SMM Daily Review - 2011/8/15 Base Metals Market

SHANGHAI, Aug. 16 (SMM) --
Copper:
SHFE 1110 copper contract prices, the most active one, opened slightly up RMB 170/mt at RMB 67,100/mt on Monday. SHFE copper prices earlier tracked LME copper prices to fluctuate around the daily moving average. Later, SHFE three-month copper contract prices were pushed towards RMB 67,500/mt by the longs, but failed to reach this price mark. Some profit-taking at RMB 67,670/mt weighed down SHFE three-month copper prices, which fell to RMB 66,960/mt. Due to rallies in China’s stock markets and LME copper prices in the afternoon session, SHFE three-month copper prices returned to fluctuate around the daily moving average. SHFE 1110 copper contract prices finally closed at RMB 67,300/mt, up RMB 370/mt or a gain of 0.55%. Positions and trading volumes for SHFE 1110 copper contracts were down 15,512 lots and 20,192 lots, respectively, while positions and trading volumes for SHFE 1111 copper contracts were up 6,364 lots and 18,636 lots, respectively, a sign of the shift of the most actively-traded copper contracts. SHFE three-month copper contract prices moved above the 5-day moving average during the whole trading day, and the shorts closed positions at low prices. Intraday speculative activities remained brisk, but capital inflows eased markedly. Therefore, SHFE three-month copper contract prices were expected to continue to fluctuate in the future, if there is no buying support.      

In spot markets, although Monday was the delivery date for1108 copper contracts, downstream producers’ buying interest weakened after SHFE copper prices opened higher. In this context, copper offers were initially quoted between discounts of negative RMB 50 to premiums of positive RMB 50/mt. After the second trading session, as SHFE copper prices fall back, cargo-holders tried to push up offers to premiums of positive RMB 0-120/mt near the midday. Trade prices for standard-quality copper were between RMB 67,150-67,250/mt in the morning business, and RMB 67,200-67,350/mt for high-quality copper. Since markets were not confident about future copper prices, fewer downstream producers entered into the market. Meanwhile small price gap among all SHFE copper contracts made hedge trading impossible.   Due to arrival of the delivery date, cargo-holders tried to hold premiums, bringing market transactions into a stalemate. SHFE copper prices continued to fluctuate in the afternoon session, and spot premiums reduced slightly. Spot premiums for high-quality copper were reported at positive RMB 30-80/mt. Standard-quality copper was most imported copper, and offers were made between discounts of negative RMB 20/mt and premiums of positive RMB 0/mt. Traded prices were flat with morning levels. Markets were waiting that spot premiums would return after the delivery date, but market oversupply would remain. 

SMM conducted a survey on the copper outlook this week.

Based on the survey, about 71% market players believed copper prices to fluctuate this week. LME and SHFE copper prices will remain weak, with prices expected between USD 8,500-9,000/mt and RMB 63,500-68,000/mt, respectively. After the US Federal Reserve announced to remain low interest rates for at least two years, markets considered the statement as a signal of QE3. However, market panic sentiment hasn’t been completely eased. Based on recent CFTC report, both longs and shorts are cautious towards building positions. Besides, after experiencing copper price declines last week, the SHFE/LME copper price ratio has improved, and price of USD 8,500/mt has gained some domestic buying support. From domestic supply and demand, although downstream producers could replenish stocks at current low price, oversupply will remain in the short term. Coupled with the seasonal low demand period, spot copper discounts are unavoidable. Without firm support in spot copper markets, copper prices will fluctuate.    

Approximately 11% market players believed that copper prices will continue to fall. LME copper prices will slump to USD 8,200/mt reached early 2011, and SHFE copper prices will drop to RMB 62,000/mt. Recent global economic data is negative, US job markets will not likely improve in the near term, there are no specific implementation measures of QE3, and market sentiment is dominated by the shorts, all weighing on copper prices. In domestic spot markets, copper discounts appeared on the delivery date. Following the delivery date, spot copper discounts will rapidly return again.  

Around 18% market players believed copper prices will rebound slightly this week, believing LME copper prices will likely return above USD 9,000/mt, and that SHFE copper prices will increase above RMB 68,000/mt. The European Central Bank has banned to make short-selling and bought in Euro-zone bonds, helping the euro to rally. Japan also has announced its plan of buying 1.9 trillion bonds. With clear attitudes of all major economies, market sentiment has improved obviously. The US will remain low interest rates to boost economy, and the introduction of QE3 will finally come in the future. The US dollar is on the track of depreciating, which is positive for copper prices. The Dow Jones Industrial Average also has signs of rebounding after falling for 15 straight days, pointing directly to the 10-day moving average. After declining for two weeks, copper prices needs corrections technically. With indicators pointing upside and some buying interest at lows, LME copper prices will likely return to USD 9,000/mt.  

Aluminum:
Most active SHFE 1110 aluminum contract prices opened slightly higher at RMB 17,535/mt and narrowly fluctuated in the morning session on August 15th. In the afternoon, positions of SHFE 1111 aluminum contracts significantly increased as a result of short activities, which dragged spot aluminum prices to below RMB 17,300/mt. SHFE 1111 aluminum contract also became the most actively-traded one, and closed at RMB 17,330/mt, down RMB 45/mt or 0.26%. Due to a dim future, most active SHFE aluminum contract price fell in the afternoon despite rising of other metals prices. However, it still found strong support at the 5-day moving average, and SMM expects most active SHFE aluminum contract prices to test RMB 17,300/mt in the short term.

Trading prices of spot aluminum in Shanghai on August 15th were between RMB 17,980-18,010/mt, with premiums of positive RMB 0-50/mt over SHFE current-month aluminum prices. In the morning, after SHFE current-month aluminum price failed to stay at RMB 18,000/mt, cargo-holders were actively selling with slight premiums. However, as downstream buyers and middlemen were waiting for market direction after change of SHFE current-month aluminum contract, mainstream trading prices fell below RMB 18,000/mt due to rare purchases. Overall market supply was excessive as a result. In the afternoon, SHFE current-month aluminum price continued to drop, but selling interest was low among goods holders, with only few quotes steady at RMB 17,980/mt reported. Market transactions were also rare due to strong wait-and-see sentiment.

SMM weekly aluminum ingot average price during August 8th to August 12th was RMB 17,915/mt, with a huge loss of RMB 513/mt or 2.78% from previous week. A recent SMM survey shows only 15% of market players expect aluminum prices to fall, which was a much lower percentage compared with previous week. Their reasons were mainly weak consumption and dim outlook of global economy. 70% of market players were neutral, believing aluminum prices are susceptible to fluctuation given mixed driving factors including positive low inventories and higher production cost and negative uncertain economic outlook which will led to cautious sentiment among both longs and shorts. The remaining 15% of market players are optimistic towards future aluminum prices, believing technical buying at lower prices following previous plunge and optimism towards aluminum consumption in the near future will help push up aluminum prices.

Lead:
SHFE lead prices stood successfully above RMB 16,800/mt after opening slightly higher at RMB 16,660/mt on Monday, with prices briefly climbing to RMB 16,835/mt and later fell back to between RMB 16,700-16,780/mt. SHFE lead prices remained weak between RMB 16,700-16,750/mt in the afternoon session, and finally closed at RMB 16,730/mt. Trading volumes were down 322 lots to 1,048 lots, and positions were up 66 lots to 4,732 lots on Monday.

Although SHFE lead prices moved around the daily moving average after opening higher on Monday, domestic spot lead prices failed to be boosted but remained flat at last Friday’s level. Offers for well-known branded lead, including Chihong Zn&Ge and Shuikoushan, were generally in the RMB 16,300-16,350/mt range, with discounts between negative RMB 350-400/mt over SHFE 1110 lead contract prices. Few offers for other brands were heard in the market due to poor sales. In the afternoon business, almost no deals were made due to high prices, and prices for well-known branded lead fell by RMB 20/mt on average, with offers for Nanfang and Chihong Zn&Ge between RMB 16,280-16,320/mt. In addition, offers for other brands like Baiyin, Jinguan and Hanjiang were largely at RMB 16,200/mt. Spot lead prices were high and most downstream consumers stayed on the sidelines, keeping market trading sentiment muted.

With regard to lead prices trends this week, most market players are optimistic. 46.7% market players believe domestic lead prices should remain fluctuating. As LME lead prices continued fluctuating, with support at USD 2,260/mt, and since no economic news will be reported, domestic spot lead prices should fluctuate around RMB 16,300/mt.

The remaining 53.3% market players are optimistic, believing LME lead prices should edge up. Smelters are now holding goods given rallying LME lead prices, and battery supply from downstream producers is tight due to closures in environmental protection inspections, so battery producers will accept rising refined lead prices due to expanding margins. In this context, domestic lead prices should stand at RMB 16,500/mt level.

Zinc:
SHFE 1111 zinc contracts became the most actively traded contracts on Monday. SHFE 1111 zinc contract prices opened slightly higher and stood above RMB 17,000/mt, with prices mainly moving between RMB 17,200-17,250/mt. Since the US dollar index strengthened and LME zinc prices slipped, SHFE 1111 zinc contract prices edged lower to between RMB 17,100-17,150/mt, with prices finally closing at RMB 17,175/mt, up RMB 125/mt. Trading volumes increased by over 3,000 lots to 184,442 lots, while positions increased by 22,108 lots to 179,564 lots, with short momentum stronger, indicating markets were cautious toward prices at RMB 17,000/mt.

SHFE 1111 zinc contract prices opened slightly higher but slipped in the midday. In spot markets, traded prices for #0 zinc were between RMB 16,900-16,950/mt, with deals mainly made at the low-end and with discounts of negative RMB 150-160/mt against SHFE 1110 zinc contract prices. Traded prices for #1 zinc were between RMB 16,850-16,900/mt. Spot zinc prices neared RMB 17,000/mt, and downstream consumers showed higher interest in purchasing goods at first, but later their buying interest became lower as zinc prices moved higher, with overall trading sentiment moderate.

Following the US credit rating cut by Standard & Poor’s rating agency, rumors that French credit rating will be downgraded further shake market confidence, despite was refuted by rating agencies.

With regard to zinc price trends this week, 50% market players believe that SHFE 1111 zinc contract prices will consolidate at RMB 17,000/mt level, moving between RMB 17,000-17,500/mt. Since the market has absorbed US credit rating cut, and as Standard & Poor’s as well as Moody’s claimed to keep France’s AAA credit rating unchanged, market concerns has gradually eased. Downstream buying interest is low at RMB 17,000/mt, keeping transactions quiet. As a result, SHFE 1111 zinc contract prices should move between RMB 17,000-17,500/mt, with spot discounts remaining between negative RMB 200-400/mt.

33% market players predict that SHFE 1111 zinc contract prices are expected to touch RMB 18,000/mt mark. As both US stocks and Shanghai Stock Exchange composite index gained back previous losses due to easing market concerns, SHFE three-month zinc contract prices should trend upward. Besides, smelters have been holding goods due to falling zinc prices, causing inventories in China to fall, and cause spot discounts to narrow sharply, and which will push up zinc prices.

The remaining 17% indicate that zinc prices will likely fall further. The market was expecting last week the US will release QE3 following the credit rating cut, boosting SHFE three-month zinc contract prices. But as spot transactions worsened, SHFE three-month zinc contract prices should fall to fluctuate between RMB 16,500-17,000/mt, with spot discounts narrowing to negative RMB 100-200/mt.

Tin:
Spot tin prices in Shanghai closed much higher on August 15th as a result of limited supply and continuously climbing LME tin prices. Most tin supplies in the spot market are futures. Mainstream trading brands during the day were Yunxi, Nanshan and Kaiyuan. Main futures tin brand is Yunheng. Mainstream trading prices were between RMB 196,000-198,000/mt. A trading price of RMB 199,000/mt was also reported for small volumes of Yunxi branded low-lead tin. Some market players said transaction at RMB 198,000/mt was difficult and further going up is not likely to happen. Their main reasons are quickly climbing prices and low downstream demand. Market transactions during the day were sluggish due to limited supply and high prices.

A recent SMM survey shows 52% of market players expect domestic tin prices to climb further, though with a limited upward space. LME tin prices are also expected to further climb supported by positive fundamentals. Despite limited supply to provide solid support, domestic tin prices are not likely to reach RMB 200,000/mt due to weak consumption. 41% of market players are neutral, expecting tin prices to fluctuate below RMB 198,000/mt. Their main reason is low-demand. Remaining 7% of market players expect tin prices to fall. Given neutral macro factors, rebound strength of LME tin prices is expected to weaken. With weak domestic consumption, domestic tin prices are therefore expected to fall.

Nickel:
In the Shanghai spot nickel market, trading sentiment was depressed by movements in the LME nickel market. Traded prices for Russian nickel were mainly around RMB 164,500/mt, and RMB 165,500 for nickel from Jinchuan, with some made at around RMB 165,000/mt.  The weakening upward momentum added to the wait-and-see attitude in the market, leaving overall trading sentiment lackluster.  Downstream producers remained inactive in purchases, and time is needed for the arrival of the traditional peak demand period. 

Based on SMM survey of price outlook, approximately 55% of market players believe that nickel prices will be generally on a steady trend this week. After sharp declines, nickel market is expected to experience fluctuations to look for a clear direction. About 25% of players expect nickel prices to rebound further, since a weak US dollar from the US rate decision will help support base metal prices. In addition, buying activity at lower prices will favor nickel prices.  The remaining 20% market players believe that nickel prices will drop, given poor market fundamentals, commissioning of new mines and oversupply.