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SMM Daily Review – 2011/9/16 Base Metals Market
Sep 19,2011 09:41CST
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As LME copper prices increased more than USD 100/mt on the previous trading day, SHFE 1111 copper contract prices opened up RMB 390/mt at RMB 65,580/mt on Friday.

SHANGHAI, Sept. 19 (SMM)--

As LME copper prices increased more than USD 100/mt on the previous trading day, SHFE 1111 copper contract prices opened up RMB 390/mt at RMB 65,580/mt on Friday. Since LME copper prices drifted higher and the Shanghai Composite Index fluctuated lower after meeting resistance at 2,500 points, SHFE 1111 copper contract prices fluctuated around the daily moving average after the opening. At the tail of trading, large-scale position closings by the shorts pushed SHFE 1111 copper contract prices up to an intraday high of RMB 66,000/mt. Finally, SHFE 1111 copper contract prices closed at RMB 65,970/mt, up RMB 780/mt or a gain of 1.2%. The fluctuating band of SHFE 1112 copper contract prices moved higher, with prices touching a high of RMB 65,890/mt in the afternoon and closing at RMB 65,850/mt, Positions for SHFE 1111 copper contracts were down 23,104 lots and trading volumes were down 134,000 lots, while positions for SHFE 1112 copper contracts were up 8,280 lots and trading volumes were down 23,364 lots, and the shift of the most actively-traded copper contracts were completed. The longs took the opportunity to make profit-taking, and didn’t show strong willingness in keeping up with rising copper prices. SHFE copper prices need more positive news to break the existing resistance at the 5-day moving average.

In the spot market, as SHFE copper prices stopped falling and copper supply reduced slightly compared with earlier stages, copper discounts slightly narrowed in the morning business compared with the previous trading day, reporting between negative RMB 70-0/mt. Daily traded prices for standard-quality copper were between RMB 65,650-65,750/mt, and RMB 65,700-65,850/mt for high-quality copper. Due to locked hedge trading, this kind of cargo-holders were unable to move goods, and cargo-holders of domestic copper were unwilling to sell at discounts, while downstream producers increased purchases before the weekends and since SHFE copper prices began to stabilize following the declines. Market surpluses eased slightly. Copper inventories monitored by the Shanghai Future Exchange (SHFE) were down 1,239 mt to 112,061 mt in the week ending September 16th, highlighting that downstream producers and traders increased purchases at the lows.    

Most active SHFE 1111 aluminum contract opened slightly higher at RMB 17,385/mt on September 16th. After hitting an intraday high of RMB 17,405/mt at the beginning of trading, the contract quickly slipped on profit taking by the longs with positions dropping by 3,758 lots, and finally closed at RMB 17,350/mt, up RMB 10/mt or 0.06% from previous trading day. We also noticed a position increase of 3,284 lots for SHFE 1112 aluminum contract which is to become the most active one. Market transactions contracted to only 16,000 lots as investors were cautious after SHFE aluminum showed signs of stagnation. Given strong resistance at the RMB 17,400/mt mark, SMM expects most active SHFE aluminum contract to stay below the level until it gains enough upward momentum. Latest SHFE aluminum stock decreased 1,334 mt to 110,016 mt.

Traded prices of spot aluminum in Shanghai were between RMB 17,650-17,680/mt, with premiums of RMB 130-150/mt over SHFE current-month aluminum prices. In the morning, spot aluminum price stagnated at the low-end after SHFE current-month aluminum contract erased gains from a higher opening. After SHFE 1110 aluminum contract became the current-month contract, goods holders’ confidence for support at RMB 17,500/mt was relatively strong, with spot premiums held steady above RMB 100/mt. Stabilizing spot price at the low-end also attracted purchases from some downstream buyers to build up their stocks, and market transactions slightly improved from previous trading day. In the afternoon, SHFE aluminum transactions remained sluggish, with SHFE current-month aluminum contract fluctuating near RMB 17,500/mt. However, after SHFE 1110 became the current-month aluminum contract, goods holders’ selling interest at lower prices turned low, and spot aluminum quotations were pushed to RMB 17,670-17,700/mt by limited supply. Though inquiries from middlemen were active, market transactions were rarely seen due to climbing prices.

Last Friday, SHFE 1110 lead contract prices opened higher at RMB 16,425/mt, touching RMB 16,565/mt and meeting resistance at the 5-day moving average, and inched down to a new low last seen on August 10, at RMB 16,280/mt. Finally, SHFE 1110 lead contract prices closed at RMB 16,350/mt, down RMB 70/mt. Trading volumes increased by 140 lots to 536 lots, and total positions decreased by 224 lots to 3,126 lots.
In domestic spot markets, well-known brands such as Nanfang and Chihong Zn & Ge were quoted between RMB 16,130-16,150/mt, with discounts of negative RMB 200/mt against SHFE 1110 lead contract prices. The Hanjiang brand was quoted around RMB 16,100/mt. In the afternoon, prices remained relatively unchanged. The market was cautious ahead of the weekend, while some downstream buyers purchased on an as-needed basis.

Last Friday, SHFE three-month zinc contract prices opened higher at RMB 16,825/mt, moving between RMB 16,800-16,900/mt during the day. In the afternoon, SHFE three-month zinc contract prices dipped to RMB 16,730/mt, but then rebounded to the moving average, closing at RMB 16,845/mt, up RMB 75/mt. Trading volumes were only 195,422 lots, while total positions decreased by 10,438 lots to 202,944 lots.

In domestic spot markets, #0 zinc was traded around RMB 16,700/mt, with discounts of negative RMB 150/mt against SHFE three-month zinc contract prices. At noon, traded prices of #0 zinc were pushed up to RMB 16,750/mt, while discounts remained unchanged, but with transactions quiet. #1 zinc was traded around RMB 16,650/mt. Downstream buying interest was low, despite traders were moving goods actively, leaving transactions quiet.

Despite gains in LME tin prices overnight, domestic spot tin reported another losing day on September 16th, due to a generally bearish environment, unstable global financial markets, weak domestic demand as well as active liquidating activities by Jiangxi tin suppliers. Traded prices of spot tin were maintained between RMB 191,500-192,000/mt. Though suppliers had held prices between RMB 195,000-195,500/mt for certain tin brands, no transactions were reached, which only showed their determination to hold prices that were backed by cost. The spot tin market during the day had also showed downstream demand was quite insensitive to LME tin price movements or suppliers’ attitude.

Last Thursday, LME nickel prices moved stably between USD 21,299-21,399/mt after opening, and surged to hit a high of USD 21,837/mt from the early European trading hours. Finally, LME nickel prices closed at USD 21,815/mt, up USD 516/mt or 2.42% from a day earlier, breaking through 30-day moving average and weighed below 60-day moving average. During Friday’s Asian trading hours, LME nickel prices advanced from USD 21,755/mt to USD 21,951/mt, and later fell to USD 21,850/mt. LME base metal prices rallied across the board during the Asian trading hours, owning to improved risk appetite following global major central banks' move to inject liquidity to European commercial banks. In response, base metal market and Asian equity market advanced on Friday.

Although LME nickel prices advanced by 2.42% last Thursday, trading volumes only increased slightly and positions reduced significantly, suggesting weak momentum for LME nickel price to rebound. From a short-term perspective, LME nickel prices expanded gains after breaking through USD 21,500/mt on Friday, and are expected to advance further to test USD 22,000/mt, with resistance still felt at USD 22,000/mt.

In the Shanghai nickel spot market, mainstream traded price of nickel from Russia was RMB 160,000/mt and mainstream traded price of nickel from Jinchuan Group was RMB 161,000/mt. According to trades, transactions improved compared to two days earlier. Boosted by LME base metal price increase, transactions increased, but were still largely among traders.

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