SMM Weekly Review and Forecast (Mar.21-Mar.25)

SHANGHAI, Mar. 28 (SMM) – Last week, market concerns over the Japan nuclear crisis and Libyan unrest eased to an extent, and coupled with anticipation of heavy metal demand from Japan’s post-quake reconstruction, investors returned back to metals markets. The mixed US economic data made the US to maintain quantitative easing monetary policies, and the US dollar index met resistance to fall in response, further driving up base metals prices. SMMI was up 1.4%, and the SHFE lead futures market reported strong gains after opening, leading to higher zinc prices. Except for nickel, base metals largely reported weekly gains above 1%, especially zinc, tin and lead: SMMI.Zn gained most by 2.49%, SMMI.Si by 1.99%, and SMMI.Pb by 1.96%.

Copper

Last week, LME copper prices moved higher. The People’s Bank of China (PBOC) raised the reserve requirement ratio by 0.5%, effective March 25th. Coupled with the ongoing nuclear crisis in Japan and coalition airstrikes in Libya, LME copper prices slid below USD 9,400/mt twice early in the week. As the US dollar index fell to 75.25, LME copper prices found support and rallied to reach USD 9,700/mt as prices for oil, gold and silver also rose. On Friday, a Dow Jones index above 12,000 points, optimism over copper demand, and technical support all helped LME copper prices advance further, hitting a weekly high of USD 9,784/mt. Although LME copper prices fell back after meeting resistance at USD 9,800/mt, closing prices stood firmly above daily moving averages. The low-end of LME copper price moved higher over the past week and was gathering momentum to break through the USD 9,800/mt mark. SMM believes LME copper prices will move between USD 9,500-9,800/mt in the coming week.  

Last week, SHFE copper prices rallied as LME copper prices also rose. As LME copper prices closed higher on Wednesday evening, SHFE copper prices opened up RMB 1,200/mt at 72,950/mt on Thursday, and finally closed up 0.8%. Technically, SHFE copper prices were fluctuating between RMB 71,000-73,000/mt, but failed to break through the RMB 73,000/mt mark. SHFE copper prices will likely test RMB 72,000/mt next week and fluctuate between RMB 71,500-73,000/mt. 

Aluminum
China's Central Bank again raised the bank reserve requirement ratio, while SHFE aluminum prices lacked upward momentum due to sluggish trading sentiment. SHFE 1106 aluminum contracts failed to become the most actively traded contract last week, and SHFE aluminum prices were still moving below the 20-day moving average, with last week’s cumulative increase of only about RMB 200/mt. Rumors of electricity price increases in China will be favorable for aluminum prices in the future, but China is expected to continue tightening monetary policies and will likely raise interest rates again. Meanwhile, the start of lead futures trading on the SHFE will attract some speculators, so speculative funds in SHFE aluminum markets will remain limited in the short term, which will dampen any increases in SHFE aluminum prices.

Last week, spot aluminum prices in east China climbed rapidly to stand above RMB 16,500/mt driven up by SHFE aluminum prices. China’s Central Bank raised the bank reserve requirement ratio for a third time in 2011, tightening cash flows at enterprises, and middlemen showed little interest in investing, with downstream purchases limited. Suppliers’ optimism toward market outlook improved slightly after SHFE aluminum prices rallied on March 18th. Meanwhile, traders chose to stand on the sidelines due to expectations of higher electric power costs. As a result, overall market sentiment was sluggish over the past week. Spot aluminum prices in south China were also on the rise, with prices climbing from RMB 16,500/mt to above RMB 16,600/mt. Local aluminum prices were RMB 60-100/mt higher than prices in Shanghai. Meanwhile, traders were cautious toward moving goods, keeping overall market sentiment sluggish.

Lead
Last Thursday, the Shanghai Futures Exchange launched lead futures trading. SHFE lead 1109 contract prices were pushed to RMB 19,570/mt after opening at RMB 19,230/mt, up 6.6% from the benchmark price of RMB 18,350/mt. Investors later abandoned risky assets and sold out positions at high prices. In response, SHFE lead prices fell, with shorts and longs struggling at RMB 19,000/mt. Trading sentiment in the SHFE lead futures market was active at the first trading day of the SHFE lead futures market, with trading volumes for 1109 contracts at 73,440 lots and positions at 9,696 lots. Both positions and trading volumes were down on Friday.

Last week in China’s domestic lead spot markets, prices during the first three days rose along with rising LME lead prices to RMB 17,500-17,750/mt. On Thursday, domestic lead spot prices surged to RMB 17,650-17,900/mt after the launch of the SHFE lead futures market. Later, some traders took profits, while others taking advantage of hedging closed positions when SHFE lead futures prices fell, expressing higher selling interest of spot goods, with offers higher and even above RMB 18,000/mt. Smelters were unwilling to move goods, but quoted offers near RMB 17,800/mt. On Friday, lead spots in Shanghai markets were quoted between RMB 17,700-17,800/mt, slightly down from a day earlier, and transactions were mainly made among traders. Downstream producers were purchasing cautiously for a number of reasons. Current lead prices were high and many downstream producers had already replenished stocks at lower prices. Price movements after the launch of the SHFE lead futures market were unclear and downstream production is still restricted by ongoing environment protection inspections. Therefore, domestic lead prices were up last week, but transactions were still soft.

Zinc
Last week, LME zinc prices fluctuated around USD 2,300/mt on mixed economic and political news. US seasonally adjusted new home sales for February were only 4.88 million units, the lowest level since November 2010. The nuclear crisis in Japan was easing and markets believe post-earthquake reconstruction will boost demand for base metals, which drove up LME zinc prices. LME zinc prices surged to as high as USD 2,350/mt as SHFE lead contracts began trading on Thursday.

SHFE 1106 zinc contract prices fluctuated around RMB 18,000/mt. After finding support at that level and with the start of SHFE lead contracts on Thursday, prices rose for two consecutive days to reach RMB 18,600-18,700/mt. In spot markets, spot zinc prices fluctuated around RMB 17,500/mt early last week, but rose to RMB 18,000/mt on Thursday as SHFE zinc prices also rose. Discounts grew to RMB 600/mt, but downstream buyers were cautious, leaving most transactions between traders. A large number of traders were aggressively selling goods as spot discounts narrowed to RMB 500/mt last Thursday.

Last week, spot zinc prices jumped to RMB 18,000/mt, up from RMB 17,500/mt. Downstream buyers purchased modestly at lower prices early last week, but then turned cautious as prices rose, with most transactions made between traders buying spot zinc and selling SHFE zinc contracts. Inventories grew by 1,000 mt, to 615.5 kt, with inventories in east China growing by 1,000 mt, to 465.5 kt, and stocks in south China falling by 3,000 mt, to 139 kt. Inventories in south China were also down since its major market share owner, Hechi Nanfang Non-ferrous Metal Smelt Company, was holding onto its goods, causing market supply to fall. Inventories in north China grew by 3,000 mt, to 10 kt.

Tin
Last week in Shanghai tin markets, prices constantly rose boosted by LME tin price gains, despite unchanged fundamentals. Producers manufacturing major branded tin insisted on firm offers due to limited supply, while those minor branded tin producers raised offers due to strong LME tin prices, causing low-price goods limited. In response, mainstream prices were driven up and broke through RMB 200,000/mt. However, downstream producers increased their wait-and-see sentiment amid the rapidly rising prices, so trading sentiment was quiet last week.

Nickel
Prices moved higher in the Shanghai nickel spot market, while overall trading sentiment was still relatively quiet. Spot prices rebounded as LME nickel prices turned upward from waning impact of negative news. Jinchuan Group also raised ex-works prices by RMB 3,000/mt, to   RMB 200,000/mt, boosting spot prices to certain extent.  As of last Thursday, mainstream traded prices for Jinchuan nickel were in the RMB 198,500-199,000/mt range. Only a few downstream consumers made purchases on an as-needed basis, so most deals were largely made among traders. New arrivals of nickel from Russia were normal, but nickel from Jinchuan Group was less available, which helped keep its prices firm. Downstream consumption was not brisk, so refined nickel prices moved passively with LME nickel prices. Traders remain cautious, keeping transactions quiet.

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