SHANGHAI, Aug. 8 (SMM) – The US finally reached a consensus on raising debt ceiling last week. Meanwhile, a series of economic data released from the US were all lower than expected. Moreover, the Dow Jones Industrial Average was down sharply by 6% after declining for nine consecutive days. PMI from the US, euro zone and China all fell to near 50. In this context, market concern over global economic recovery outlook intensified, triggering risk aversion sentiment. The US dollar index rebounded technically, and resource products like base metals experienced large-scales sell-offs. Domestic base metal prices plummeted and SMMI fell by 3.88%. Zinc and lead leading the decline, with SMMI. Zn and SMMI.Pb down by 7.6% and 5.8% respectively. Decline in base metal prices was largely above 2%, and market was dominated by shorts.
Last week, SHFE copper prices also fell back, tracking declines in LME copper prices. Weak domestic stock markets kept market players on the sideline and sent SHFE copper prices lower to RMB 70,000/mt, down from a weekly high of RMB 73,600/mt, a drop of nearly 4%.
In the coming week, SHFE copper prices will continue to fall after breaking through RMB 70,000/mt. Chinese stock markets will not likely regain rising momentum and will likely test the support at 2,600 points given the lack of speculative funds. With expectations growing for more interest rate hikes in China, markets will remain cautious and SHFE copper prices will lose the 60-day moving average, and then fall further to RMB 68,000/mt.
In spot market, as SHFE copper prices moved lower, copper discounts during last week fell from negative RMB 450/mt, and offers for high-quality copper had signs to turn into premiums from discounts. Trader’s speculative activities reduced given falling copper discounts, while downstream producers increased purchases when copper prices fell back, improving market transactions.
In spot markets, copper offers next week will change from discounts into premiums due to the approach of delivery dates and from significant declines in SHFE copper prices. Together with hedge trading, more goods will come into the market and increase supply. Downstream producers will make purchases at low prices, which will also increase market transactions.
SHFE aluminum prices climbed at first but fell later last week, with prices falling by over 4%. Aluminum was still the best performer of base metals in the SHFE market, with SHFE aluminum making gains in early week trading and with SHFE 1110 aluminum contract prices hitting a high of RMB 18,645/mt. However, SHFE 1110 aluminum contract prices fell 2% on Thursday due to growing short momentum, with prices declining by the daily price limit in only 10 minutes after opening on Friday, down 4.01%. Finally, SHFE 1110 aluminum contract prices closed at RMB 17,485/mt.
SMM spot aluminum prices rose at first but fell later last week. Eased cash flow pressures at the beginning of August and strong SHFE aluminum prices helped push up spot aluminum prices to a high of RMB 18,660/mt early last week, breaking the record high set on July 28th. Cargo-holders were eager to sell goods at higher prices, but downstream buying interest was low given falling downstream orders and current high aluminum prices. Lower SHFE aluminum prices late last week depressed market optimism, with spot aluminum prices trimming previous gains, especially on Friday when SHFE current-month aluminum contract prices fell by almost the daily limit, which caused spot aluminum prices to fall below RMB 18,000/mt. Mixed offers in spot aluminum markets caused suppliers and buyers to stay on the sidelines.
Depressed by falling LME lead prices, SHFE lead prices slid below all moving averages, and dropped below RMB 16,000/mt on Friday along with diving US equities and weak LME lead prices, hitting the lowest level of RMB 15,960 since its launch, and with the biggest weekly decline of 8.9%. SHFE 1109 lead prices are expected to move between RMB 16,000-16,800/mt this week.
Domestic spot lead prices slid to RMB 16,500/mt on Thursday, down from RMB 17,000/mt early in the week, and fell below RMB 16,000/mt on Friday, with deals between RMB 15,950-16,050/mt. Spot discounts over SHFE 1109 lead contract prices narrowed from negative RMB 450-500/mt, to negative RMB 250-300/mt. Market supply rose as spot discounts narrowed, but price declines in the LME lead market added to the market’s wait-and-see attitude. Buyers only entered the market to buy on Wednesday when SHFE lead prices rallied, but left the market when prices fell again.
Production cuts at domestic lead smelters due to environmental protection inspections still remain, and smelters are still unwillingness to move goods, which will help support price. SMM expects domestic spot lead prices to move between RMB 15,800-16,500/mt and spot discounts will narrow to negative RMB 200-350/mt.
Last week, even though the US government finally reached an agreement on its debt ceiling issue, market concerns did not ease. The US dollar index fluctuated widely due to poor economic data, climbing to 75. The US manufacturing PMI for July was lower than expected and fell to its lowest mark since July 2009. The ISM non-manufacturing PMI also hit a record low not seen since February 2010. As a result, LME zinc prices fell for five consecutive days, closing the week at USD 2,350/mt.
SHFE 1110 zinc contract prices moved lower early in the week to RMB 18,200/mt, following down LME zinc prices. Spot discounts narrowed to negative RMB 380/mt, with traded prices between RMB 17,900-18,300/mt. Smelters stood on the sidelines at RMB 18,000/mt, while arbitragers were actively selling goods due to narrowing discounts, leaving ample supply of goods available in the market. Downstream buyers increased purchases due to falling zinc prices, but were still cautious.
Prices in the Shanghai spot nickel market declined after recent surges. Jinchuan Group adjusted ex-works nickel prices for three consecutive days, with the total increase RMB 7,000/mt. In response, spot nickel prices rose rapidly above USD 180,000/mt. Mainstream traded prices of spot nickel were in the RMB 180,500-181,000/mt range last Monday, but as LME nickel prices began to tumble later, spot nickel prices were also dragged down, with spot nickel prices recording their largest intraday decline last Thursday. As Jinchuan Group cut ex-works nickel prices by RMB 7,000/mt, to RMB 174,000/mt last Friday, spot nickel prices also plunged to between RMB 173,500-174,500/mt. The weekly average price for SMM #1 nickel was RMB 179,350/mt, up by RMB 4,220/mt from a week earlier.
Overall transactions were relatively quiet in the Shanghai nickel spot market. As LME nickel prices began to falter, trading sentiment in spot markets was also dampened. Traders turned cautious and transactions became sluggish. In addition, Jinchuan Group’s high ex-works nickel prices also dampened demand. Traders and downstream enterprises resisted rapidly rising spot nickel prices, largely adopted a wait-and-see attitude. Supply of nickel from Russia was still limited since the current domestic/LME nickel price ratio was not favorable for imports, helping keep the price spread between Russian and Jinchuan nickel reasonable.
With plunging LME tin prices, Shanghai tin market had seen a sluggish week during August 1st – 5th featured by continuously falling prices and poor transactions. SMM average tin price on August 5th was RMB 202,500/mt, down RMB 3,400/mt from previous week. Mainstream traded tin brands during the week were Yunxi and Nanshan. Sluggish market sentiment led to stronger wait-and-see attitude among downstream buyers, which dampened already poor transactions. Tin supplies remained limited during the week, due to unstable output caused by power and environmental restrictions. Some market players believe no significant impact of price movements should be expected on market transactions, as weak consumption is the root cause. Given power restrictions and tight capital supply in 2011, tin transactions have turned even more sluggish, and conventional peak season is expected to come later compared with previous years.