SMM Weekly Review and Forecast (May 23-27)

SHANGHAI, May 30 (SMM) -- International rating agency Fitch’s downward adjustment of Greek debt rating further escalating European debt crisis. In addition, economic data from the euro zone indicated slower expansion in manufacturing and service industries in May. Facing inflationary pressure and tight fiscal policy, US economy recovery momentum may be dampened to certain extent, and a slew of negative news heavily weighed on euro and sent the US dollar higher. In response, the euro fell below significant support level of 1.40, and the US dollar broke through 76.36, last seen in April, which triggered international commodity price slump. However, after rebounding for three consecutive weeks, upward momentum of the US dollar weakened and the US dollar fell from high. Positive statements from Goldman Sachs and other large investment banks boosted market confidence, and base metal prices regained upward momentum. Last week, base metal prices initially declined but later rallied, with SMMI up by 0.84%. SMMI.Zn recorded the biggest rally last week, up by 2.35%, and SMMI.Cu ranked the second place, up by 1.38%. However, tin and nickel prices failed to rebound, with SMMI.Ni and SMM.Sn down by 3.73% and 1.45% respectively.

Copper

China’s stocks prices tumbled due to recent credit tightening policies in China, which also depressed sentiment in all commodity markets. Early in the week, SHFE copper prices fell to RMB 65,690/mt, but quickly bounced back as LME copper prices rose, with SHFE prices reaching as high as RMB 68,100/mt on Thursday after opening up by nearly RMB 1,000/mt. However, the struggle between longs and shorts at RMB 67,000/mt and RMB 68,000/mt was strong, based on changes in positions and trading volumes. In other news, SHFE 1108 copper contract became the most actively-traded contract last week. In the coming week, SHFE copper market will follow price trends in the LME copper market, with prices expected to move between RMB 66,000-68,000/mt.
 
In the spot market, market supply was up and due mainly to imported goods. Cargo-holders held premiums at around positive RMB 500/mt due to an optimistic outlook and refused to reduce premiums even when SHFE copper prices rebounded. Downstream producers were wary of purchases along with prices returning above RMB 68,000/mt and tight cash flow at the month’s end. 

Aluminum

The preliminary HSBC data shows that the Purchasing Managers Index (PMI) for China’s manufacturing sector during May slipped to a 10-month low, triggering investor concerns over China’s economic growth. As a result, the Shanghai composite index fell below 2,800 points, dragging down SHFE aluminum prices to near RMB 16,500/mt after falling below RMB 16,600/mt. Later, SHFE aluminum prices rebounded strongly, driven up by rising LME aluminum prices, which helped SHFE prices climb steadily and exceed both RMB 16,600/mt and RMB 16,700/mt, and with prices regaining support at the 5-day and 20-day moving averages. However, SHFE aluminum prices still needs to gain upward momentum to stand steady above RMB 16,700/mt.

Spot aluminum prices were still moving below RMB 16,600/mt in Shanghai early last week. Low buying interest kept market sentiment sluggish, while minimal profit margins dampened trader willingness to move goods, and traders still kept offers firm with slight premiums. On Wednesday, stronger SHFE aluminum prices helped push spot aluminum prices to above RMB 16,650/mt, setting a new high since April 11th. Traders were moving goods aggressively to generate cash due to tight cash flows at the end of the month, but buying interest was low, causing discounts for spot aluminum to widen slightly.

Zinc

Last week, LME zinc prices met resistance at USD 2,200/mt. In the first half of last week, LME zinc prices fluctuated widely between USD 2,110-2,190/mt, but as the US dollar index fell on Wednesday due to positive US new home sales in April, LME zinc prices surged to USD 2,270/mt.

The SHFE 1108 zinc contract became the most actively traded last week. Boosted by LME zinc prices, SHFE three-month zinc contract prices rose three consecutive days, up from RMB 16,500/mt to close between RMB 17,200-17,400/mt on Thursday. In China’s domestic spot markets, traded prices of spot zinc were between RMB 16,300-17,000/mt, with resistance at RMB 17,000/mt. Downstream buying interest was low at higher prices, leaving transactions quiet. Spot discounts against SHFE 1108 zinc contract prices were between RMB 200-300/mt.

Spot zinc was mainly traded between RMB 16,300-16,500/mt early last week, with downstream buyers active at lower prices. However, downstream buying interest was dampened on Thursday when spot zinc prices rallied to RMB 17,000/mt. In east China, inventories fell by 14 kt, to 445.5 kt, while inventories in south China grew slightly by 3,000 mt, to 132 kt. Inventories in north China remained unchanged at 6kt. Goods supply was limited since smelters were still holding goods. Spot zinc prices were close to SHFE spot-month zinc contract prices, but even higher in south and north China.

Lead

Dragged down by falling LME lead prices, SHFE lead prices fell below RMB 16,800/mt and fluctuated below daily moving averages early last week. Prices later rallied on Wednesday and made up previous losses, with prices closing up RMB 330/mt. On Thursday, SHFE lead prices climbed above RMB 17,200/mt, hitting as high as RMB 17,230/mt. SHFE lead prices were volatile between RMB 17,300-17,500/mt last week, and coupled with expectations of weakening downstream consumption, SMM expects SHFE lead prices will meet resistance at higher price levels and consolidate around the RMB 17,000/mt level for the foreseeable future.

Zinc

In China’s domestic lead spot markets, prices remained above RMB 16,000/mt in early week trading, but later fell to around RMB 15,850/mt since LME spot discounts remained unchanged. In mid-week trading, domestic lead spot prices rose slightly, but a lack of upward momentum left prices fluctuating around RMB 15,950/mt. On Wednesday, spot prices returned back above RMB 16,000/mt, and on Thursday fluctuated between RMB 16,200-16,300/mt, receiving support from higher SHFE lead prices and with spot discounts between RMB 750-780/mt. Smelters held back goods due to the lack of a clear market outlook, keeping market supply limited and consisting mainly of Nanfang and Jinsha brands. SMM expects domestic lead spot prices to move between RMB 16,200-16,400/mt in the coming week.

Tin

Last week, traders in Shanghai tin spot markets basically held pessimistic attitude, and were slow to build stocks, and major branded tin smelters were unwilling to move goods, resulting in limited market supply. In early week, offers were firm, with transactions quiet. On Tuesday, domestic major branded tin smelters increased sales interest, due to lower LME tin prices, concerns about domestic consumption and relatively favorable domestic/LME tin price ratio for imports. In response, tin spot prices fell by around RMB 3,000/mt. Market supply consisted mainly of Jinlong, Nanshan, Yunxiang, Yinsheng brands and tin from Yunnan Tin Group, with traded prices between RMB 205,000-208,500/mt. Downstream producers were only purchasing on an as-needed basis, in a bid to control costs. Generally, overall trading sentiment in Shanghai tin spot markets was quiet last week. 

Nickel

LME nickel prices fluctuated widely last week. Early in the week, LME nickel prices fell to a low of USD 22,203/mt as the growing European debt crisis dampened momentum for a European economic recovery and pushed the US dollar significantly higher. In the middle of last week, positive statements from Goldman Sachs and other large investment banks boosted market confidence, helping LME nickel prices rebound. However, concerns over weaker nickel demand and a slower economic recovery due to tightening monetary policies from central banks may weigh on LME nickel prices. As of last Thursday, LME nickel futures contracts for delivery in three months closed at USD 22,934/mt, down USD 816/mt from a week earlier. LME nickel inventories were 114,528 mt, down 558 mt from a week earlier. Asian inventories were down 162 mt, but European inventories were up 720 mt. Cancelled warrants were down 210 mt.

As of last Thursday, average spot nickel prices were RMB 176,000/mt, down RMB 8,100/mt, or 4.4%, from a week earlier. Jinchuan Group initially cut ex-works nickel prices by RMB 6,000/mt and then again by RMB 5,000/mt, but raised prices by RMB 2,000/mt on Thursday, leaving current prices at RMB 175,000/mt. Due to bearish LME nickel prices and weak downstream demand, transactions in spot market were extremely sluggish, except last Tuesday, when spot prices fell near USD 170,000/mt.

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