SMM Daily Review - 2011/8/19 Base Metals Market

SHANGHAI, Aug. 22 (SMM) –

Copper
As the European and American equity markets slid and LME copper prices tumbled overnight, SHFE 1111 copper contract prices, the most active one, opened down RMB 990/mt at RMB 65,980/mt on Friday, with prices fluctuating around the daily moving average during the whole trading day. SHFE three-month copper contract prices mainly fluctuated around RMB 66,200/mt, and the low level was at RMB 65,960/mt. The most actively-traded copper contract prices finally closed at RMB 66,350/mt, down RMB 620/mt or a loss of 0.93%. Positions for the most actively-traded copper contracts were up 16,292 lots, while trading volumes were down 15,698 lots. SHFE three-month copper contract prices declined slower than LME copper prices, and would be supported at RMB 66,000/mt in the near term. Based on daily position holdings from the longs and shorts, shorts were slightly strong. SHFE three-month copper contract prices were expected to fluctuate further.  

In spot markets, SHFE copper prices weakly fluctuated after opening higher, and panic sentiment still dominated the market. In this context, copper premiums failed to increase, reporting at positive RMB 150-250/mt. Trade prices for standard-quality copper were between RMB 66，550-66，700/mt in the morning business, and RMB 66,600-66,800/mt for high-quality copper. Despite buying interest at the lows, downstream producers were still cautious towards trading, hampering market transactions. SHFE copper prices continued to fluctuate in the afternoon session, but spot copper supply reduced compared to the morning session, keeping offers firm. As a result, premiums for high-quality copper increased slightly to positive RMB 250-300/mt, and positive RMB 180-200/mt for standard-quality copper. Traded prices were at RMB 66,600/mt. Traders chose to stay out of the market at high premiums, while downstream producers made purchases on an as-needed basis, bringing market transaction into a stalemate. Copper inventories monitored by Shanghai Future Exchange (SHFE) were down 8,805 mt to 112,014 mt in the week ending August 19th, suggesting purchasing sentiment at low prices by downstream producers.

Aluminum
Most active SHFE 1111 aluminum contract gapped over 1% lower at RMB 17,070/mt on August 19th due to a plunge in global financial markets. In the morning, it quickly rebounded to struggle at RMB 17,200/mt following an intraday low of RMB 17,020/mt. Total positions of the contract climbed in the afternoon due to active longs, with a increasing trend slowing down later due to profit-taking. The SHFE 1111 contract finally closed at RMB 17,250/mt, down RMB 50/mt or 0.29% from previous trading day. Positive fundamentals helped SHFE aluminum prices back to fluctuating range of the week, and with strong support at RMB 17,000/mt, the most active contract are expected to test RMB 17,200/mt during this week. Latest SHFE aluminum inventories fell by 8,731 mt to 140,693 mt, which will provide support for SHFE aluminum prices in the short term.

Mainstream trading prices of spot aluminum in Shanghai were between RMB 17,670-17,700/mt on August 19th, with premiums of positive RMB 220-250/mt over SHFE current-month aluminum prices. Spot quotes were kept at RMB 17,700/mt in the morning as SHFE aluminum prices rebounded after gapping lower. Purchases slightly increased in the morning as downstream consumers built up their inventories, and supply of spot goods at lower prices turned scarce later due to increased purchases. In the afternoon, spot quotes were kept between RMB 17,670-17,700/mt though SHFE current-month aluminum prices hit RMB 17,500/mt. Inquiries in the afternoon were scarce, which led to zero transactions reported.

Zinc
Last Friday, SHFE 1111 zinc contract prices opened lower at RMB 16,850/mt in the morning tracking weakening LME zinc prices overnight, moving between RMB 16,750-16,850/mt during the day. Finally, SHFE 1111 zinc contract prices closed at RMB 16,885/mt, down RMB 185/mt, or down 1.08%. Trading volumes decreased significantly by 200,000 lots to 603,360 lots, while total positions increased by 9,142 lots to 240,938 lots, with the short momentum stronger.

In domestic spot markets, SHFE 1111 zinc contract prices opened below RMB 17,000/mt, dragging down spot prices. #0 zinc was traded between RMB 16,600-16,650/mt, with discounts of RMB 80-100/mt against SHFE three-month zinc contract prices. Some brands were traded as high as RMB 16,900/mt as smelters had been holding goods. #1 zinc was traded between RMB 16,550-16,600/mt. Downstream buyers were cautious due to falling prices ahead of the weekend, while cargo holders were holding prices firm, keeping transactions quiet.

The newly approved 70 kt of warehouse holding capacity was not recorded. According to data from SHFE, spot inventories surged by over 20,000 mt, to 421,192 mt last week. SMM believes the high inventories were not from the newly added spot inventories as SHFE stocks fell significantly by 21,854 mt. Since spot discounts had narrowed to RMB 200/mt as spot inventories were being consumed while smelters were holding goods, goods supply available was mainly from arbitragers aggressively closing positions with profit-taking, so the surged inventories were mainly from warrants released by arbitragers.

Lead
Last Friday, SHFE 1110 lead contract prices opened lower at RMB 16,420/mt, dragged down by LME lead prices overnight, and then rallied to RMB 16,500-16,580/mt, touching as high as RMB 16,600/mt but meeting resistance at the 5-day moving average. In the afternoon, SHFE 1110 lead contract prices moved around the moving average, with prices finally closing at the intraday high at RMB 16,600/mt. Trading volumes increased by 288 lots to 1,862 lots, while total positions decreased by 156 lots to 4,298 lots.

In domestic spot markets, well-known brands such as Nanfang and Chihong Zn & Ge were quoted between RMB 16,180-16,200/mt, with discounts against SHFE 1110 lead contract prices negative RMB 350-400/mt. Other brands such as Jinguan and Tianma were quoted between RMB 16,050-16,100/mt. Spot prices fell by RMB 20/mt in the afternoon due to bearish SHFE lead prices, with well-known brands quoted between RMB 16,150-16,180/mt. Downstream buyers increased purchases at lower prices, causing transactions to improve.

Tin
Spot tin prices saw a relatively huge drop on August 19th to RMB 193,500-196,000/mt, due to plunging LME tin prices during previous night. Mainstreaming trading brands during the day were Yunxi, Yunheng as well as Jiangxi brands. A trading price of RMB 196,500/mt was also reported for small volumes of Yunxi branded tin. The weakening LME tin has not only dampened goods holder confidence, but also that of downstream buyers, and the dropping trend in the already sluggish domestic market may continue due to a lack of market confidence. As LME tin prices are facing downside pressure in the short term, domestic tin prices may also drop further.

Nickel
LME nickel for delivery in three months opened at USD 21,250/mt and closed at USD 21,250/mt last Thursday, down by USD 640/mt from a day earlier, with the highest price at USD 21,925/mt and the lowest price at USD 21,235/mt. LME nickel prices largely fluctuated narrowly after opening at USD 21,250/mt during the Asian trading hours on Friday. Although LME nickel prices rebounded to 10-day moving average, resistance was still strong at this level. While, LME nickel prices found support at USD 21,200/mt. Coupled with weak US dollar index, LME nickel prices found certain support last Friday. LME nickel inventories were up by 120 mt to 103,212 mt.

In the Shanghai nickel spot market, Thursday’s LME nickel price slump further dampened traders’ trading sentiment. On Friday, trading sentiment continued to be sluggish in the Shanghai nickel spot market, and traded prices continued to fall sharply. Mainstream traded prices of nickel from Russia were in the RMB 161,800-162,000/mt range, with a small amount traded at RMB 161,500/mt. Mainstream traded prices of nickel from Jinchuan Group were in the RMB 163,000-163,200/m range, with a small amount traded at RMB 163,500/mt. LME nickel prices continued to extend weak momentum, fueling wait-and-see sentiment in the market. Last week’s spot nickel prices were not as firm as before. As uncertainties of macro economies made traders’ confidence faltered, traders conducted transactions cautiously, weighing on prices.