Metals News
SMM Daily Review - 2011/3/14 Base Metals Market
smm insight
Mar 15,2011

SHANGHAI, Mar. 15 (SMM) --
SHFE 1105 copper contract prices, the most active one, opened up RMB 30/mt at RMB 69,600/mt on Monday. After opening, SHFE three-month copper contract prices briefly reached RMB 69,850/mt, but later slid below RMB 69,000/mt along with rubber prices down to its daily decline limit, down as low as RMB 68,250/mt. SHFE 1105 copper contract prices were almost pressed below the daily moving averages, but rallied at the tail of trading with rising LME copper prices, narrowing daily losses. Finally, the copper for delivery in three months in the SHFE market closed at RMB 69,280/mt, down RMB 290/mt, or a loss of 0.42%. Positions for SHFE three-month copper contract prices were down 11,278 lots, while trading volumes were up 15,006 lots. Tuesday is the last trading day of SHFE 1103 copper contract prices, and positions for SHFE 1106 copper contract prices were up nearly 14,000 lots, with positions generally flat with SHFE 1105 copper contract prices.  Although SHFE 1105 copper contract prices briefly fell below RMB 68,410/mt within one hour in the afternoon session, its closing price above the level suggests that support was still available there. Hence, SMM believes that SHFE three-month copper contract prices will continue to fluctuate at low levels in the short term.

In the spot market, offers were quoted at premiums of positive RMB 120-180/mt due to ample supply, with traded prices between RMB 69,100-69,300/mt. After 10:30 am, SHFE copper prices dived RMB 600/mt. Although spot premiums increased slightly to positive RMB 150-250/mt, traded prices were away from earlier traded price band, falling below RMB 69,000/mt. Limited trading volumes restricted rising room of spot offers. Traded prices for standard-quality copper were between RMB 68,650-68,800/mt, and RMB 68,750-68,900/mt for high-quality copper in the morning business. Copper prices in the SHFE market fluctuated narrowly in the afternoon session, and spot premiums for high-quality copper were up to positive RMB 250-300/mt. Premiums for standard-quality copper still moved between positive RMB 130-150/mt. With no signs of a stop in price decline, few buyers entered the market for the whole day, leaving low trading sentiment.

According to a recent SMM survey, market players are mixed towards the outlook. Approximately 25% of players take a neutral attitude towards the outlook, believing copper consumption in the post-earthquake construction in Japan will increase, and that will support copper prices. However, copper prices will generally continue to fluctuate in the short term due to uncertainties. About 67% of market players are pessimistic towards the outlook, believing copper prices will fall. The massive earthquake in Japan will likely slow world's economic recovery, with Nikkei index tumbling. Meanwhile, the unrest in the Middle East continues. Downstream producers were not in hurry to make purchases due to pessimistic outlook, while smelters were unwilling to move goods at the existing low prices, further depressing market transactions. Hence, these players believe that the fluctuating price band will move lower.

SHFE 1105 aluminum contract prices opened lower at RMB 16,650/mt on Monday, and later climbed rapidly to test the pressure at the 5-day moving average. However, as the Japanese earthquake dragged down trading sentiment in Asian markets, SHFE 1105 aluminum contract prices fell significantly to below the daily moving average, with prices even hitting an intraday low of RMB 16,560/mt. At the tail of trading, SHFE 1105 aluminum contract prices reversed some previous losses supported by strengthening Shanghai Stock Exchange composite index, with prices finally closing at RMB 16,665/mt, down RMB 140/mt or 0.83% compared with the previous trading day. SHFE aluminum prices experienced significant declines due to pessimistic economic conditions and weak spot aluminum market fundamentals, and total positions fell by 5,276 lots. SHFE 1105 aluminum contract prices faced strong resistance at the 5-day moving average, and are expected to test the pressure at RMB 16,700/mt in the short term.

Traded prices for spot aluminum in east China were between RMB 16,430-16,450/mt, with discounts of RMB 0-20/mt against SHFE current-month aluminum contract prices. Spot aluminum prices dipped to below RMB 16,500/mt in response to weak SHFE aluminum prices, and market consumption remained sluggish. Only a small number of middlemen made purchases at lower prices, while traders preferred to stay on the sidelines when spot aluminum prices approached to RMB 16,400/mt. As a result, overall transactions were very sluggish.

According to a SMM survey, 41% of market players were optimistic toward aluminum prices, believing market demand will improve in March, and market rumors that electricity prices for aluminum producers will be raised will help push up spot aluminum costs, both helping drive up aluminum prices. 32% of market players were neutral toward aluminum prices, believing strong inflationary pressures caused investors to take a cautious attitude toward purchases, and downstream orders remained weak, both helping limit any gains in aluminum prices. The remaining 27% of market players were pessimistic toward aluminum prices, believing China will continue to introduce tightening policies given heavy inflationary pressures, and spot aluminum inventories will remain high in the short term, and capacity expansion plans at aluminum producers will increase market supply significantly in the future, all helping drive aluminum prices lower.  

On Monday in China’s domestic lead markets, most traders cut offers given that LME lead prices were still fluctuating around USD 2,400/mt, causing low-end domestic lead prices to fall. In the morning, unknown branded lead traded at around RMB 17,050/mt, and well-known branded lead between RMB 17,100-17,150/mt. In the afternoon, well-known branded lead prices were RMB 17,100/mt, and supply of lead from Gejiu, Yunnan province was still low. Some downstream producers made bargain-hunting, but trading volumes were limited, with trading sentiment still weak in spite of LME lead prices rose in the session.

Optimistic market players about this week’s domestic lead prices account 33%. They believe this round of price corrections caused by Libya’s tension and Japan’s earthquake will end this week. Besides, Japan’s earthquake is expected to cast short-term impacts on metals markets, and post-earthquake reconstruction should increase metals demand. In addition, LME lead prices rebounded at USD 2,378/mt after prices moved below USD 2,400/mt for two consecutive days, showing strong support at USD 2,400/mt. Most market players predict China’s lead futures market will open in late March or early April, which is considered positive to metals markets. Coupled with some smelters’ low selling interest from unit maintenance, domestic lead prices are expected to be driven up to near RMB 17,400/mt this week.

Pessimists about this week’s domestic lead prices account 13%. These market players believe metals prices are volatile, and LME lead prices may continue to fall for the foreseeable future. Meanwhile, car lead-acid batteries consumption slowed due to warmer weather and cancellation of preferential policies for auto purchases, which will further weigh down on metals prices. Therefore, these people expect domestic lead prices to fall below RMB 17,000/mt this week.

The rest 53% of market players are neutral, believing domestic lead prices to fluctuate between RMB 17,000-17,200/mt this week. With the constantly changing international situations, it is uncertain that LME lead prices manage to stabilize in the short term, in spite of a strong support at USD 2,400/mt. Although smelters’ low selling interest can support lead prices to an extent, domestic lead prices are hard to rise in the near term, due to weak downstream demand amid ongoing environmental protection inspections. Hence, these market players believe traded prices in China’s domestic lead markets to be in a deadlock this week.

SHFE 1105 zinc contract prices fluctuated at low levels on Monday. In the morning session, SHFE three-month zinc contract prices touched RMB 18,145/mt but then fell to fluctuated around RMB 18,000/mt. as the end of trading, SHFE 1105 zinc contract prices rose along with Shanghai Stock Exchange composite index, with prices closing at RMB 18,045/mt, up RMB 200/mt, or up 1.12%. Total positions decreased significantly by 13,652 lots to 203,350 lots, and trading volumes increased by 19,000 lots to 460,690 lots. Total positions of SHFE 1106 zinc contract increased by 26,182 lots to 150,338 lots, and trading volumes increased by 27,000 lots to 398,050 lots.

SHFE 1105 zinc contract prices fluctuated around RMB 18,000/mt in the morning session, but spot discounts remained at low levels. #0 zinc was traded between RMB 17,500-17,550/mt, with discounts of RMB 400/mt against SHFE 1105 zinc contract prices. #1 zinc was traded between RMB 17,450-17,500/mt. The market was taking a wait-and-see attitude due to fluctuating zinc prices. Traders also stayed on the sidelines at lower discounts, leaving transactions muted.

Last week, zinc prices continued to fall due to Escalating turmoil in Libya. A tsunami was caused by a 9-magnitude quake in Japan last Friday, which damaged power plants, refineries and ports.

With regard to zinc price trends this week, 17% of market players believe that zinc prices should stabilize at low levels, and the huge Japanese earthquake will stimulate demand for base metals in the reconstruction. In this context, SHFE 1105 zinc contract prices should rise to break through RMB 18,000/mt mark this week. In spot markets, spot zinc will be traded between RMB 17,400-17,500/mt if zinc prices can stabilize at RMB 18,000/mt level, with transactions expected weaker than last week.

33% of market players believe that Japan’s restructure will improve demand for base metals in the long run. But since the market is focused on losses caused by the earthquake, SHFE zinc prices failed to touch RMB 18,000/mt level on Monday. In this scenario, SHFE zinc prices will fall further this week, with SHFE 1105 zinc contract prices continuing to dip to RMB 17,000/mt, and spot zinc prices will fall below RMB 17,000/mt in response.

The remaining 50% believe that SHFE 1105 zinc contract prices should continue to fluctuate between RMB 17,500-18,000/mt, and spot zinc will be traded between RMB 17,000-17,500/mt.

Prices in Shanghai tin spot markets continued to fall on Monday, with tin from Yunnan Tin Group, and some minor branded tin traded between RMB 196,000-198,500/mt, and some transactions for minor branded tin made at RMB 195,000/mt. Overall trading sentiment was weak, and falling prices sparked stronger wait-and-see sentiment. Tin smelters in Jiangxi and Hunan provinces cut ex-works prices for tin ingots, basically between RMB 196,000-197,000/mt; well-known branded tin prices were relatively firm. Recent weak tin prices stimulated cargo-holders to dump goods, which further dragged down mainstream traded prices. Besides, some smelters manufacturing well-known branded tin began to cut offers for sales, but market supply was still limited. LME tin prices found support at above the 60-day moving average, with narrower price losses. In this context, SMM expects domestic tin prices may stabilize in the short term.

LME nickel for delivery in three months opened at USD 26,065/mt and closed at USD 25,900/mt on March 11, down by USD 165/mt from a day earlier, with the highest price at USD 26,300/mt and the lowest price at USD 25,300/mt. Daily trading volumes were 2,636 lots and positions were 111,889 lots. LME nickel for delivery in three months opened at USD 25,970/mt during the Asian trading hours on March 14 and fluctuated weakly below USD 26,000/mt, with prices hitting the lowest at USD 25,525/mt. LME nickel inventories were down by 438 mt to 127,986 mt.                 

Affected by weak movement of LME nickel prices, traded prices in the Shanghai nickel spot market dropped. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 200,000-200,500/mt range, and mainstream traded prices of nickel from Russia were in the RMB 199,000-199,500/mt range, with extremely quiet trading sentiment reported. In the afternoon trading hours, few transactions at low prices were heard, and it was reported that offers of nickel from Russia were in the RMB 197,500-198,500/mt range. When spot transactions were sluggish, transactions in the Wuxi electronic trading were relatively brisk due to support from dip-buying.

LME nickel prices slipped sharply for several consecutive days, dampening market confidence. Traders were cautious, and recent transactions were quiet. Based on results of SMM survey, most market players believe in pessimistic outlook and only a small portion of market players believe that prices are expected to rebound. 


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