SMM Weekly Review and Forecast (Aug. 22-26)

SHANGHAI, Aug. 29 (SMM) –

Copper

Last week, SHFE copper prices fluctuated between RMB 66,000-67,000/mt and continued to struggle around the 5 and 10-day moving averages. Both positions and trading volumes declined, with trading volumes falling more than 33% for the week, which also served to reduce speculative activity.

China’s government reiterated its commitment to control commodity prices and keep prudent monetary policies in place, so even if Chinese stock markets stop falling, it will not likely support SHFE copper prices to rebound in the short term. Cautious speculative funds will restrict SHFE copper prices’ upward momentum, but low-end prices will be supported by modest buying.

Last week, domestic copper supply in spot markets was sufficient, and imported copper supply was up due to the improved SHFE/LME copper price ratio. Cargo-holders were active moving goods for cash generation at the month’s end, causing spot copper premiums to fall. Due to copper price fluctuations, downstream producers were not eager to build stocks. Speculative buying also waned due to the lack of profits at premiums of positive RMB 100-150/mt, resulting in market oversupply.

In spot markets, cash flows will be tight due to the approach of the month’s end. Spot copper supply should be ample and imported copper supply will increase as the SHFE/LME copper price ratio rises. However, few downstream producers will be able to purchase due to cash flow pressures, so oversupply will become more pronounced and reduce copper premiums.

Aluminum

SHFE 1111 aluminum contact prices moved below the 60-day moving average, with prices mainly moving between RMB 17,150-17,350/mt last week. Trading sentiment was sluggish, with daily trading volumes falling to around 50,000 lots. Investors mainly made short-term speculative transactions, keeping mainstream prices between RMB 17,200-17,300/mt. SHFE aluminum inventories fell continuously, and positive market fundamentals helped SHFE aluminum prices fall slower than other metals prices, but investors were cautious and moved goods actively for profits, helping erode upward momentum of SHFE aluminum prices and allowing SHFE aluminum prices to rise slower than other metals prices. SMM predicts SHFE 1111 aluminum contract prices will struggle at the 60-day moving average, but consolidate at RMB 17,200/mt.

The tightening credit supply at month’s end further depressed downstream buying interest, with purchases rarely seen after spot aluminum prices hit RMB 17,800/mt. Spot aluminum inventories stayed near 310 kt. Selling interest was high among goods holders with premiums of more than RMB 200/mt over SHFE current-month aluminum prices, thereby keeping traded prices between RMB 17,750-17,800/mt. However, as downstream enterprises expected aluminum prices to drop, market transactions were sparse, forcing goods holders to successively lower their quotes during second half of the week. Buying interest nevertheless remained low as a strong wait-and-see sentiment prevailed downstream. SMM believes downstream consumption will remain weak and spot aluminum prices will hover above RMB 17,700/mt, with spot premiums over SHFE current-month aluminum contract prices expected to fall below RMB 200/mt.

Lead

Last week, SHFE 1110 lead contract prices rebounded above RMB 16,500/mt, then moving mainly between RMB 16,500-16,800/mt. SHFE lead markets staged no major breakthroughs due to strong resistance. SHFE lead prices will fluctuate in the RMB 16,400-17,000/mt range this week. 

In China’s domestic spot market, prices for well-known branded lead were between RMB 16,200-16,300/mt, with spot discounts over SHFE 1110 lead contracts between negative RMB 350-420/mt. Offers for other brands were generally in the RMB 16,120-16,200/mt range. With heavy cash flow pressures at the month’s end, domestic lead smelters were more willing to move goods, helping increase market supply. Downstream producers, however, remained wary of purchases, as they replenished goods previously when prices fell below RMB 16,000/mt. Spot lead prices will fluctuate in the RMB 16,100-16,500/mt range this week, with discounts between negative RMB 350-400/mt. 

Zinc

Last week, the possibility of QE3 policies by the US Federal Reserve (Fed) was the focus of markets, and combined with mixed economic data from Europe and the US, investors rushed to risk adverse assets, pushing up gold prices as high as USD 1,900/mt. US new home sales in July hit a five-month low, while orders for durable goods jumped higher than expected. In addition, HSBC China’s manufacturing PMI was slightly better than forecasts, shoring up zinc prices. LME zinc prices struggled at USD 2,200/mt level, moving between USD 2,150-2,220/mt.

SHFE three-month zinc contract prices were between RMB 167,000-17,100/mt, moving in tandem with LME zinc prices. In domestic spot markets, goods supply available in the market was steadily consumed. Spot discounts against SHFE three-month zinc contract prices were between negative RMB 130-200/mt, while spot prices held firm between RMB 16,700-16,900/mt. Downstream buying interest waned and since some cargo holders were also unwilling to move goods, transactions were quiet.

Last week, spot goods prices stabilized below RMB 17,000/mt, lowering downstream buying interest. Spot inventories grew slightly. Inventories in east China remained unchanged at 431.4 kt, inventories in south China fell 500 mt, to 136 kt, while inventories in north China grew 1,000 mt, to 7 kt.

Tin

Domestic spot tin prices maintained a downward trend this week and fell between RMB 193,000-195,500/mt on Friday, August 26th, down RMB 2,500/mt from previous week. The wait-and-see sentiment turned stronger during recent period as a combined result of sluggish transactions, weak downstream consumption and drastic price fluctuation. Though branded tin smelters kept their quotes firm, Jiangxi and Guangdong smelters successively offered lower prices, thereby leading to increased low-price supply. As selling interest remained low among smelters, market supplies stayed at a low level. However, no supply shortage was seen due to weak demand. At present imported tin was reported in domestic markets, and more is expected in the future, indicating domestic-overseas price gap is stimulating growth of tin import, which will pose certain pressure for domestic tin prices. Given fluctuating LME prices, domestic tin prices are not likely to rise in the short term but may slightly move down. The SMMI.Sn index fell 0.64% during the week.

Nickel

In the Shanghai nickel spot market, prices continued to fluctuate weakly, falling below RMB 160,000. Jinchuan Group cut ex-works nickel prices twice by a total of RMB 6,000/mt, to 158,000/mt. Spot nickel prices fell in response, with mainstream traded prices slipping to around RMB 159,000/mt. The average weekly price of SMM #1 nickel was RMB 160,550/mt, down RMB 4,070/mt from a week earlier.

LME nickel prices failed to gain upward momentum, depressing trading sentiment in spot markets. Overall trading sentiment was quiet, with weak demand from downstream consumers and deals largely made among traders. A large amount nickel from Russia recently arrived in the Shanghai nickel spot market, so supply was ample.