SMM Daily Review - 2011/3/16 Base Metals Market

SHANGHAI, Mar. 17 (SMM) --
Copper:
SHFE 1106 copper contract prices, the most active one, opened up by RMB 370/mt at RMB 69,500/mt on Wednesday, with prices narrowly moving at around the opening price in the morning session, down as low as RMB 69,300/mt. In the afternoon, the Shanghai composite index rallied to 2,930.8 points, and meanwhile LME copper prices rose. As a result, SHFE three-month copper contract prices broke the RMB 70,000/mt, reaching as high as RMB 70,640/mt. Finally, the copper for delivery in three months in the SHFE market closed at RMB 70,580/mt, up RMB 1,450/mt, or a gain of 2.10%. Positions for SHFE three-month copper contract prices were up 12,920 lots, while trading volumes were down 18,056 lots. On Wednesday, SHFE three-month copper contract prices stood above the 5-day moving averages, and with support available at RMB 69,000/mt, and market sentiment improved a bit. However, it is too early to say that copper prices are showing a sign of stabilizing, as uncertainties are surrounding Japanese nuclear power plant. Hence, SHFE copper market will continue to test RMB 70,000/mt. If copper prices keep rising, SHFE three-month copper contract prices will recover losses made on March 10th.

Wednesday marked a beginning of a new contract month, and copper futures prices in the SHFE market opened high, and spot offers experienced marked changes from previous levels. Cargo-holders were eager to move goods. Standard-quality copper was offered at discounts of negative RMB 20/mt, and positive RMB 80/mt for high-quality copper. During the second trading hours, the price difference between standard and high-quality copper narrowed, with offers rising to positive RMB 20-80/mt. Traded prices for standard-quality copper were between RMB 69,400-69,550/mt, and RMB 69,450-69,650/mt for high-quality copper in the morning business. Downstream producers showed low buying interest, lending little support for spot offers at premiums of RMB 100/mt. Copper prices in the SHFE market rebounded strongly in the afternoon session, and spot offers were quoted at discounts of negative RMB 200-100/mt. Traded prices for standard-quality copper were between RMB 69,600-69,900/mt, and RMB 69,700-70,000/mt for high-quality copper. It is worth noting that buyers made purchases only at low prices. When spot traded prices rose above RMB 70,000/mt, middlemen chose to stay away from the market, resulting in low trading sentiment. Meanwhile, downstream producers also slowed low acceptance towards prices above RMB 70,000/mt due to unclear market direction. If copper prices in the SHFE market continue to rise on Thursday, spot offers will be quoted at discounts, and downstream producers will continue to make purchases at low prices.   

Aluminum:    
SHFE 1105 aluminum contract prices opened slightly higher at RMB 16,600/mt on Wednesday, and later dipped rapidly to a low of RMB 16,470/mt, with prices fluctuating weakly below the daily moving average. In the afternoon session, Nikkei reversed some losses, helping boost the Shanghai Stock Exchange composite index to climb rapidly after standing steady at 2,900 points. Supported by bullish financial markets and rebounding SHFE copper prices, SHFE 1105 aluminum contract prices inched up, and finally closed at RMB 16,540/mt, down RMB 35/mt compared with the previous trading day, or down 0.21%. SHFE aluminum prices opened higher but moved lower and reversed some losses at the end of trading on Wednesday, with SHFE 1105 aluminum contract prices facing heavy pressure at RMB 16,600/mt. As investors still lacked confidence in market transactions, positions of SHFE 1105 aluminum contract fell by 4,738 lots but positions of SHFE 1106 aluminum contract only increased by 580 lots after the delivery date. SMM predicts SHFE 1105 aluminum contract prices will continue to test the resistance at RMB 16,600/mt in the short term.

Traded prices for spot aluminum in east China were between RMB 16,370-16,400/mt, with discounts of RMB 0-30/mt against SHFE current-month aluminum contract prices. SHFE current-month aluminum contract prices were moving below RMB 16,400/mt in the morning session, dragging down spot aluminum prices. Most traders stayed on the sidelines, while a small portion of traders moved goods for cash, attracting some buyers to make purchases at lower prices, but overall market sentiment remained sluggish. In the afternoon session, SHFE aluminum prices reversed some losses, helping drive up mainstream traded prices for spot aluminum to above RMB 16,400/mt, and a small number of traders moved goods aggressively for cash, but market consumption remained sluggish, with trading sentiment still sluggish in spot aluminum markets.   

Lead:
LME lead prices on Wednesday fell after a high open, but still moved above USD 2,500/mt. In response, some downstream producers in China’s domestic lead markets entered the market to purchase believing LME lead prices will fall limitedly in the short term, helping improve transactions. In the afternoon, LME lead prices moved up, and traders in domestic lead markets restricted sales with optimistic view toward market outlook. Mainstream traded prices were RMB 17,050-17,150/mt. Most lead smelters were reluctant or even refused to move goods, due to anticipation of the lead futures market, as well as current strong LME lead prices.

On Tuesday in the simulated SHFE lead futures market, the 1109 lead futures contract opened at RMB 18,000/mt and closed at RMB 18,985/mt, with the highest price at RMB 19,800/mt. Overall trading volumes were 35,650 lots, considered as limited given that it was the first day of lead futures trade; positions were 8,706 lots. In the afternoon, SHFE lead prices moved between RMB 18,900-19,150/mt.

On Wednesday, the simulated SHFE lead market set a daily high of RMB 19,650/mt after opened at RMB 19,100/mt, but then fell to around RMB 19,100/mt after met resistance at RMB 19,500/mt. In the afternoon, SHFE lead prices rose to finally close the day at RMB 19,230/mt, given that the capital injection of Japan’s central bank boosted stocks and neighboring metals. Meanwhile, trading volumes increased significantly to 138,932 lots, up 103,280 lots; positions increased to 15,612 lots, up 6,906 lots. The simulated SHFE lead market reported a growth of 6.8% during the first two trading days, with prices in both days settling above RMB 19,000/mt. Prices on Wednesday finally rose to RMB 19,260/mt, which was RMB 2,000/mt higher than domestic lead spot prices. Therefore, domestic lead spot prices have room to rise.

Zinc:
On Wednesday, SHFE 1106 zinc contract became the most actively traded contract, with prices moving between RMB 18,200-18,300/mt in the morning session and falling to RMB 18,020/mt in the midday as a result of the falling LME zinc prices. Later, Japan's central bank continued to inject funds to the market and Japanese government pledged to purchase stocks, easing fears of the nuclear leakage. As a result, the Nikkei Index jumped 5.6%, with funds injected by Japanese government totaled 29.5 trillion yen. The Shanghai Stock Exchange composite index rose in the midday, moving higher SHFE 1106 zinc contract prices to close with gains at RMB 18,370/mt, above the 5-day moving average. Trading volumes increased by 40000 lots to 411956 lots, and total positions increased by 19810 lots to 180216 lots. Short position momentum was slightly stronger than long position momentum.

With SHFE zinc prices fluctuating in the morning session, #0 zinc was traded between RMB 17,650-17,700/mt, and with discounts of RMB 550-600/mt against SHFE 1106 zinc contract prices. SHFE 1106 zinc contract prices plunged to RMB 17,800/mt in the midday, narrowing spot discounts to RMB 500-550/mt against SHFE 1106 zinc contract prices. #0 zinc was traded below RMB 17,600/mt, and #1 zinc was traded between RMB 17,550-17,600/mt. The market was taking a wait-and-see attitude, and transactions were quiet. Spot discounts against SHFE 1106 zinc contract prices remained at RMB 600/mt boosted by the rising Nikkei Index and the Shanghai Stock Exchange composite index, with spot zinc traded above RMB 17,700/mt. Market players still stayed on the sidelines.

Tin:
On Wednesday in Shanghai tin markets, prices tumbled significantly, with tin from Yunnan Tin Group, Gejiu Zili Metallurgy Company, and some minor branded tin traded between RMB 192,000-194,000/mt. Amid lower market confidence from Japan’s nuclear leakage, some producers manufacturing minor branded tin cut ex-works prices. Coupled with some traders’ lower offers, supply of low-priced tin increased, dragging down mainstream prices in response. Some other traders were unwilling to cut offers, showing low selling interest. Overall trading sentiment was quiet on Wednesday, and market supply remained limited.

Nickel:
LME nickel for delivery in three months opened at USD 25,825/mt and closed at USD 24,865/mt on March 15, down by USD 1,005/mt from a day earlier, with the highest price at USD 26,000/mt and the lowest price at USD 24,675/mt. Daily trading volumes were 4,255 lots and positions were 109,262 lots.  LME nickel futures contract for delivery in three months opened at USD 25,000/mt on March 17, and fluctuated later to hit the highest at USD 25,400/mt due to support from Japanese government's bailout. LME nickel inventories were down by 1,104 mt to 126,570 mt on March 16.

In the Shanghai nickel spot market, prices slipped sharply and transactions were still sluggish. Jinchuan Group cut ex-works nickel prices by RMB 9,000/mt to 194,000/mt on March 16, and spot prices slipped as well. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 195,500-196,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 193,500-194,000/mt range. Demand was dampened due to weak consumption. Coupled with downward trend of nickel prices, downstream purchases were sparse. Supply of goods held by traders was ample, and most of traders adopted a wait-and-see attitude. In this context, trading sentiment was cautious, and trading volumes were moderate.   

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