SMM Daily Review - 2011/10/11 Base Metals Market

SHANGHAI, Oct. 12 (SMM) –

Copper

As LME copper prices rose above USD 7,400/mt, SHFE 1112 copper contract prices, the most active one, opened RMB 960/mt higher at RMB 55,780/mt Tuesday. After the opening, SHFE three-month copper contract prices met resistance and fell back after briefly increasing to RMB 56,000/mt.As short investors actively built positions at highs during the whole trading day, and since Chinese equity markets declined after opening nearly 3% higher, SHFE three-month copper contract prices declined all the way and lost support at the 5-day moving average in the afternoon session, with the low-end at RMB 54,130/mt. Finally, the most actively-traded copper contract prices closed at RMB 54,210/mt, down RMB 610/mt or a loss of 1.11%. Positions for the most actively-traded copper contracts were up 47,340 lots, and trading volumes were up 193,000 lots. Positions for all SHFE copper contracts were up 63,470 lots, while trading volumes were up 253,000 lots. SHFE copper prices were facing more pressures to fall.      

In the spot market, spot copper offers and transactions were almost the same with the previous trading day, since SHFE copper prices extended lower movements after a high open on the prior day. Highest traded copper prices in the morning session were near RMB 56,000/mt, while offers were reported at discounts of negative RMB 50-0/mt, with moderate market transactions. However, as SHFE copper prices slid, premiums failed to increase due to sluggish consumption. Furthermore, panic sentiment kept downstream producers and speculators out of the market, keeping price offers between premiums of positive RMB 0-70/mt. Traded prices for standard-quality copper were between RMB 55,200-55,350/mt, and RMB 55,300-55,600/mt for high-quality copper. Ample market supply was more pronounced. SHFE copper prices continued to move lower in the afternoon business, and market transactions were not seen to improve, with cautious sentiment spreading in the market. Spot copper premiums slightly rose to premiums of positive RMB 30-100/mt, but traded prices lost RMB 55,000/mt. Panic and wait-and-see sentiment was growing.

Aluminum

After Europe and China provided measures to boost investor confidence for financial markets, the most active SHFE 1112 aluminum contract opened higher at RMB 16,805/mt on October 11th in a bid to fix the gap on September 23rd. However, the shorts turned active again after the Shanghai Composite Index failed to consolidate at the 2,400 mark, with the most active aluminum contract gradually erasing gains during the day to finally close at RMB 16,700/mt, up RMB 35/mt or 0.21% from previous trading day. Positions of the contract decreased 490 lots to 98,490 lots. SHFE aluminum contracts closed mixed during the day with forward contracts closing higher. As China’s September CPI is to be announced soon, the cautious sentiment prevailed in the market with less than 50,000 lots of transactions seen. SMM expects the contract to test support at RMB 16,500/mt in the short term lacking upward momentum.

Traded prices of spot aluminum in Shanghai were between RMB 17,040-17,080/mt on October 11th, with premiums of RMB 50-80/mt over the SHFE current-month aluminum price.

In the morning, SHFE aluminum prices gapped higher after Huijin Investment Ltd., a unit of China’s sovereign wealth fund, injected RMB 197 million into Chinese stock markets. The metal’s gains were limited, however, with goods holders actively selling goods on narrowing premiums due to the change in the current-month contract ahead. Market supplies turned sufficient as a result. However, downstream only purchased as needed, even after the spot price dropped to near RMB 17,000/mt. Only high quality aluminum ingot prices held firm. Market transactions were moderate.

In the afternoon, after SHFE aluminum prices accelerated gain-trimming, the wait-and-see sentiment again gained strength among both sellers and buyers. Only a few spot quotations were reported at RMB 17,030-17,040/mt and market transactions were rare.

Lead

On Tuesday, SHFE 1111 lead contract prices opened higher at RMB 14,950/mt, fluctuating between RMB 14,900-14,980/mt. As of 10:30 am, SHFE 1111 lead contract prices fell along with domestic stock markets, down RMB 200/mt to close at RMB 14,770/mt. Trading volumes decreased by 198 lots to 606 lots, while total positions decreased by 84 lots to 2,416 lots.

In domestic spot markets, well-known brands such as Nanfang and Chihong Zn & Ge were quoted around RMB 14,900/mt, close to SHFE three-month lead contract prices. Prices of well-known brands were cut to RMB 14,840-14,860/mt as of 10:30 am as SHFE lead prices fell. In the afternoon, spot lead was traded between RMB 14,770-14,830/mt. Market players were cautious due to pessimism, leaving transactions quiet.

Zinc

On Tuesday, SHFE three-month zinc contract prices opened higher at RMB 15,395/mt, touching RMB 15,415/mt in the morning session. Dragged down by LME zinc prices and the Shanghai composite index, SHFE three-month zinc contract prices inched down to RMB 15,070/mt, with prices closing at RMB 15,135/mt. Trading volumes increased by over 20,000 lots to 314,892 lots, and total positions increased by 14,356 lots to 215,372 lots.

In domestic spot markets, #0 zinc was traded between RMB 15,250-15,300/mt in the morning session, with discounts between negative RMB 20-30/mt against SHFE 1112 zinc contract prices. Spot prices fell to RMB 15,220-15,250/mt at noon with SHFE zinc prices, with discounts narrowing to RMB 0/mt against SHFE 1112 zinc contract prices. #1 zinc was traded between RMB 15,200-15,250/mt. Downstream buyers took a wait-and-see attitude due to weakened zinc prices, keeping transactions muted. Spot premiums against SHFE 1112 zinc contract prices expanded to RMB 40/mt in the afternoon, with quotations around RMB 15,180/mt.

Tin

Shanghai spot tin was traded between RMB 187,000-188,500/mt in the morning on October 11th. In the afternoon, after LME prices slipped, and with arrivals of imported tin in Shanghai, traded prices of the metal dropped to RMB 186,500-187,000/mt. Mainstream tin brands during the day included Feidie, Yunxi, Yunxiang, Kaiyuan and Nanshan etc. Based on the day’s trading, we conclude that Shanghai spot prices will not have much upward space at the moment. We expect that successive arrivals of imported tin following the National Day holiday will weigh on spot prices. Meanwhile, if smelters chose to gradually lower their accumulated stocks, the metal may face even stronger pressure.

Nickel

On Monday, LME nickel market opened at USD 19,100/mt and closed at USD 19,550/mt, up USD 400/mt from a day earlier, with the highest price at USD 19,550/mt and the lowest price at USD 18,651/mt. On Tuesday, LME nickel prices fluctuated narrowly after opening at USD 19,300/mt during the Asian trading hours. However, LME nickel prices fell sharply during the early European trading hours on stronger US dollar, with prices hitting a low of USD 18,900/mt. Monday’s positive news still failed to boost Tuesday's market sentiment. Investors’ confidence was still fragile and investors remained cautious, with limited transactions reported. 

In the Shanghai nickel spot market, traded prices of spot nickel were mixed on Tuesday, with spot prices tracking LME nickel price movement. During the morning trading hours, offers were relatively high on expectation that Jinchuan Group would raise its ex-works nickel prices, with mainstream traded prices in the RMB 141,500-143,000/mt range. During the afternoon trading hours, trading sentiment was bearish along with decline of LME nickel prices. Traded prices of nickel from Jinchuan Group fell to RMB 141,000/mt and traded prices of nickel from Russia declined to RMB 140,500/mt. Price spread between Jinchuan nickel and Russian nickel narrowed to certain extent during the first two post-holiday trading days, which was mainly due to limited supply of Russian nickel and ample supply of Jinchuan nickel.