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SMM Daily Review - 2011/9/26 Base Metal Market
Sep 27,2011 10:41CST
price review forecast
Source:SMM
Based on an SMM survey, bout 72% industry insiders believe copper prices will extend losses within this week, and 64% of market respondents are bearish towards aluminum prices this week.

SHANGHAI, Sept. 27 (SMM) –

Copper
As LME copper prices dropped by more than 4% last Friday, SHFE 1112 copper contract prices, the most active one, opened down RMB 1,470/mt at RMB 55,870/mt on Monday. LME copper prices stabilized near USD 7,300/mt on Monday morning, and SHFE three-month copper contract prices remained weak after a low open, but gained support at the lows around RMB 55,060/mt, with prices fluctuating around RMB 55,500/mt. In the afternoon session, since LME copper prices plummeted by 6% to lose USD 7,000/mt and USD 6,900/mt, and since the Shanghai Composite Index also fell below 2,400 points, SHFE three-month copper contract prices tumbled, with prices again sliding by the daily limit of 7% to touch RMB 53,320/mt after the longs left the market. SHFE three-month copper contract prices tried to move above the RMB 53,320/mt price mark, but failed given increasing sell-off pressures from the shorts. SHFE 1112 copper contract prices finally closed at the downside limit of RMB 53,320/mt, down RMB 4,020/mt or a loss of 7.01%. Positions for SHFE 1112 copper contracts were up 16,770 lots, and trading volumes were up 117,000 lots. After constant copper price declines, markets were dominated by panic sentiment. As the shorts actively built new positions, SHFE copper prices would fall further.  

In the spot market, SHFE copper prices continued to fall by more than 3%, but LME copper prices rebounded slightly in the morning business. In this context, the SHFE/LME copper price ratio improved, creating profit opportunities for copper imports. As a result, copper premiums fell from the positive RMB 350-450/mt in earlier trading hours to positive RMB 150-250/mt near the midday. Traded prices for standard-quality copper were between RMB 55,850-56,000/mt in the morning session, and RMB 55,900-56,200/mt for high-quality copper. Cargo-holders were eager to move goods for cash generation during the whole trading day, but both traders and downstream producers were still cautious towards purchases, preferring to wait until a stable price trend was visible. In the afternoon session, SHFE copper prices slid by their daily limit, and although cargo-holders made aggressive sell-offs, spot copper offers moved towards below RMB 53,000/mt. Consumption failed to improve, and market players generally took a wait-and-see stance amid falling copper prices.  

SMM conducted a survey about copper price trends this week.

Based on the survey, about 72% industry insiders believe copper prices will extend losses within this week. They believe LME copper prices will test USD 6,500/mt at the low-end, and SHFE copper prices will slide further and lose RMB 50,000/mt, as negative news comes in constantly, and copper market is completely bearish. First, the European Central Bank (ECB) hasn’t introduced effective new policies or concrete measures to solve the region’s debt problems, despite some reassuring comments, and the latest G20 officer’s meeting also didn’t improve market confidence. As the deadline of Greek debts approaches, investor worries over the Euro-zone area are escalating, dampening financial markets. Second, Obama’s USD 470 billion job-creation plan and the Federal Reserve’s (Fed) measure of buying long-term bonds and selling short-term ones couldn’t save the faltering US economy fundamentally, which greatly hurt market confidence. Third, economic data in the US, including September Consumer Confidence Index, the US Richmond Fed Manufacturing Index for September, August durable goods orders, final reading of annual GDP in Q2 and Chicago Purchasing Managers Index (PMI) for September, is weak, and the September Consumer Confidence Index in the Euro-zone area is also weak. Markets expect the HSBC’s China manufacturing PMI data for September to be announced this Friday will be weak, which will further dampen financial markets and copper markets. Fourth, markets are panic, and will lead investors to largely buy US dollar for a risk hedge, which will help the US dollar index surge and weigh down copper prices. Fifth, gold and silver prices slumped on Monday, with gold prices falling below USD 1,600/oz from USD 1,900/oz, while crude oil prices also dropped to USD 77/bbl, negative for commodity markets. Sixth, Chinese stock markets have lost 2,400 points, and the financial markets will negatively affect copper prices. Meanwhile, cargo-holders will actively move goods for cash generation due to increasing cash flow pressures this week, in addition to the factor of panic sell-offs and profit-taking for imported copper. In this context, firm spot copper premiums will be unlikely as the month’s end nears, which will not support copper prices. In summary, copper prices will fall further this week.  

The remaining 18% insiders hold the view copper price drops will ease this week, believing LME copper prices will gain buying interest between USD 6,800-7,000/mt and SHFE copper prices will get support between RMB 51,000-52,000/mt. Although markets are dominated by bearish sentiment, global inflation continues, and the improvement in the SHFE/LME copper price ratio will also spur Chinese buyers to make quotation pricing, which will help LME copper prices. Technically, copper markets are considered oversold after slumps in both LME and SHFE copper prices, and will need corrections later, and both traders and downstream producers are waiting to enter into the market after a stable price trend is visible. In the spot market, downstream producers will need build inventories before the Chinese National Day holiday. Although they are cautious towards trading now, they will gradually make purchases later, which will support copper prices. Hence, these insiders believe copper price declines will ease, with prices expected to increase after initially falling.      

Aluminum

Most active SHFE 1112 aluminum contract opened lower at RMB 16,400/mt on September 26th, and climbed to an intraday high of RMB 16,678/mt in the morning on profit-taking by the shorts. That compared to losses in all other commodity prices. In the afternoon, LME aluminum plunged below the USD 2,200/mt mark on intensive selling for commodities, the most active SHFE aluminum contract also plummeted immediately following its afternoon opening to RMB 15,850/mt, a new yearly low. However, with the profit-taking wave at the tail of trading by the shorts, the contract rebounded and finally closed at RMB 16,000/mt, down RMB 470/mt or 2.85% from previous trading day. Total positions of the contract decreased 3,378 lots to 117,902 lots, while transactions surged to 221,000 lots during the day. This was a typical bear market as responded by the RMB 825/mt price gap. SMM expects the contract to test RMB 16,000/mt in the short term.

Traded prices of spot aluminum in Shanghai were between RMB 16,980-17,020/mt on September 26th, with premiums of RMB 180-200/mt over the SHFE current-month aluminum price. In the morning, SHFE aluminum prices stagnated within narrowed ranges, with the SHFE current-month aluminum price struggling at RMB 16,800/mt. As goods holders were confident for the RMB 17,000/mt mark, spot premiums quickly rebounded to near RMB 200/mt over the SHFE current-month aluminum price. Stock building was seen during this last week before the National Day holiday. However, due to capital pressure at quarter’s end, purchases were only made for the small volumes of goods supplied at prices lower than the RMB 17,000/mt. Market transactions remained flat since goods holders were unwilling to move goods at lower prices. In the afternoon, after LME aluminum price plunge below the USD 2,200/mt mark, SHFE aluminum prices also plunged, leading to stronger bearish sentiment in the spot market. However, spot quotations held at RMB 17,000/mt as traders were unwilling to move goods due to limited supply. Inquiries from downstream and middlemen were hardly seen. The wait-and-see sentiment prevailed in the spot market.

SMM weekly average aluminum ingot price plunged RMB 295/mt or 1.66% to RMB 17,431/mt during the week from September 19th to 23rd.

Latest SMM survey shows 64% of market respondents are bearish towards aluminum prices this week. As global financial markets have entered the bear market territory, asset selling is speeding up. Aluminum prices, though supported by high cost, are also expected to slip as the shorts dominated the aluminum market. Meanwhile, downstream spot aluminum consumption remained weak due to contracted domestic demand and export volumes. Mounting capital pressure at quarter’s end also damped consumption recovery. Though stock building will start this last week before the National Day holiday, most downstream processors choose to reduce output on low order volumes. Aluminum consumption growth therefore will be limited and will not provide enough support for aluminum price to stay at existing levels.

Remaining 36% of market respondents expect little changes in aluminum prices this week. With a production cost near RMB 16,800/mt, spot aluminum price has already dropped below the RMB 17,000/mt mark, which limited downward space for aluminum prices. Meanwhile, spot inventories stayed low near the 300,000 mt level, SHFE aluminum stock also dropped below the 100,000 mt mark, which will support aluminum prices. Despite a prevailing bearish sentiment in financial markets, a further plunge in aluminum price is not likely to happen as stock building before the national holiday will help aluminum price stabilize.

Zinc
SHFE three-month zinc contract prices opened lower at RMB 14,965/mt on Monday, with prices mainly moving around RMB 15,000/mt in the morning session and struggles between long and short positions intense. A stronger US dollar in the midday caused LME zinc prices to fall again, and SHFE three-month zinc contract prices plummeted immediately after opening in the afternoon session, with prices again setting a new low. Long investors exited the market, and short investors sold off positions, with SHFE zinc prices even falling by the daily price limit. Finally, SHFE three-month zinc contract prices closed at RMB 14,340/mt, down RMB 920/mt. Trading volumes decreased by over 3,000 lots to 587,122 lots, while positions increased by 15,446 lots to 230,142 lots. 

In spot markets, as SHFE three-month zinc contract prices dipped, spot zinc prices fell slightly in response, but spot discounts narrowed further. Traded prices for #0 zinc were between RMB 15,050-15,100/mt, and most deals were made at the low-end, with discounts against SHFE 1112 zinc contract prices only negative RMB 20-0/mt. Traded prices for #1 zinc were between RMB 15,000-15,050/mt. Market trends were unclear, and buying interest was low as well. Downstream processors subsequently exited the market as SHFE zinc prices tumbled. Market quotations were mixed, with quotations generally at premiums of positive RMB 100-150/mt against SHFE 1111 zinc contract prices, but no transactions were made.

Last week, the US Federal Reserve decided not to implement QE3, significantly depressing market confidence, and pushing up the US dollar index to 78. Both LME and SHFE zinc prices hit new lows for the year, and market players are all pessimistic towards zinc price trends this week.

60% believe that zinc prices will fluctuate at low levels, and will not fall sharply. SHFE three-month zinc contract prices should struggle between RMB 14,500-15,000/mt, with spot prices close to or higher than SHFE three-month zinc contract prices. There is no positive economic news, but on the other hand, downstream buyers will increase purchases ahead of China’s National Day holiday at lower prices, and smelters are unwilling to sell goods since production costs are much higher than spot prices, so goods supply available is only from arbitragers. As a result, zinc prices will be supported by spot markets, and will not fall sharply.

40% believe zinc prices should fall further, with SHFE three-month zinc contract prices moving between RMB 13,800-14,300/mt. Spot premiums should be around positive RMB 100/mt. Given current economic situation, downstream buyers will purchase modestly due to cash problems at the end of the month, and although smelters are still reluctant to sell goods, inventories available in the market are still at high levels, so spot demand is not able to support zinc prices.  

Lead
SHFE lead prices opened down RMB 400/mt at RMB 14,035/mt on Monday negatively affected by plunging LME lead prices last Friday, with prices mainly moving between RMB 14,100-14,200/mt in the morning session. Since LME lead prices sank and domestic stock markets plummeted in the afternoon session, SHFE lead prices fell further to RMB 13,595/mt, with prices finally closing at RMB 13,630/mt, down RMB 840/mt or 5.8%. Trading volumes increased by 1,318 lots to 3,636 lots, while positions increased by 584 lots to 3,242 lots.

As SHFE lead prices moved around the daily moving average after opening significantly lower on Monday, quotations for domestic well-known branded lead like Nanfang, Chihong Zn & Ge and Yuguang were between RMB 14,150-14,230/mt, with zero discounts against SHFE 1111 lead contract prices. Downstream consumers showed strong interest in purchases at lower prices, but goods were unavailable in the market, with deals mainly made between traders. SHFE lead prices dipped further in the afternoon business, and spot lead prices fell to RMB 13,750/mt in response. Lower prices depressed trader sentiment, keeping market transactions muted.

With regard to lead price trends for this week, 40% believe that as macroeconomic condition is deteriorating, and as European debt crisis is expanding, the US dollar index should continue to rise due to improving risk aversion appetite. Transactions in domestic market will remain quiet due to cash problems at the end of the month, so they are pessimistic, anticipating spot lead prices will likely fall below RMB 14,000/mt.

40% believe the G20 summit to be held recently will be a focus of markets. Any positive news released from the meeting will help ease market concerns, while any possible negative news released will cause currencies with high interest rates to fall sharply. In this context, SHFE lead prices should move between RMB 14,000-14,500/mt.

The remaining 20% are optimistic. As prices had fallen noticeably last week, and the Euro zone will finally take action as October 3rd is the deadline of Greek debt issue, and with good news still possible. Meanwhile, a large number of shorts leaving the market at the end of the month will push up SHFE lead prices to some extent, so lead prices should rebound. In addition, downstream buyers will replenish stocks modestly. But SHFE lead prices will not rebound remarkably given current global economic condition, moving between RMB 14,400-14,700/mt.

Tin
Due to global economic panic, Shanghai tin prices stayed near lower-end prices of previous trading day. Mainstream Yunheng and Nanshan branded tin traded between RMB 177,000-180,000/mt. Small volumes of Yunxi branded tin traded between RMB 179,500-180,000/mt. Intensive selling was seen during the day as most traders were pessimistic towards near-term tin prices. As most smelters were unwilling to move goods due to low prices, fewer tin brands were seen in the market. Previously active Jiangxi brands including Nanshan and Kaiyuan were not seen either. Market transactions remained sparse, however, due to weak downstream consumption and stronger wait-and-see sentiment.

During the last week before the National Day holiday, pessimism that Greece will default is expected to cause stronger risk aversion sentiment and therefore more market players will stay out of the market, further exerting downside pressure on LME tin prices. Most domestic traders also worry that LME tin prices may experience another drop during the one-week National Day holiday, as reflected by the increased selling on September 26th. Though most smelters were holding goods, continuous tin import will generally meet the weak domestic demand. Therefore, most market players believe another drop in tin price is inevitable. However, there are also many market players who expect domestic tin prices to stay above the RMB 170,000/mt mark this last week before the National Day holiday.

Nickel
Last Friday, LME nickel prices opened at USD 18,100/mt and closed at USD 18,150/mt, up USD 1,200/mt from a day earlier, with the highest price at USD 19,050 mt and the lowest price at USD 16,800. On Monday, LME nickel prices fell to hit a low of USD 17,150/mt after opening at USD 18,400/mt during the Asian trading hours, but later pared certain losses from weaker US dollar. Panic sentiment still lingered in the market, and LME nickel prices were still weighed. LME nickel inventories were 97,140 mt, down 102 mt.

In the Shanghai nickel spot market, Jinchuan Group cut ex-works nickel prices by RMB 14,000/mt to RMB 139,000/mt on Monday, dragging down spot nickel prices below RMB 140,000/mt. During the morning trading hours, mainstream traded prices of Russian nickel were around RMB 138,000/mt and mainstream traded prices of Jinchuan nickel were around RMB 140,000/mt. During the afternoon trading hours, transactions of spot nickel were quiet along with LME nickel price tumble, with offers in the RMB 135,000-136,000/mt range. Trading sentiment was extremely quiet owing to the lack of expected pre-holiday stock replenishment.

Based on result of an SMM survey, market players believe that nickel prices will continue to fall this week. Risk aversion sentiment is strong and many investors have exited market, as Greek debt will mature in October. Traders, especially traders from China, are not optimistic towards price trend during the National Day holiday and believe that prices will fall further from experience accumulated in the previous years. Negative news floods in the market , and panic sentiment is still strong, so players are pessimistic towards nickel price trend in this week, and believe that LME nickel prices will fall to around RMB 17,000/mt.
 

 

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