SMM Daily Review - 2011/3/28 Base Metals Market

SHANGHAI, Mar. 29 (SMM) –

Copper
SHFE 1106 copper contract prices, the most active one, opened down RMB 180/mt at RMB 72,350/mt on Monday. SHFE three-month copper contract prices briefly reached RMB 72,550/mt after rising above the 30-day moving averages, but then met resistance, with prices falling back to RMB 72,350/mt. The climbing of China's Shanghai composite index above 3,000 points in earlier trading failed to push up SHFE copper prices. During the second trading session, SHFE 1106 copper contract prices slid below RMB 72,000/mt after LME copper prices tumbled by USD 100/mt. SHFE three-month copper contract prices continued to fall in the afternoon session, but found support after prices were down as low as RMB 70,700/mt after dropping below RMB 71,000/mt, narrowing daily losses.  Finally, the copper for delivery in three months in the SHFE market closed at RMB 71,070/mt, down RMB 1,460/mt, or a loss of 2.01%. Positions for SHFE three-month copper contract prices were up 11,828 lots, while trading volumes were up 64,280 lots. Technically, SHFE copper market is expected to meet resistance to climb higher. SHFE three-month copper contract prices will likely test RMB 70,000/mt, and the support at the mark is expected to be sound. 

In the spot market, cargo-holders offered prices at premiums in early business, as SHFE copper market opened slightly lower after LME copper market finished down, with premiums between RMB 0-positive RMB 80/mt. Traded prices for standard-quality copper were between RMB 72,000-72,150/mt, and RMB 72,100-72,200/mt for high-quality copper. At the beginning of the second trading session, SHFE current-month copper contract prices fell to RMB 71,300/mt, negatively affected by the tumbling LME copper prices. With active arbitrage trading, spot premiums failed to increase greatly, with premiums only up to between positive RMB 20-120/mt. Traded prices for standard-quality copper were between RMB 71,400-71,550/mt, and RMB 71,500-71,700/mt for high-quality copper. As copper prices in the SHFE market slid below RMB 71,000/mt in the afternoon session, some speculators entered the market for purchases, helping improve spot premiums.  Premiums for standard-quality were between positive RMB 50-80/mt, and positive RMB 100-150/mt for high-quality copper. Traded prices for standard-quality copper were between RMB 70,900-71,200/mt, and RMB 71,000-71,250/mt for high-quality copper in the afternoon business. The overall trading sentiment was moderate, as downstream producers generally chose to stay away from the market due to volatile price movements. Spot market transactions were still dominated by speculators.

According to the SMM survey, approximately 48% of market players believe that LME copper prices will fluctuate between USD 9,400-9,750/mt, and SHFE copper prices will find support at RMB 70,000/mt, and any downward room will be limited, despite that technical indicators show a negative sign. As price gains over the previous two weeks were overdone, copper prices will experience some corrections. Hence, these players expect copper prices to represent fluctuations this week. About 41% of market players believe that SHFE copper prices will drop due to too many negative reports, including the uncertainties in Japan's nuclear power plant, the unrest in the Middle East, the continuing European debt issue, and a sign of rebound in the US dollar index. As month-end approaches, investors are becoming cautious due to cash pressure and risk concerns, also negatively affecting the market. Around 11% of market players believe that positive outlook for copper demand will support copper prices as orders received by copper semis producers are positive recently along with the arrival of the traditional peak demand period.  

Aluminum
SHFE 1106 aluminum contract prices became the most actively traded contract on Monday. Positively affected by strengthening LME aluminum prices, SHFE 1106 aluminum contract prices opened slightly higher at RMB 16,920/mt, and later fluctuated narrowly above RMB 16,900/mt. The Shanghai Stock Exchange composite index failed to stand steady at 3,000 points, and LME copper prices tumbled, both dragging down SHFE base metals prices. SHFE 1106 aluminum contract prices extended declines in the afternoon session, with prices falling to break through 20-day and 5-day moving averages consecutively and hitting the 10-day moving average. Finally, SHFE 1106 aluminum contract prices closed at 16,750/mt, down RMB 135/mt compared with the previous trading day, or down 0.8%. Total positions increased by 8,872 lots to 288,572 lots. SHFE aluminum prices opened higher but moved lower, with prices losing all gains made in the past four trading days, but SHFE aluminum prices fell slower than other base metals prices supported by expectations of rising costs. SMM predicts SHFE aluminum prices will find some support at the 10-day moving average in the short term, with prices expected to fluctuate narrowly above RMB 16,700/mt. 

Traded prices for spot aluminum were between RMB 16,600-16,640/mt in east China on Monday, with discounts of RMB 60-90/mt over SHFE current-month aluminum contract prices. SHFE aluminum prices fluctuated lower in the morning session, dragging down spot aluminum prices, with mainstream traded prices falling gradually and spot discounts widening slightly. Weak consumption caused traders to move goods cautiously, and spot aluminum prices found some support at RMB 16,600/mt, with overall market sentiment general. SHFE aluminum prices extended declines in the afternoon session, causing spot aluminum prices to fall rapidly as well. Most deals were made between RMB 16,530-16,550/mt, with spot discounts narrowing to around RMB 50/mt over SHFE current-month aluminum contract prices. Lower spot aluminum prices failed to boost buying interest, with overall trading sentiment still sluggish.

According to a recent SMM survey, 51% of market players were optimistic toward market outlook, believing costs will remain high due to stabilizing energy prices, and domestic spot aluminum inventories have fallen slightly for two consecutive weeks, an indication that consumption in March has increased steadily, both helping push up aluminum prices. 40% of market players were neutral toward market outlook, believing the slowdown in global economic recovery still hampers the growth of spot aluminum consumption, and weak market fundamentals will not improve significantly in the short term, which will help limit any increases in aluminum prices. The remaining 9% of market players were pessimistic toward market outlook, believing trading sentiment will remain bearish in the short term technically, which will cause aluminum prices to decline.

Zinc
SHFE 1106 zinc contract prices moved between RMB 18,500-18,600/mt in the morning session. LME copper prices tumbled in the midday, causing other base metals prices to fall, and SHFE 1106 zinc contract prices also plummeted to RMB 18,400/mt. Since LME zinc prices extended declines in the afternoon session, SHFE 1106 zinc contract prices tumbled to RMB 18,300/mt, with prices later finding support at the 10-day moving average and finally closing at RMB 18,315/mt, down RMB 270/mt or 1.45%. Trading volumes increased by 130,000 lots to 452,100 lots, and positions increased by 572 lots to 210,842 lots. SHFE 1106 zinc contract prices were still fluctuating in a narrow band, with struggles between long and short positions remaining intense.

In spot markets, traded prices for #0 zinc were mainly around RMB 18,100/mt in morning trading, with discounts between RMB 500-520/mt over SHFE 1106 zinc contract prices. When SHFE zinc prices tumbled to between RMB 18,400-18,500/mt in the midday, spot discounts only narrowed to around RMB 450/mt, with actual traded prices between RMB 17,950-18,000/mt. Traded prices for #1 zinc were between RMB 17,900-17,950/mt. Recently, smelters were unwilling to move goods, with spot supply declining. Spot supply was mainly from arbitrage traders and was tight, and traders were reluctant to move goods. Spot zinc prices were around RMB 18,000/mt, and purchases increased, with trading sentiment improving. SHFE zinc prices plummeted again in the afternoon session, and SHFE 1106 zinc contract prices faced pressure at RMB 18,300/mt, and spot discounts narrowed to around RMB 400/mt, with actual traded prices around RMB 17,900/mt. Spot zinc prices fell slower due to tight spot supply.

SHFE 1106 zinc contract prices had risen for two consecutive days to between RMB 18,600-18,800/mt in the second half of last week, driven up by the start of lead futures trading on the SHFE, with prices even trying to surge to RMB 19,000/mt.

40% of market players believe that SHFE 1106 zinc contract prices will fluctuate this week. Since smelters are recently holding onto their goods, and that traders are also unwilling to sell goods given spot discounts of RMB 500-600/mt, which is unfavorable for hedging, spot zinc prices should fluctuate between RMB 17,800-18,200/mt. SHFE 1106 zinc contract prices are expected to fluctuate between RMB 18,300-18,600/mt.

50% market players believe that SHFE zinc prices rebounded since SHFE lead contracts began trading, while spot transactions were still weak. In this context, SHFE 1106 zinc contract prices should move between RMB 18,000-18,300/mt, and spot zinc should be traded between RMB 17,500-18,000/mt, with downstream buyers increasing purchases at lower prices.

Only 10% market players are optimistic towards zinc price trends, with SHFE zinc prices expected to stabilize at RMB 18,500/mt and further rise to RMB 19,000/mt. Since smelters were unwilling to move goods recently and traders were also holding onto their goods given unchanged spot discounts, spot zinc prices will unlikely fall further, with spot zinc expected to be traded between RMB 18,000-18,500/mt this week.

Lead
On Monday, SHFE lead prices rose to touch RMB 19,035/mt after opening, but fell to set a record low of RMB 18,500/mt later, due to falling LME lead prices and a higher US dollar index, finally closing RMB 390/mt lower at RMB 18,605/mt. Trading volumes were 16,960 lots, down 7,898 lots; positions were 8,262 lots, down 232 lots.

In China’s domestic lead spot markets, traders hurried to move goods on Monday after SHFE lead prices fell to near RMB 18,700/mt, with well-known branded lead quoted between RMB 17,600-17,700/mt, and some lead from Gejiu, Yunnan province, at RMB 17,600/mt. Hence, price gap between well-known branded and lead from Gejiu narrowed, with lower price advantage for the latter. Downstream producers still showed strong wait-and-see sentiment and were slow to purchase, keeping transactions muted. In the afternoon on Monday, SHFE lead prices continued to fall, and traders cut offers to around RMB 17,600/mt in response. Downstream producers were still standing on the sideline, keeping transactions still quiet.

60% of market players believe domestic lead prices to keep fluctuating weakly this week, due to strong wait-and-see sentiment in the market from mixed economic data in Europe and the US, and the Libyan unrest, as well as ongoing European debt crisis etc. With regard to China’s domestic lead markets, actual performance of the SHFE lead futures market was weaker-than-expected. Meanwhile, LME lead prices are standing at a relatively high level since the 2008 financial crisis, showing obvious resistance at USD 2,700/mt, and are expected to likely experience downtrend in the short term, which is believed to drag down SHFE lead futures prices to below RMB 19,000/mt. Besides, downstream producers are not in a hurry to purchase at the currently high lead prices near RMB 18,000/mt, given that they have already replenished stocks before the opening of the SHFE lead futures trading, and due to unclear future market outlook. Despite weak lead spot prices, SHFE lead futures prices still show strong upward momentum. In this context, SMM expects domestic lead spot price to fall limitedly in the short term, mainly fluctuating between RMB 17,500-17,800/mt, as smelters are keeping offers firm at around RMB 17,700/mt, and as the LME lead market is showing strong support at low-end prices.

30% of market players expect domestic lead spot prices will rise to hit RMB 18,000/mt this week, believing the new SHFE lead futures market will boost lead prices, as well as due to domestic lead smelters’ insistence on firm offers.

The rest 10% of market players are pessimistic about this week’s domestic lead prices. They believe LME lead prices to suffer downward corrections this week, which will curb SHFE lead futures prices. Coupled with technically waning upward momentum in the SHFE lead futures market, these market players expect domestic lead prices to fall below RMB 17,500/mt this week.

Tin
On Monday in Shanghai tin markets, mainstream prices basically kept stable, with tin from Yunnan Tin Group and some minor branded tin traded between RMB 200,000-202,000/mt. Trading sentiment was moderate, due to rekindled wait-and-see sentiment from consistently falling LME tin prices. Smelters were unwilling to cut offers for sales, resulting in low market supply, and supporting domestic tin spot prices in response. But recently weak LME tin prices negatively affected downstream producers’ buying interest, pressuring higher domestic tin spot prices. This week, negative macro factors for LME tin prices are expected to increase, besides, LME tin prices should meet resistance at currently high level of USD 32,000/mt. In this context, SMM expects LME tin prices will keep fluctuating weakly, and domestic tin spot prices will mainly keep stable, with possibilities of brief corrections.

Nickel
LME nickel for delivery in three months opened at USD 26,910/mt and closed at USD 27,074/mt on March 25, up by USD 134/mt from a day earlier, with the highest price at USD 27,280/mt and the lowest price at USD 26,800/mt. Japan's nuclear crisis weighed on Asian equity market. In addition, the stronger US dollar from Federal Reserves' new direction of monetary policy, and Germany's election news weighed on base metals. Moreover, renewed concern over short-term demand for industrial raw material from China also weighed base metal market. LME nickel for delivery in three months opened at USD 27,050/mt and fluctuated lower with LME copper prices due to negative news on March 28, with prices hitting the lowest at USD 26,550/mt and testing stability at this level from many times. LME nickel inventories were down by 168 mt to 124,086 mt.

Affected by significant decline of LME nickel prices, transactions in the Shanghai nickel spot market were extremely quiet. Traders had no trading interest, and downstream consumers adopted a wait-and-see attitude. In the morning trading hours, traded prices of nickel from Jinchuan Group were around RMB 199,500/mt and traded prices of nickel from Russia were around RMB 198,500/mt. In the afternoon trading hours, prices slipped rapidly due to quiet transactions, with traded prices of nickel from Russia slipping to RMB 197,000/mt and nickel from Jinchuan Group still around RMB 198,500/mt. Market is affected by many macro uncertainties at present, and most market players believe in pessimistic nickel price outlook.

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