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SMM Weekly Review and Forecast (May 16-20)

iconMay 23, 2011 17:16
Source:SMM

SHANGHAI, May 23 (SMM) -- European Union finance ministers approved a 78-billion-euro rescue package for Portugal, and economic data from the Euro zone was bullish, helping boost the euro. According to the minutes of the US Federal Reserve (Fed) on May 18th, the Fed remained cautious toward the economic growth. Meanwhile, the US housing starts and existing home sales during April slipped unexpectedly, triggering market concerns that the US economic recovery will be uneven. The US dollar index fell from 76 to 75, and crude oil prices rebounded to USD 100/bbl and gold prices struggled around USD 1,500 per ounce. China’s three ministries issued the "Catalogue of Technology and Products Encouraged to Import" for 2011, and copper concentrate, lead concentrate, and zinc concentrate are listed in the catalogue of resource products and materials encouraged to import, which help boost Chinese demand to a certain extent. LME base metals prices rallied led by copper prices. Last week, SMMI rose by 1.19%, with copper and lead prices leading base metal prices increases, and with SMMI.Cu and SMMI.Pb rising by 2.17% and 1.24%, respectively. Nickel and tin prices were weaker, with SMMI.Ni and SMMI.Sn falling by 2.07% and 1.67%, respectively.

Copper:
With LME copper closing higher on Tuesday, SHFE copper prices opened 1% higher on Wednesday and Thursday, but resistance was strong at RMB 68,000/mt. Trading volumes were down by 100,000 lots, to 140,000 lots, and market transactions were mainly inter-day transactions. As China’s Central Government just raised the reserve requirement ratio for banks for a fifth time this year, SHFE copper prices will move between RMB 65,000-68,000/mt next week, but will remain sensitive to financial news.

In the spot market, Monday was the delivery date of SHFE 1105 copper contract prices, and cargo-holders were eager to move goods to generate cash since the price gap between SHFE near-term and forward contracts remained greater than RMB 500/mt. As a result, spot premiums failed to remain above positive RMB 110/mt on Monday. After the delivery date, prices in the SHFE copper market rebounded, causing market supply to drop and spot premiums to move higher. The US dollar index continued to fall, resulting in optimistic expectations about copper market next week, with downstream producers first making purchases at lows. SMM believes spot premiums will remain between RMB 200-400/mt next week. Transactions in the coming week are expected to rise at first, but then drop due to tight cash flows at the end of month. After standing on the sidelines for more than a week, downstream producers will likely enter the market for purchases if prices rebound.

Aluminum:
Negatively affected by weak LME aluminum prices, SHFE 1107 aluminum contract prices struggled around RMB 16,600/mt and failed to returned to the 5-day moving average due to strong resistance. However, downward room for SHFE 1107 aluminum contract prices was also limited due to higher production costs. China’s central bank raised the reserve requirement ratio (RRR) by 0.5% on May 18th, taking the RRR rate for big banks to a record high of 21%. As a result, cash liquidity tightened further. Positions for SHFE 1107 aluminum contract fell slightly after a new futures contract month began, but weak trading sentiment with daily trading volumes around 10,000 lots will slow the process of SHFE 1108 aluminum contract to become the most actively traded.  

Last week, spot aluminum was traded at zero discounts or slight premiums over SHFE current-month aluminum contract prices in Shanghai, and spot aluminum prices failed to climb to above RMB 16,600/mt as SHFE current-month aluminum contract prices moved below this level. Traders showed little interest in moving goods below RMB 16,600/mt as spot aluminum became unprofitable. Downstream processors continued to purchase on an as-needed basis, and the wait-and-see sentiment became stronger as spot aluminum prices moved closer to RMB 16,600/mt. Trading sentiment was sluggish, with overall transactions limited.  

Lead:
Early last week, SHFE lead prices kept fluctuating around daily moving averages, and opened higher on Thursday boosted by higher overnight LME lead prices, with prices up to near RMB 17,000/mt and fluctuating around the 20-day moving average.

In China’s domestic lead spot markets, prices maintained between RMB 15,700-15,950/mt, with spot discounts at around RMB 700/mt. On Thursday, domestic lead prices rose to RMB 16,100-16,200/mt due to higher SHFE lead prices, with spot discounts expanding to RMB 850-900/mt. Lead smelters began to move goods on the basis of guaranteeing long-term contract supplies, increasing market supply. But downstream producers were unwilling to purchase due to low operating rates from environmental protection inspections. Traders were relative active on Thursday due to greater arbitrage profits from expanded spot discounts.

Low-end SHFE lead prices are expected to rise and test RMB 17,000/mt in the coming week boosted by rising LME lead prices. In China’s domestic lead spot markets, smelters began to move goods properly last week, but downstream consumption was depressed due to the large-scale production suspension at battery producers in Zhejiang, Shandong, Guangdong and Jiangsu provinces. Actually, downstream producers were staying out of the market, especially when lead prices were standing at RMB 16,000/mt, and wanted to make clear lead price trends before purchasing. SMM expects domestic lead spot prices to fluctuate between RMB 15,900-16,400/mt.

Zinc:
Last week, investors are concerned the ongoing Greek debt crisis will affect other economies in the Euro zone. In addition, US housing starts for April were unexpectedly down 10.6% from March, pushing up the US dollar index to 76. In response, LME zinc prices plummeted to USD 2,093/mt, later gaining back some losses, but still failing to break through USD 2,200/mt.

SHFE 1107 zinc contract prices moved between RMB 16,500-16,800/mt. Boosted by stronger LME zinc prices, SHFE 1107 zinc contract prices rose on Thursday, but failed to break through RMB 17,000/mt, later falling back to RMB 16,700-16,800/mt. In domestic spot markets, traded prices of spot zinc fluctuated between RMB 16,500-16,800/mt, following trends of SHFE spot-month zinc contract prices. Downstream enterprises purchased modestly while some traders expecting higher prices held onto goods, leaving overall transactions quiet.

Last week, spot zinc prices remained between RMB 16,500-16,800/mt, tracking SHFE spot-month zinc contract prices, with discounts of RMB 100-150/mt against SHFE 1107 zinc contract prices. Supplies were mainly available from arbitragers as smelters were still holding goods. Spot inventories continued to fall to 594.5 kt. Inventories in east China remained unchanged from the previous week’s 459.5 kt, while north China stocks were 6 kt. Inventories in south China fell by 5,000 mt, to 129 kt. Spot zinc prices in south China were higher than SHFE spot-month zinc contract prices, with traded prices between RMB 16,600-16,900/mt, as shortages were even more severe in that region. LME inventories surged to a high 852,125 mt on Thursday.

Tin:
Last week, prices in Shanghai tin markets continued to fall to below RMB 210,000/mt. With constantly falling LME tin prices, some cargo-holders hold bearish sentiment about recent price trends, and thus cut offers for sales. The lowest traded prices fell to RMB 207,500-208,000/mt, with traded brands consisted of Yinsheng, Nanshan and Kaiyuan etc. Ex-works prices of major branded tin smelters began to loose, with offers from Yunnan Tin Group at RMB 213,000/mt. Trading sentiment kept quiet, due to depressed downstream buying interest from weak LME tin prices as well as lower downstream consumption.

Nickel:
In the Shanghai nickel spot market, prices initially declined then later advanced, but overall trading sentiment was relatively quiet. In the first half of last week, spot nickel prices were bearish due to weak momentum of LME nickel prices and sluggish consumption. In response to last Wednesday’s higher LME nickel prices, as well as other base metals, spot prices advanced and trading sentiment improved to certain extent last Wednesday and early Thursday. However, spot nickel prices fell back and transactions turned quiet when LME nickel prices slipped last Thursday. Generally speaking, transactions were largely made among traders to transfer or replenish stocks.

 

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