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SMM Daily Review - 2011/7/18 Base Metals Market
Jul 19,2011 09:28CST
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SHFE 1109 copper contract prices, the most active one, opened up RMB 270/mt at RMB 72,070/mt on Monday, with prices falling after initially increasing during the whole trading day.

SHANGHAI, Jul. 19 (SMM) --
SHFE 1109 copper contract prices, the most active one, opened up RMB 270/mt at RMB 72,070/mt on Monday, with prices falling after initially increasing during the whole trading day. In the morning session, SHFE three-month copper contract prices fluctuated narrowly around the daily moving average of RMB 72,100/mt, and the longs were cautious towards keeping up with copper price increases, with moderate market sentiment and a low price level at RMB 72,000/mt. Till the closing before the midday, SHFE three-month copper contract prices moved higher following rising LME copper prices, reaching last week's high level of RMB 72,450/mt, and then returned to morning price levels after meeting resistance. In the afternoon business, SHFE three-month copper contract prices were pressured at the daily moving average due to weak domestic stock markets. A rising US dollar index at the tail of trading caused another round of declines in LME copper prices, and SHFE three-month copper contract prices lost RMB 72,000/mt in response. Coupled with positions closings, SHFE three-month copper contract prices fell further to a low level of RMB 71,730/mt. Finally, the most actively-traded copper contract prices closed at RMB 71,840/mt, up RMB 30/mt or a gain of 0.04%. Positions for SHFE 1109 copper contracts were down 3,182 lots and trading volumes were up 4,872 lots, while positions for SHFE 111o copper contracts were up 7,976 lots and trading volumes were up 13,862 lots. Total volumes of Shanghai Copper Index were down slightly. Investors chose to stand on the sidelines, and the most actively-traded copper contracts didn't experience significant shift. SHFE three-month copper contract prices would fluctuate around RMB 72,000/mt for the foreseeable future.

In the spot market, copper discounts increased from negative RMB 200-120/mt to negative RMB 280-150/mt, as SHFE copper prices moved higher after a high open in the morning business and weak consumption despite ample market supply. Traded prices for standard-quality copper were between RMB 71,780-71,880/mt in the morning session, and RMB 71,820-71,950/mt for high-quality copper. Downstream producers continued to stand on the sidelines wisely and made purchases on an as-needed basis. In the afternoon session, copper prices in the SHFE market decreased due to resistance, and spot copper discounts were little changed from morning levels. Traded prices dropped to RMB 71,500-71,850/mt, and trading remained limited.        

Based on SMM survey, there are mainly two views toward the copper outlook this week. About 40% surveyed market players believe copper prices will keep their rising momentum, expecting LME copper prices will reach USD 9,850/mt and SHFE copper prices will likely advance above RMB 73,000/mt after breaking the resistance at RMB 72,500/mt. As a set of economic data in the US showed a slowdown in the US economic recovery, the Federal Reserve has stated to adopt further monetary easing to stimulate economy. In this context, the US dollar will be on a falling track, which will push up copper prices. Market risk aversion sentiment is growing, and gold prices set new record highs for several times, leading commodity markets. Against the backdrop of global inflation, the low-end copper prices will move higher. From the perspective of supply and demand, global copper supply is tight, and China's copper demand in 2H 2011 will keep stable, creating real lift for copper prices. Therefore, copper prices will continue to climb up.   

The remaining 60% market players in the survey believe limited upside space for copper prices within the week. They think LME copper prices and SHFE copper prices will move between USD 9,550-9,750/mt and RMB 71,000-72,500/mt, respectively, and will need technical corrections after reaching highs based on signals of all indicators. Whether or not the US will increase its debt ceiling is still unknown, and Standard & Poor's seems to have made determination to downgrade the US credit ratings, both of which will keep speculative markets cautious. In the Euro-zone area, potential European debt crisis is still having a dampening impact on markets, despite limited influence of European banks' stress test results. Recently, a rally in the US dollar index has caused crude oil prices to fall, which will negatively affect LME copper prices in the short term. From technical indicators, since the start of July, LME copper prices are facing growing pressures to move higher and lack rising momentum in the near term, although the low-end prices are well supported. In domestic market, the gains in stocks market have slowed down after reaching 2,800 points, which will have a limited lift for SHFE copper prices. Downstream producers show more cautious sentiment after SHFE copper prices stand at RMB 71,000/mt, and spot copper discounts are increasing despite ample market supply, which will not support SHFE copper prices. Therefore, copper prices will continue to fluctuate at high levels in this week.
Most active SHFE 1109 aluminum contract prices opened slightly higher at RMB 17,535/mt on July 18. During the day, after the longs regained confidence, SHFE 1109 aluminum contract prices surged and hit a recent high of RMB 17,720/mt. Total positions of SHFE 1109 aluminum contracts decreased by 1,890 lots. Meanwhile, positions for SHFE 1110 aluminum contracts hugely increased by 23,566 lots. Finally closed price for SHFE 1109 aluminum contracts was RMB 17,695/mt, up RMB 180/mt or 1.03% from previous trading day. With strong support from the longs, aluminum led SHFE metals to gain during the day. As market players were confident towards RMB 18,000/mt, market transactions hugely increased. SMM expects SHFE 1110 aluminum contracts to become the most active and test RMB 17,800/mt on July 19.

Mainstream traded prices for spot aluminum in Shanghai on July 18 were RMB 17,700-17,740/mt, with premiums of positive RMB 70-100/mt over SHFE current-month aluminum prices. In the morning, as SHFE aluminum prices surged, spot aluminum prices climbed to above RMB 17,700/mt. Spot premiums over SHFE current-month aluminum contract prices also jumped after the delivery date. With limited supply, the middlemen were actively purchasing goods. However, aluminum buyers in Wuxi were cautious towards purchases, with mainstream traded prices falling below RMB 17,700/mt. General market sentiment was active. In the afternoon, SHFE current-month aluminum prices rose steadily, and spot aluminum prices rose to RMB 17,720-17,740/mt due to limited supply. Purchasers, however, remained cautious, and market transactions were hardly reported.

After Shanghai Composite Index stood steady at 2,800 points, investor confidence was improved despite high inflation pressure. The continuously decreasing spot aluminum inventories and summer power consumption peaks will both prevent aluminum prices from falling. As a result, SHFE aluminum prices surged despite LME aluminum prices struggled at USD 2,500/mt. As for the price trend in the future, a recent SMM survey shows that 53% of respondents are optimistic towards aluminum prices and the majority of these respondents expect aluminum prices to reach RMB 18,000/mt in the short term. The remaining 47% of respondents are neutral towards aluminum prices. These market players believe time is needed for aluminum consumption to follow up, therefore aluminum prices will remain at high levels.

On Monday, SHFE lead prices narrowly fluctuated around RMB 17,550/mt after opening higher at RMB 17,485/mt. Later, SHFE lead prices surged to RMB 17,580/mt but then fell back to around RMB 17,500/mt due to falling equity prices. In the afternoon trading, SHFE lead prices mainly moved below daily moving averages, and fell to RMB 17,455/mt at end of the trading before finding support at the 5-day moving average, finally closing at RMB 17,520/mt, up RMB 85/mt. Positions and trading volumes were almost unchanged, with transactions muted.

On Monday in China’s domestic lead spot markets, prices were up by about RMB 100/mt from last Friday, with offers from Nanfang, Chihong and Shuikoushan etc. at RMB 17,090-17,130/mt and spot discounts at negative RMB 400-500/mt. Offers for other brands such as Jinguan and Shuangyan etc. were RMB 16,980-17,040/mt. In the afternoon, prices for well-known branded lead were cut by about RMB 50/mt due to limited transactions at the high prices, leaving offers at RMB 17,040-17,080/mt. Traders increased their interest of sales on Monday, but downstream producers remained cautious, keeping transactions quiet.

53.3% of market players predict domestic lead spot prices to keep stable between RMB 16,900-17,200/mt this week. The lingering European debt crisis and growing concerns about the US’s borrowing limit may keep the US dollar index around 75. LME lead prices were boosted to around USD 2,700/mt with strong low-end support, but are also facing great upward pressure. Smelters in Jiyuan, Henan province suspended production due to the environmental protection inspections, and were unwilling to sell goods with their bullish sentiment, resulting in lower market supply. But downstream producers remained cautious at high prices. Generally, domestic lead spot prices fall in a deadlock.

40% of market players believe LME lead prices will rise to near USD 2,770/mt this week, and domestic spot prices may be between RMB 17,300-17,500/mt boosted by lower supply.

The remaining 6.7% of market players are pessimistic, believing LME lead prices may fall back this week. Without positive macro economic factors, the European debt crisis, weak domestic downstream consumption and downstream cautious sentiment should push domestic lead spot prices down to RMB 16,700-17,000/mt this week.

SHFE 1110 zinc contracts became the most actively traded contracts on Monday. SHFE 1110 zinc contract prices climbed gradually in the morning session after opening at RMB 18,370/mt, with prices hitting an intraday high of RMB 18,540/mt in the midday. However, strong pressures and falling LME zinc prices caused SHFE 1110 zinc contract prices to slip gradually. Finally, SHFE 1110 zinc contract prices closed at RMB 18,390/mt, up RMB 70/mt, with prices standing above the 5-day moving average. Trading volumes increased by over 70,000 lots to 196,762 lots, while positions increased by 23,366 lots to 172,792 lots.

In zinc spot markets, SHEF 1110 zinc contract prices climbed gradually in the morning session, causing spot discounts to widen. Traded prices for #0 zinc were between RMB 18,000-18,050/mt, with discounts of negative RMB 350-400/mt against SHFE 1110 zinc contract prices, while traded prices for #1 zinc were between RMB 17,950-18,000/mt, with most deals made at the high-end. Widening discounts stimulated traders’ willingness to make purchases, but downstream processors took a cautious attitude. Overall transactions were brisk.

SHFE zinc prices fell early last week tracking LME zinc prices, with spot zinc prices standing at RMB 18,000/mt. With regard to zinc price trends this week, 60% of market players believe zinc prices will likely continue fluctuating at high levels. The debt crisis issue has not been virtually resolved, with Greek debt crisis continuing, while the US employment data was also worse than expected. In this context, the US dollar index should move between 75 and 76, while SHFE 1110 zinc contract prices will likely fluctuate between RMB 18,200-18,600/mt. Spot discounts against SHFE 1110 zinc contract prices may remain between negative RMB 400-500/mt, and transactions will be mainly made among traders.

The remaining 40% believe that SHFE 1110 zinc contract prices will continue rising to RMB 18,800/mt, but with spot zinc prices resisting increases. Spot discounts will likely expand further, presenting an opportunity for traders’ arbitraging operations.

In Shanghai tin spot markets, market supply increased on Monday, consisted mainly of tin from Yunnan Tin Group and Yunheng, Yunxiang, Yinsheng brands etc., and mainstream traded prices were RMB 202,500-203,000/mt. Smelters in Jiangxi and Guangdong provinces were still unwilling to sell goods, and the resulting low market supply supported prices. But traded prices were not as strong as prices last Friday, with most transactions made below RMB 203,000/mt on Monday. Generally, continuously weak transaction negatively affected prices.

50% of market players expect domestic tin spot prices to keep stable at around RMB 203,000/mt this week. They believe weak upward momentum in the LME tin market cannot boost domestic prices, and coupled with the constantly soft domestic consumption, domestic tin prices should lack of upward momentum for the foreseeable future. 33% of market players predict tin prices to rise this week, due to tight market supply caused by production cuts and low selling interest from smelters. The remaining 16% of market players believe domestic tin prices may fall on the context of soft terminal consumption.

LME nickel for delivery in three months opened at USD 24,050/mt and closed at USD 24,150/mt last Friday, up by USD 75/mt from a day earlier, with the highest price at USD 24,499/mt and the lowest price at USD 23,940/mt.On Monday, LME base metal prices advanced slightly to USD 24,215/mt after opening at USD 24,100/mt, but began to slip later. As of 17:30, LME nickel prices hit a low of USD 23,799/mt. Stronger US dollar weighed on base metal prices, and sustainability at USD 24,000/mt shall be tested. LME nickel inventories were down by 840 mt to 102,354 mt.

In the Shanghai nickel spot market, trading sentiment was lackluster due to decline in LME nickel prices. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 174,500-175,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 174,000-174,500/mt range. Supply of goods was relatively limited, so some cargo-holders were reluctant to move goods. Transactions were moderate, with deals largely done among traders and few among downstream consumers.

Based on result of a recent SMM survey, more than 50% market players were pessimistic towards LME nickel price outlook, given the mixed economic news and soft downstream demand in domestic market. Approximately 30% market players believe that LME nickel prices will continue to rebound from technical support this week. Only a small portion of market players believe LME nickel prices will be neutral this week.


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