SHANGHAI, Sept. 19 (SMM)--Early last week, investors confidence was depressed as Moody’s downgraded the credit ratings of two banks in France, and due to the ongoing European debt crisis. Five major central banks announced they will provide European banks unlimited amounts of US dollar loans by the end of the year, helping mitigating concerns over European debt crisis. In this scenario, the euro rebounded to 1.40, while the US dollar index fell after touching 77.784, to 76.3. SHFE base metal prices gained back some losses, with SMMI down 2.34%. SMMI.CU was down 3.26%.
As the Shanghai Composite Index failed to rise above 2,500 points, and since LME copper prices drifted significantly lower during the week, SHFE copper prices opened nearly RMB 1,500 down on the first trading day after China’s Mid-Autumn Festival holiday. Momentum from short investors was strong, and as of Thursday, overall trading volumes for all SHFE copper contracts were up 300,000 lots, while positions were up nearly 90,000 lots. SHFE copper prices fell below all the moving averages and fluctuated between RMB 65,000-66,500/mt, down nearly 4% for the week. September 15th was the delivery day for SHFE 1109 copper contracts, with both long and short investors significantly increasing positions for SHFE 1112 copper contracts, which became the most actively-traded copper contracts on Friday.
In China, markets generally believe September CPI data will remain high since August CPI was little changed from July, which will keep China’s Central Government unchanged in its desire to control commodity prices. As a result, current tight credit conditions for investors and enterprises will remain unchanged.
In spot markets, cargo-holders last week were eager to move goods to generate cash as hedge trading reported profit-taking and since the price gap between SHFE 1109 and 1110 copper contracts was over RMB 500/mt, making market surpluses more pronounced. Due to improvement in the SHFE/LME copper price ratio and a reduction in losses, finance-driven copper imports were the first to make transactions at a discount of negative RMB 200/mt, near the break-even point. As a result, spot copper offers also were made at discounts even as SHFE copper prices fell sharply and the delivery date approached. Downstream producers and traders increased purchases at the lows, and market transactions improved compared with the prior week.
In the coming week, spot copper will not be able to maintain premiums due to ample supply and cargo-holders’ eagerness in moving goods for cash generation.
Following China’s Mid-Autumn Festival holiday, SHFE 1111 aluminum contract prices rebounded after falling initially to RMB 17,250/mt, but still faced strong pressure at RMB 17,400/mt due to a lack of long momentum. Market sentiment was sluggish following the holiday due to European debt woes, and Chinese stock markets unlikely returned above 2,500 points. In addition, spot aluminum consumption was weak, and daily trading volumes of SHFE 1111 aluminum contracts were below 30,000 points, which provided no support for higher SHFE aluminum prices. Spot aluminum inventories were low, and aluminum producers in Guangxi and Guizhou provinces cut production due to power restrictions, which helped prevent aluminum prices from falling. As a result, SHFE aluminum prices will continue fluctuating in a narrow band in the near term.
Spot trading resumed Tuesday last week, following the Mid-Autumn Festival. Since downstream processors built inventories before the holiday, stock replenishment was sluggish as markets reopened. Cargo-holders were selling goods aggressively at slight discounts over SHFE current-month aluminum contract prices before the delivery date due to market pessimism. SMM aluminum prices fell rapidly to RMB 17,650/mt, down from RMB 17,800/mt, and it was the first time prices fell below RMB 17,700/mt since August 9th. Downstream consumption remained sluggish in the first half of September due to cash flow pressures and weak orders. Buying interest remained low despite lower prices, with supply surpluses reported.
SHFE three month zinc contract prices inched down to RMB 17,000/mt and below all moving averages after markets reopened following China’s Mid-Autumn Festival holiday. Spot discounts against SHFE three-month zinc contract prices narrowed to RMB 130/mt, down from negative RMB 200/mt early in the week, as the delivery date neared and since most smelters were still holding goods. Downstream buyers only purchased modestly due to pessimism and tight cash flows.
Last week, domestic spot zinc prices fell, causing downstream buying interest to improve. Inventories in east China fell 2,000 mt, to 435,400 mt, while inventories in south China were also down by 2,000 mt, to 132,500 mt. Inventories in north China grew by 1,000 mt, to 7,000 mt. Since spot prices in north China were higher than east China, most smelters in the north preferred to keep goods within that region, causing inventories in the north to grow.
SHFE 1110 lead contract prices fell continuously in response to lower Chinese stock prices, with SHFE 1110 prices falling to a low of RMB 16,245/mt on Thursday. Last week, SHFE lead markets saw the first delivery since the launch of lead futures trading on the SHFE. SHFE 1109 lead contract prices extended losses and fell to a low of RMB 16,110/mt on its last trading day, with settlement prices at RMB 16,190/mt. In the coming week, SHFE lead prices will continue to fall, and will test support at RMB 16,000/mt, and the resistance level will be RMB 16,700/mt.
In domestic spot markets, smelters in Henan province remained closed due to environmental protection inspections, while power restrictions and water shortages in south China, as well lower lead prices, also caused smelters to cut output and limit market supply. Lead-acid battery producers, however, still made purchases at lower prices and helped prevent spot lead prices from falling quickly. Steady declines in SHFE lead prices helped narrow spot discounts, with discounts against SHFE 1110 lead contract prices narrowing from RMB 250-300/mt in earlier week, to RMB 200-250/mt. Domestic lead prices fell from RMB 16,150-16,230/mt in earlier week, to RMB 16,050-16,160/mt ahead of the weekend. The price spread between well-known brands and non-branded lead failed to widen despite the arrival of the delivery date. In the coming week, spot lead prices will likely fall below RMB 16,000/mt as spot discounts against SHFE 1110 lead contract prices remain between RMB 100-200/mt. However, since most smelters are unwilling to move goods, limited supply and downstream buying at lower prices will provide some support for spot lead prices. In this context, SMM expects spot lead prices to fluctuate between RMB 15,900-16,400/mt in the coming week.
Domestic tin price dropped slowly this week, with SMM tin price dropping to RMB 191,500-195,500/mt on September 16th. SMM average tin price as of the day was RMB 193,500/mt, down RMB 2,250/mt from previous week. Main reasons for losses in domestic tin price include stagnating LME tin price, active selling at lower prices by Jiangxi tin suppliers and eroded consumption due to tin import. Though mainstream domestic tin brands held their prices steady, the dropping move still continued. Ordinary branded tin traded between RMB 191,500-195,500/mt, while, mainstream branded tin traded between RMB 195,000-195,500/mt.
In China’s domestic spot markets, the average weekly price of SMM #1 nickel was RMB 160,700/mt, down 0.31% from RMB 161,200/mt a week earlier. Last week’s domestic/LME nickel price ratio was unfavorable for nickel imports, but around 600 mt of Russian nickel arrived in domestic markets and market supply was reported as sufficient. Current prices for #1 refined nickel were below RMB 160,000/mt, triggering stronger buying interest from stainless steel mills, but overall transactions were still quit.