SHANGHAI, Oct. 10 (SMM) – As the European debt crisis further worsens, chances are high that Greece will default without new bailout and finally get extruded from the Euro zone. Though Standard & Poor’s had downgraded credit ratings for Italy’s sovereign debt as well as 7 Italian banks, European Securities and Markets Authority’s announcement that short-selling bans in France and Italy which would end on September 30th will be extended helped comfort investors’ panic, thereby limiting downward paces of commodities prices. The SMMI index was down 5% during the week from September 26th to 30th. Copper lost the most 8% among all metals due to its financial attribute. Aluminum slipped only 0.23% this week as strong support was found. Nickel prices, in the contrary, recovered losses and finally gained 0.47% on Friday, September 30th.
Negatively affected by tight cash flows at the month's end at enterprises, as well as a Shanghai Composite Index below 2,400 points, SHFE copper prices fell by their daily loss limit for two consecutive days, with the most actively-traded copper contract prices moving between RMB 51,600-55,800/mt. Due to a strong risk aversion sentiment from both long and short investors, trading volumes were up significantly by 1.84 million lots, while positions were down by 20,000 lots and without solid support at low-end prices.
In spot markets, cargo-holders were actively moving goods to generate cash prior to China's National Day holiday, and imported copper increased significantly due to an improvement in the SHFE/LME copper price ratio, which caused spot copper offers turn to discounts of RMB 100/mt from premiums of RMB 150-300/mt early in the week.
Since most downstream producers will suspend production for maintenance during China's National Day holiday, there was no significant stockpiling activity reported. In addition, tight capital availability and cautious sentiment towards copper price trends during the holiday period also dampened raw material purchases. Overall market consumption was down, and market transactions were muted.
SHFE copper market and Chinese stock markets will continue to fluctuate after the Chinese National Day holiday, given low investor confidence and limited support from longs. In the spot markets, SHFE 1110 copper contracts will be delivered in the first trading week after the holiday. The need for stocks replenishment and improvement in cash flow pressures will help improve post-holiday transactions.
Long investors exited the market before China’s National Day holiday due to weak macro economic conditions, and SHFE aluminum prices fluctuated widely last week due to strong short selling pressures. SHFE three-month aluminum contract prices fell below RMB 16,000/mt for the first time in 2011 on Monday and hit a new low of RMB 15,850/mt. Later SHFE three-month aluminum contract prices found solid support at RMB 16,000/mt on Thursday after opening significantly lower, with prices struggling at RMB 16,500/mt and returning above the 5-day moving average. As China’s National Day holiday neared, short investors also exited the market due to uncertainties over international economic conditions. Weaker selling pressure helped support SHFE aluminum prices to fall slower than other base metals, and trading volumes also decreased to lower than 100,000 lots, with trading sentiment turning weaker.
As businesses began to close out their books during this last week of the third quarter, there was a noticeable cooling in traders’ willingness to liquidate stocks for cash at low prices. Due to low spot inventory levels and stock building before China’s National Day holiday, SMM spot premiums stayed high near RMB 200/mt. However, capital pressures at the end of the quarter, inadequate order volumes, a generally bearish economic environment, and extremely limited inventory building downstream this year eroded the upward momentum of spot aluminum prices. Encountering strong resistance at RMB 17,100/mt, spot aluminum prices finally slipped below the RMB 17,000/mt mark following a plunge in SHFE aluminum prices. With the approaching holiday, few inquiries and fewer downstream purchases were seen during the second half of the week. Goods holders exited the market one after the other, leaving the spot aluminum market quiet.
In the SHFE lead market, prices of SHFE 1111 lead contracts slid below RMB 14,000/mt in early week trading due to plunging LME lead prices, but SHFE lead prices later rose above RMB 14,600/mt as LME lead prices rebounded. On Thursday, LME lead prices opened significantly lower due to sluggish LME lead prices, down to RMB 13,590/mt, the lowest level since its launch. A weak US dollar, however, helped SHFE lead prices return above RMB 14,000/mt. The SHFE market will not re-open until October 10th due to the Chinese National Day holiday. SHFE lead prices will likely rally up to RMB 15,000/mt after the holiday if LME lead prices make significant gains during the holiday.
In the spot market, traded prices tracked movements in the SHFE lead market, initially rising to RMB 14,350-14,400/mt, but later falling to RMB 14,100/mt with discounts over SHFE 1111 lead contract between RMB 50-0/mt. In order to maintain stable production during the holiday, downstream producers began to show interest in building stocks as prices stabilized. However, supply of goods from arbitrage trading fell on a weekly basis. Smelters were also reluctant to move goods, except those under heavy cash flow pressure. In this context, market supply was limited and transaction activity was strong. In domestic spot markets, smelters will likely move goods for cash generation after the holiday if lead prices remain sluggish, allowing downstream producers to increase purchases at lower prices. With spot discounts over SHFE 1111 lead contract at negative RMB 100-200/mt, transactions should be made between RMB 14,400-14,800/mt.
In domestic spot markets, downstream buying interest was strong as the National Day holiday neared and from plummeting zinc prices. Shortages in markets were caused by smelters holding goods, which were mainly released warrants. As a result, spot discounts narrowed sharply to RMB 0/mt, with prices as much as RMB 50/mt higher than SHFE 1112 zinc contract prices between RMB 14,500-15,000/mt.
Last week, mainstream traded prices of spot zinc were between RMB 14,500-15,000/mt. Downstream buyers were actively purchasing raw materials ahead of the China’s National Day holiday. Since the SHFE market will be closed next weekend, aggressive buying caused spot inventories to fall sharply. Inventories in east China fell by over 7,000 mt, to 428,400 mt, while inventories in south China fell 8,000 mt, to 120,000 mt. Stocks in north China grew 2,000 mt, to 11,000 mt. Since zinc prices were generally low, and since prices in north China were higher than SHFE zinc prices when compared to east China, smelters preferred to sell goods to north China.
LME tin price closed at USD 20,900/mt on Thursday, September 29th, up USD 1,300/mt from the previous Thursday. LME tin stock as of September 29th was little changed at 21,165 mt.
Spot tin prices in Shanghai dropped to the weekly low of RMB 178,000/mt earlier during the week from September 26th to 30th due to plunging LME tin prices. It rebounded later with LME tin prices and climbed to RMB 180,000-183,000/mt on Thursday September 29th.
The unexpected rebound in LME tin prices lifted some domestic smelters’ selling interest, with small volumes of branded tin from Jiangxi Province seen. However, most smelters were still unwilling to move goods, market supplies therefore remained limited.
Though LME tin prices gained support on concerns that tin supply by Indonesia may decrease, market players were worrying that it may be speculation and therefore stayed cautious towards tin prices during the National Day holiday.
During the second half of the week, though the lower end of the tin price range climbed, the higher end was little changed due to weak downstream demand. The wait-and-see sentiment turned strong again among downstream enterprises as LME tin prices failed to further climb. This sentiment was also boosted by weaker demand at the current peak season compared with previous years. Meanwhile, after imported tin successively arrived at downstream enterprises, downstream demand for domestic tin was naturally eroded.
Technically speaking, LME nickel prices should still receive strong support at USD 18,000/mt in the short term and the Euro may strengthen during the holiday period. In this context, LME base metals, including LME nickel prices, may gain upward momentum. SMM expects LME nickel prices will move toward USD 20,000/mt. However, tight monetary policy in China and sluggish performance on Chinese stock markets may drag down LME nickel prices after the holiday.
In China’s domestic market, Jinchuan Group’s ex-works prices were RMB 139,000/mt, helping support low-end spot nickel prices. As LME nickel prices are expected to advance during the holiday period, but fall later, spot nickel prices will continue to move around RMB 140,000/mt after the holiday. At present, no signs of high demand period are apparent, so spot consumption is expected to remain weak.