SMM Daily Review - 2011/9/28 Base Metal Market

SHANGHAI, Sept. 29 (SMM) –

Copper
SHFE 1112 copper contract prices, the most active one, opened slightly up at RMB 55,210/mt on Wednesday. After the opening, short-term longs increased purchases, helping SHFE three-month copper contract prices touch an intraday high of RMB 55,770/mt. However, as LME copper prices fell back, SHFE three-month copper contract prices failed to rebound. Coupled with a damp from the shorts, SHFE three-month copper contract prices dropped below the daily moving average after 10:30 am, posting weak movements. In the afternoon session, since the Shanghai Composite Index slid and lost 2,400 points, SHFE three-month copper contract prices drifted down to RMB 54,000/mt, with a low reaching at RMB 53,500/mt. At the tail of trading, large-scale position closings helped SHFE three-month copper contract prices return to earlier morning session levels. Finally, SHFE 1112 copper contract prices closed at RMB 55,170/mt, up RMB 30/mt, or a gain of 0.05%. Positions for SHFE 1112 copper contracts were up 17,976 lots, and trading volumes were up 53,486 lots. Despite disagreements among longs and shorts, bearish sentiment was persistent. Together with increasing pressures at the daily moving average and downside technical indicators, a rally in SHFE copper prices seemed to be just temporary.         

In the spot market, as cargo-holders were active moving goods for capital recovery, initial copper offers were only quoted between premiums of positive RMB 0-100/mt. As SHFE copper prices fell, copper premiums fell all the way and had signs of turning into discounts, with copper offers reported between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt near the midday. Traded prices for standard-quality copper were between RMB 55,550-55,750/mt in the morning business, and RMB 55,600-55,850/mt for high-quality copper. Downstream producers were not seen to largely build inventories before China's National Day holiday, while traders stayed out of the market for risk aversion, keeping market cautious sentiment more pronounced. In the afternoon session, SHFE copper prices slumped by more than RMB 700/mt, triggering panic sentiment again. In this context, only offers for some high-quality copper maintained premiums of positive RMB 50/mt, while offers for standard-quality copper all turned into discounts. Traded prices fell below RMB 55,000/mt, and market transactions remained muted.  

Aluminum
The most active SHFE 1112 aluminum contract opened higher at RMB 16,630/mt on September 28th, and stood steady at the 5-day moving average in the morning supported by profit-taking by the shorts. In the afternoon, after Shanghai Composite Index dipped below the 2,400 mark, increased short selling dragged the contract below the 5-day moving average again. The profit taking at the tail of trading, however, helped the contract rebound and finally close at RMB 16,595/mt, up RMB 120/mt or 0.73% from previous trading day. Positions of the contract decreased 3,488 lots to 106,358 lots. Poor economic situation before the National Day holiday forced longs to exit and shorts dominated the market with repeated short selling and profit taking, eroding upward momentum of the aluminum contract. SMM expects the most active SHFE aluminum contract to struggle at RMB 16,500/mt during the last two trading days before the coming holiday as longs and shorts will mainly close their positions.

Traded prices of spot aluminum in Shanghai were between RMB 17,110-17,150/mt on September 28th, with premiums of RMB 180-200/mt over the SHFE current-month aluminum price. In the morning, inquiries and purchases were rarely seen as stock building before the coming National Day holiday already ended. With the SHFE current-month aluminum contract struggling at RMB 17,000/mt and spot aluminum inventories staying at low levels, the wait-and-see sentiment gained strength among goods holders, keeping spot premiums over the SHFE current-month aluminum price near RMB 200/mt. Market transactions were sparse as sellers and buyers argued over prices. In the afternoon, after the SHFE current-month aluminum price slipped, though this was followed by a rebound, the selling interest among goods holders dropped, with only a few quotations seen at RMB 17,090-17,130/mt. Some middlemen inquired for small orders, but transactions were hardly reached due to price divisions.

Zinc
On Wednesday, SHFE three-month zinc contract prices opened higher at RMB 15,105/mt, tracking LME zinc prices overnight, and then inched down in the morning session. Dragged down by LME zinc prices and the Shanghai Composite Index, SHFE three-month zinc contract prices plunged to RMB 14,680/mt at noon, but rallied to close at RMB 15,005/mt, up RMB 55/mt. Trading volumes increased by 4,000 lots to 548,658 lots, and total positions decreased by 1,476 lots to 214,656 lots.

In domestic spot markets, #0 zinc was traded between RMB 15,000-15,050/mt, with discounts of negative RMB 50-60/mt against SHFE 1112 zinc contract prices. Spot prices fell to RMB 14,950-15,000/mt at noon along with SHFE zinc prices, with #1 zinc traded around RMB 14,950/mt. Downstream buyers were cautious due to price volatility, which were also in the face of cash-flow problems, keeping transactions quiet.

Lead
On Wednesday, SHFE 1111 lead contract prices opened slightly higher at RMB 14,630/mt, following LME lead prices overnight, then continued to fluctuate. In the afternoon, SHFE lead prices dipped to RMB 14,250/mt, dragged down by Shanghai Composite Index, but gained back previous losses to close at RMB 14,505/mt, up RMB 120/mt. Trading volumes decreased by 738 lots to 1,622 lots, and total positions decreased by 240 lots to 2,912 lots.

In domestic spot markets, well-known brands such as Nanfang and Chengyuan were quoted between RMB 14,400-14,450/mt, close to SHFE 1111 lead contract prices. In the afternoon, spot prices still followed SHFE lead prices, but were RMB 20/mt higher than SHFE lead prices 20 minutes before the end of the trading, causing downstream buyers to increase purchases. But smelters were unwilling to sell goods.

Tin
Spot tin prices were little changed in Shanghai on September 28th as weak consumption prevented further gains of the metal. Mainstream tin brands during the day were Yunxi, Yunheng and Nanshan, with mainstream traded prices of RMB 180,000-182,500/mt. Market transactions were moderate. Branded tin from Jiangxi was almost consumed on the previous trading day and Yunnan tin brands were mainly seen on September 28th. Though lower end prices of the metal have slightly climbed during recent two days of trading, higher end prices were little changed due to weak downstream demand. As LME tin failed to climb further, the wait-and-see attitude again gained strength at downstream enterprises. Meanwhile, as domestic demand fell short of previous years and with arrival of imported tin at downstream, the demand for domestic tin dropped as a result.

Nickel
On Tuesday, LME nickel prices opened at USD 18,500/mt and closed at USD 19,047/mt, up USD 833/mt from a day earlier, with the highest price at USD 19,170/mt and the lowest price at USD 18,350/mt. On Wednesday, LME nickel prices extended weak momentum after opening at USD 18,760/mt during the Asian trading hours, with support at USD 5-day moving average and resistance at USD 18,924/mt. Macroeconomic uncertainties still haunted LME nickel market. LME nickel inventories were 97,290 mt, down 168 mt.

In the Shanghai nickel spot market, offers were relatively high in the morning trading hours, as market expected that Jinchuan Group would raise ex-works nickel prices. However, out of market expectation, Jinchuan Group did not raise ex-works nickel prices. Coupled with weak performance of LME nickel price on Wednesday, spot nickel prices slipped to certain extent, with mainstream traded prices of Russian nickel in the RMB 139,800-140,000/mt range and Jinchuan Group nickel in the RMB 140,500-141,000/mt range. Price spread between Jinchuan nickel and Russian nickel narrowed to certain extent, as Jinchuan Group's high ex-works nickel prices supported its spot nickel price to remain firm. Transactions were still quiet, with deals largely made among traders.