SMM Daily Review - 2011/10/12 Base Metals Market

SHANGHAI, Oct. 13 (SMM) --

Copper

As LME copper prices overnight slumped by nearly USD 200/mt, SHFE 1112 copper contract prices, the most active one, opened RMB 1,310/mt lower at RMB 53,690/mt on Wednesday. SHFE three-month copper contract prices fell to RMB 52,950/mt after the opening, but then fluctuated higher as the Shanghai Composite Index surged 3% to move towards 2,400 points after the opening, and since LME copper prices returned to USD 7,400/mt. SHFE three-month copper contract prices broke above RMB 55,000/mt in the afternoon session, reaching as high as RMB 55,130/mt. However, at the tail of trading, SHFE three-month copper contract prices lost rising momentum due to large-scale position closings, with resistance at the 10-day moving average of RMB 55,200/mt. Finally, SHFE 1112 copper contract prices closed at RMB 54,930/mt, down RMB 70/mt, or a loss of 0.13%. Positions for SHFE 1112 copper contracts were down 24,296 lots, while trading volumes were up 259,000 lots, a significant increase for two consecutive days. The long and short investors mainly made intraday transactions, with cautious sentiment in building new positions, and this situation would continue further.

In the spot market, as SHFE copper prices moved at low levels in the morning business, copper premiums reached as high as between positive RMB 100-150/mt, and trading was made between RMB 53,800 -54,350/mt, with both traders and downstream producers conducting some purchases. SHFE copper prices moved higher after 10:30 am, with a price difference reaching RMB 1,500/mt, but premiums were little changed, since the SHFE/LME copper price ratio fell recently. Offers were reported between discounts of negative RMB 50/mt to premiums of positive RMB 50/mt, while traded prices rapidly climbed to RMB 55,000/mt. Some speculators made purchases at discounts, but downstream producers had no interest in keeping up with rising copper prices, reducing market transactions. Suppliers were active moving goods for cash generation during the whole trading day, keeping overall copper supply ample. SHFE copper prices continued to move higher in the afternoon session, and some speculators entered into the market. Offers for high-quality copper were quoted between premiums of positive RMB 0-30/mt, and discounts of negative around RMB 50/mt for standard-quality copper. Downstream producers still stuck to the sidelines, and transactions were nearly the same with the morning session.

Aluminum

The most active SHFE 1112 aluminum contract opened lower at RMB 16,650/mt on October 12th. Following a strong rebound in Shanghai Composite Index, the contract consolidated at the 5-day moving average, but narrowly fluctuated near RMB 16,740/mt later due to sluggish transactions. The contract finally closed at RMB 16,745/mt, up RMB 5/mt or 0.03% from previous trading day. Positions of the contract decreased 1,346 lots to 97,144 lots. SMM expects the contract to meet strong resistance at RMB 16,800/mt due to inadequate market confidence.

Traded prices of spot aluminum in Shanghai were between RMB 16,980-17,000/mt on October 12th, with premiums of RMB 20-40/mt over the SHFE current-month aluminum price.

The US passed a currency bill to force appreciation of Chinese currency, which will significantly impact domestic export. Meanwhile, the rebound of SHFE aluminum prices also ended today, adding to the wait-and-see sentiment in the market. As a result, both inquiries and purchases were rarely seen in the spot market, with spot aluminum price dropping below the RMB 17,000/mt mark. Goods holders were unwilling to lower their quotations after this drop, with only a few transactions being reported. This is also the worst trading day in the spot aluminum market following previous holiday.

The SHFE current-month aluminum price climbed in the afternoon to test RMB 17,000/mt with profit-taking by the shorts, but the spot market remained quiet. The few quotations also stayed in the RMB 16,980-17,000/mt range. Transactions were rarely seen.

Lead

On Wednesday, SHFE lead prices opened at RMB 14,730/mt and then dipped to RMB 14,600/mt, finding support at the 10-day moving average. Finally, SHFE lead prices closed at RMB 14,900/mt, up RMB 55/mt. Trading volumes decreased by 70 lots to 536 lots, and total positions decreased by 92 lots to 2,324 lots.

In domestic spot markets, spot prices were close to SHFE 1111 lead contract prices, with quotations for well-known brands such as Yuguang and Chihong Zn & Ge around RMB 14,600/mt, and rising to RMB 14,900/mt as of 11:00 am. Other brands such as Hanjiang, Chengyuan and Nanfang were quoted RMB 50/mt lower. In the afternoon, lead prices remained between RMB 14,830-14,880/mt. Downstream buyers had built stocks after the National Day holiday, who were cautious at higher prices yesterday, leaving transactions quiet.

Zinc

On Wednesday, SHFE three-month zinc contract prices opened lower at RMB 15,050/mt, falling to RMB 15,000/mt in the morning session, and dipping to an intraday low RMB 14,860/mt. As Shanghai composite index gained momentum, SHFE three-month zinc contract prices gained back previous losses to move between RMB 15,200-15,250/mt, and finally closing at RMB 15,205/mt. Trading volumes increased by over 80,000 lots to 398,854 lots, while total positions decreased by 3,602 lots to 211,770 lots.

In domestic spot markets, #0 zinc prices were RMB 50/mt higher than SHFE 1112 zinc contract prices in the morning session as SHFE zinc prices fell, allowing arbitragers to move goods aggressively. Spot premiums narrowed as SHFE zinc prices inched up, with #0 zinc traded between RMB 15,150-15,200/mt, close to SHFE 1112 zinc contract prices. #1 zinc was traded between RMB 15,100-15,150/mt. SHFE zinc prices remained steady between RMB 15,200-15,250/mt in the afternoon, while spot prices were at the same level, causing downstream buyers to enter the market.

Tin

Spot tin prices dropped in Shanghai on October 12th due to losses in LME tin prices and increased supply after imported tin gradually entered the market. Mainstream tin brands during the day were Yunxi, Yunxiang, Feidie and Nanshan, with mainstream traded prices of RMB 184,000-186,000/mt. The quotation of Feidie branded tin dropped to RMB 183,500/mt in the afternoon. Domestic supply in the market was relatively tight as most domestic smelters were still unwilling to move goods. Meanwhile, with dropping prices, the wait-and-see sentiment gained strength again among downstream buyers. Market transactions were sparse as a result of rare purchases and tight supply.

Nickel

On Tuesday, LME nickel market opened at USD 19,300/mt and closed at USD 18,845/mt, down USD 705/mt from a day earlier, with the highest price at USD 19,401/mt and the lowest price at USD 18,656/mt. On Wednesday, LME nickel prices fluctuated higher after a low open on significant gain in China's stock market during the Asian trading hours. During the early European trading hours, LME nickel prices extended upward momentum and hit a high of USD 19,250/mt. Although European debt crisis still haunted market, LME nickel prices were temporarily supported by dip-buying and growth in China’s stock market. LME nickel inventories were 91,782 mt, down 720 mt.

In the Shanghai nickel spot market, offers were dragged down by Tuesday’s LME nickel price slump, but spot nickel prices advanced later along with Wednesday’s rising LME nickel prices. Mainstream traded prices of nickel from Russia were at RMB 139,000/mt, with deals at RMB 138,500/mt also reported during the morning trading hours. Mainstream traded prices of nickel from Jinchuan Group were at RMB 140,000/mt, with deals at RMB 139,500/mt also reported during the morning trading hours. Supply of nickel from Russia increased compared to two days earlier, expanding price spread between Russian nickel and Jinchuan nickel. Overall trading sentiment was quiet, and downstream consumption was still soft, with deals largely done among traders. Since prices of NPI were relatively high, many stainless steel mills increased consumption of refined nickel. However, purchases of refined nickel were not made in a large amount.