SHANGHAI, Apr. 18 (SMM) -- The European Central Bank raised its benchmark interest rates by 25 basis points a week earlier, weighing down the US dollar index to below 75. According to economic data released by China’s National Bureau of Statistics on Friday, the consumer price index (CPI) for March rose by 5.4% YoY, and producer price index (PPI) grew by 7.3% YoY, improving market concerns that China will introduce additional credit tightening policies, and risk appetite caused commodity prices to soar before falling significantly. Last week, SMMI fell by 1%, and except for tin that surged by 3.66%, other base metals all posted declines of over 1%, with lead and copper even falling by 1.72% and 1.47%, respectively.  

Copper:
SHFE copper prices followed falling LME prices, but closed slightly up on Wednesday due to strong buying. Generally speaking, SHFE copper prices fell back from highs over this past week, down from RMB 73,940/mt to RMB 70,880/mt, on Thursday, a loss of 3%.

LME copper inventories continue to grow, while cancelled warrants are only around 10,000 lots. High inventories indicate limited improvements in European and US trading markets, but the US dollar is expected to remain weak near 75 in the short term. Based on the reports of positions, the number of long positions for near-term contracts is higher than short positions. If the conditions in the Middle East stabilize and LME copper prices are able to find solid support at USD 9,300/mt, LME copper prices will likely bounce back, with prices expected to fluctuate between USD 9,300-9,500/mt.

Supply of imported copper was down since an unfavorable price ratio prevented imports from entering domestic markets. Inventories data from the Shanghai Futures Exchange (SHFE) show levels continuously lower, a sign of the positive impact from the peak demand period in April, which will support SHFE copper prices. However, credit tightening measures are causing markets to pause, and in this context, SMM believes that SHFE copper prices will fluctuate in the RMB 71,000-73,000/mt range in the coming week. In spot markets, domestic goods will continue to dominate market supply even after the delivery date and improvements in the price ratio. Spot premiums will remain and downstream producers will continue to make purchases at lower prices. 

Aluminum:
SHFE aluminum prices fell steadily to below all moving averages due to falling LME aluminum prices. China released on Friday that its consumer price index (CPI) for March rose by 5.4% on a yearly basis, increasing market concerns over inflation and causing market players to become cautious, but low-end SHFE aluminum prices stabilized at RMB 16,700/mt. The SHFE 1105 aluminum contract will become the SHFE current-month aluminum contract next week, but SHFE 1106 aluminum contract should remain the most actively-traded. China will likely introduce additional tightening monetary policies in the short term to control inflation, which will also dampen upward momentum in SHFE aluminum prices. In this context, SMM predicts SHFE 1106 aluminum contract prices will move between RMB 16,700-16,900/mt.

Last week, SHFE current-month aluminum contract prices were weak, with prices falling below all moving averages. Spot aluminum prices in east China fell gradually to below RMB 16,600/mt after climbing to a high of RMB 16,700/mt, attracting some buyers to make purchases. Traders were optimistic toward future aluminum prices, with offers ranging between slight discounts and slight premiums over SHFE current-month aluminum prices. Overall transactions were neutral last week. Mainstream traded prices for spot aluminum were between RMB 16,560-16,660/mt in south China last week. SHFE 1106 aluminum contract prices stabilized after slipping early last week, helping boost downstream buying interest and prompt slight discounts to change to premiums over aluminum prices in Shanghai. Traders kept offers firm in anticipation of higher aluminum prices in the future, with overall trading sentiment improving from a week earlier. Aluminum inventories declined significantly, an indication that downstream consumption has improved. Downstream processers purchased goods on an as-needed basis given cash flow pressures, but traders remained optimistic toward future aluminum prices. SMM predicts spot aluminum prices in east China will move between RMB 16,600-16,700/mt next week.

Lead:
Following rising LME lead prices, SHFE lead prices rose as high as RMB 19,440/mt and closed at RMB 19,210/mt last Monday, but SHFE lead prices later fell below RMB 19,000/mt, to RMB 18,540/mt, dragged down by sharp losses in LME lead prices. Market players were paying close attention to China’s economic data due for release on Friday, and so both trading volumes and positions in the SHFE lead market were down last week, further pushing down SHFE lead prices. SHFE lead prices followed price movements in the LME lead market. Market confidence for SHFE lead prices is expected to grow after China releases economic data on Friday. In general, SMM expects SHFE lead prices to move between RMB 18,500-19,000/mt, with continued resistance at RMB 19,000/mt in the short term.

Despite a price gap of over RMB 1,600/mt between SHFE and spot lead prices last Monday, traders in domestic lead spot markets were inactive due to current high prices. Traded prices were between RMB 17,700-17,800/mt, and market confidence was dampened further as LME lead prices fell during mid-week. Transactions in domestic lead markets turned quiet, with lead spot prices falling to RMB 17,300-17,400/mt. In domestic lead spot markets, although trading sentiment was depressed by falling LME lead prices last week, low-end prices found support given tight lead concentrate supplies due to falling imports. Downstream producer trading sentiment is expected to improve as LME lead prices rise, help giving support to lead spot prices. SMM expects domestic lead spot prices to hover between RMB 17,200-17,600/mt in the coming week.

Zinc:
Last week, zinc prices fell. Although the US dollar index also fell to 74.6, the drop failed to boost LME zinc prices. Meanwhile, investors began to sell off since China’s CPI for March rose by 5.4% from a year ago, which will likely result in further credit tightening monetary policies. LME zinc prices fell over several consecutive days to hit USD 2,400/mt.

SHFE 1106 zinc contract prices rose to RMB 19,000/mt on Monday, tracking rising LME zinc prices, but later fell to RMB 18,400/mt, finding resistance at the 20-day moving average. In spot markets, some smelters were still holding goods, with spot discounts reported between RMB 400-500/mt, and with traded prices between RMB 18,000-18,300/mt. Downstream buyers purchased modestly at lower prices due to tight cash flows, while traders were unwilling to enter the market given low discounts, which were unfavorable for arbitrage trading. Since spot discounts against SHFE spot-month zinc contract prices remain between RMB 100-150/mt as the delivery date nears, traders also prefer to hold goods.

Last week, spot zinc prices fell to RMB 18,000/mt, down from RMB 18,300/mt. Downstream buyers only purchased modestly at lower prices, while traders were holding goods given unfavorable discounts. Spot discounts against SHFE spot-month zinc contract prices remained between RMB 100-150/mt as the delivery date neared, so traders preferred to wait. Inventories in east China grew by 6,000 mt, to 476.5 kt, and inventories in south China remained unchanged at 144 kt. North China stocks were also unchanged at 8 kt. LME inventories remained high at 763,725 mt. Traders were holding goods for delivery since spot demand did not improve.

Tin:
Last week, prices in Shanghai tin markets rose at first before falling, with overall transactions quiet. Prices were volatile, and downstream producers were consuming raw material stocks, increasing wait-and-see sentiment and keeping transactions low. Prices in Shanghai tin markets were boosted due to LME tin prices set new record highs, as well as due to limited market supply, pushing prices up to RMB 212,000-214,500/mt in 1H of last week. Later, LME tin prices began to fall, coupled with weak practical demand, prices in Shanghai tin markets moved lower in response, with tin ingot price on SMM of RMB 211,500/mt, up RMB 7,750/mt from a week earlier. At present, domestic tin smelters are unwilling to move goods due to high raw material prices, keeping offers relatively firm and market supply tight. But market confidence is still low amid recently volatile LME base metals prices. In this context, SMM expects prices in Shanghai tin markets may experience downward corrections in the coming week.

Nickel:
Last week, prices in Shanghai tin markets rose at first before falling, with overall transactions quiet. Prices were volatile, and downstream producers were consuming raw material stocks, increasing wait-and-see sentiment and keeping transactions low. Prices in Shanghai tin markets were boosted due to LME tin prices set new record highs, as well as due to limited market supply, pushing prices up to RMB 212,000-214,500/mt in 1H of last week. Later, LME tin prices began to fall, coupled with weak practical demand, prices in Shanghai tin markets moved lower in response, with tin ingot price on SMM of RMB 211,500/mt, up RMB 7,750/mt from a week earlier. At present, domestic tin smelters are unwilling to move goods due to high raw material prices, keeping offers relatively firm and market supply tight. But market confidence is still low amid recently volatile LME base metals prices. In this context, SMM expects prices in Shanghai tin markets may experience downward corrections in the coming week.

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