continued to fall below USD 9,200/mt, hitting a low of USD 9,115/mt during the US and European trading hours and with the largest weekly losses almost USD 800/mt.

Unrest continues in the Middle East and Libya, and the European debt crisis remains unresolved, and meanwhile the US dollar index shows a sign of rebound. In addition, China will step up efforts to maintain employment stability and control inflation, with additional credit tightening measures expected. LME cancelled warrants remain below 20 kt, indicating weak consumption in global physical copper markets. The dominant short trader is keeping holdings unchanged between 30%-40%, allowing for possible further price. Next week, LME copper price trends will be closely influenced by events in Libya and the Middle East. If unrest continues, LME copper prices will further weaken, testing support at USD 9,000/mt. 

SHFE copper prices opened low on Tuesday and Thursday due to falling LME copper prices.  On Thursday, SHFE copper prices fell below RMB 70,000/mt after opening, dropping as low as RMB 69,070/mt, with weekly losses briefly reaching 7.9%. SHFE copper market will follow LME copper market trends, as well as test RMB 69,000/mt. 

Aluminum:
Over the past week, SHFE aluminum prices, which previously rose slower than other metals, now fell slower as well. SHFE 1105 aluminum contract prices closed with gains for several trading days after opening significantly lower on Tuesday, with prices finding support at RMB 16,655/mt and standing above the 5-day moving average. SHFE aluminum prices fell by only 1.2% compared to declines of over 7% by both SHFE copper and zinc last week, due mainly to bearish transactions and lower inflows of speculative funds, and since domestic spot aluminum suppliers were slightly optimistic toward market outlook, helping support SHFE aluminum prices. However, SMM still expects SHFE aluminum prices to fluctuate at low levels next week given significant declines in other base metal prices and strong market pessimism.

Spot aluminum prices fell below RMB 16,600/mt and RMB 16,500/mt in succession negatively affected by SHFE aluminum prices which opened significantly lower twice. However, the tumbling spot aluminum prices failed to stimulate downstream buying interest, while cargo-holders became unwilling to move goods as aluminum prices approached to purchasing costs at traders. Traded prices for spot aluminum were between RMB 16,440-16,600/mt last week, and overall market sentiment was extremely sluggish. Spot aluminum prices fell significantly in south China negatively affected by weak trading sentiment in SHFE aluminum market, but downstream consumption was better than that in east China. As a result, spot aluminum prices got strong support at RMB 16,500/mt, with premiums over aluminum prices in Shanghai remaining between RMB 40-75/mt. Traded prices for spot aluminum were between RMB 16,500-16,640/mt last week, and overall transactions were muted.     

Lead:
Last week, strong long sentiment in China’s domestic lead markets due to anticipation of the opening of China’s first lead futures market was dampened by sharp corrections in LME base metals markets, negatively affecting market confidence. In response, traders hurried to cut offers to generate sales, causing domestic lead prices to fall by RMB 400/mt. Lead-acid battery producers reported weak sales last week, and coupled with strict environmental protection inspections in progress, as well as weak LME lead prices, more battery producers delayed lead purchases. Transactions improved slightly last Friday due to battery producers’ bargain-hunting when LME lead prices temporarily stabilized. In general, domestic lead prices were RMB 17,100-17,500/mt last week. Smelters are expressing low selling interest due to current lower stocks as a result of recent maintenance as well as from anticipation to the opening of China’s lead futures market. However, traders are expected to be more concerned given existing weak LME lead prices, so SMM believes domestic lead prices may fall below RMB 17,000/mt this week. However, any negative effects from ongoing environmental protection inspections should begin to ease in the coming week, and coupled with possible downstream bargain-hunting at or near RMB 17,000/mt, domestic lead prices are expected to find support in the short term. In this context, SMM expects domestic lead prices will likely fluctuate around RMB 17,000/mt this week.

Zinc:
Last week, LME zinc prices plunged to USD 2,230/mt after previously fluctuating around USD 2,500/mt the previous week. Major economic data from the US released last week was positive, with US non-farm employment for February increasing by 192,000 jobs, the largest increase since May 2010, and the mortgage application activity index rose to its highest level since December 2010. However, markets were still focused on chaos in Libya, since Gaddafi forces dropped bombs on oil facilities, triggering panic that higher oil prices will lead to inflation and dampen economic growth, cutting demand for base metals. In this context, LME zinc prices fell to USD 2,230/mt last Wednesday.

SHFE zinc prices also fell given the lack of capital and lower LME zinc prices. SHFE zinc prices dipped to RMB 18,000/mt last Tuesday, but fell further on Thursday to close at RMB 17,735/mt. In domestic spot markets, spot zinc prices fell as well, with spot discounts between RMB 500-520/mt early last week, but narrowing to RMB 350-400/mt last Thursday. Traded prices of spot zinc fell to RMB 17,400/mt, down from RMB 18,400/mt, causing purchase activity to increase.

Zinc prices fell sharply last week, with spot zinc prices falling to RMB 17,400-17,500/mt and causing supply from smelters to fall as well, but with goods still available from arbitrage traders. Last week, total inventories grew slightly by 3,500 mt. Inventories in east China grew by 500 mt, to 466.5 kt, and stocks in south China grew by 5,000 mt, to 148 kt. In north China, smelters reduced market supply, while downstream buyers increased purchases at lower prices, causing north China inventories to fall by 2,000 mt, to 8 kt.  

Tin:
Market supplies in Shanghai tin markets were insufficient early last week, with sellers dominating in markets. Last Tuesday, sharp losses in LME tin prices led to lower domestic tin prices, with prices for minor branded tin down from RMB 201,000/mt to RMB 198,000/mt, and mainstream branded tin prices down from 203,000/mt to RMB 199,000/mt. Trading sentiment was sluggish, given that downstream producers increased tin purchases previously when tin prices were rising and had ample stocks on hand. Traders’ costs were higher than domestic tin prices, and coupled with volatile LME tin prices amid current global uncertainties, wait-and-see sentiment was stronger in markets.

Nickel:
Nickel prices in the Shanghai nickel spot market slumped along with LME nickel price declines.  As of last Thursday, traded prices for nickel from Jinchuan Group were RMB 201,500-202,000/mt, and mainstream traded prices of nickel from Russia were around RMB 200,000/mt, down RMB 13,000/mt from a week earlier. Jinchuan Group cut ex-works nickel prices last Tuesday to RMB 211,000/mt, but since spot prices were significantly lower than Jinchuan prices, the company cut prices again to RMB 203,000/mt last Friday. Trading sentiment was still relatively sluggish due to trader caution given that nickel prices remain volatile. 

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