SMM Daily Review - 2011/10/14 Base Metals Market

SHANGHAI, Oct. 17 (SMM) --
Copper:
As LME copper prices overnight closed lower, SHFE 1112 copper contract prices, the most active one, opened RMB 360/mt lower at RMB 54,400/mt on Friday. After the opening, SHFE three-month copper contract prices were pushed up to a high of RMB 55,380/mt as short-term long investors entered into the market. Later, after China announced that China’s September CPI data remained high, LME copper prices stopped at around USD 7,400/mt. A 1% fall in Chinese stock markets imposed pressures on SHFE three-month copper contract prices, which fell to RMB 55,000/mt. And after that, short and long investors severely struggled at near RMB 56,000/mt. Finally, SHFE 1112 copper contract prices closed at RMB 56,010/mt, up RMB 1,250/mt or 2.28%. Positions for SHFE 1112 copper contracts were up 6,314 lots, and trading volumes were up 60,576 lots. SHFE copper prices would look for solid support at RMB 54,000/mt, and then take the opportunity to move higher.  

In the spot market, as China’s CPI data for September remained high, SHFE copper prices fell after initially increasing, with already no volatility in SHFE current-month copper prices before the delivery date. The SHFE/LME copper price ratio remained at low levels, and cargo-holders pushed up spot copper premiums, which rose to positive RMB 170/mt from around positive RMB 100/mt in the morning business. The lowest traded prices for spot copper were higher than those on the prior day. Traded prices for standard-quality copper were between RMB 55,300-55,450/mt in the morning business, and RMB 55,400-55,550/mt for high-quality copper. There was no operating room for speculative investors, while downstream producers made purchases on an as-needed basis. Market transactions were moderate, and the situation of market oversupply also eased some. As SHFE copper prices increased more than RMB 700/mt in the afternoon session, cargo-holders for standard-quality copper voluntarily cut premiums to positive 30-50/mt, while cargo-holders for high-quality copper were unwilling to reduce premiums and kept premiums firm at positive RMB 100/mt, spreading the price difference between standard- and high-quality copper. Traded price expanded to between RMB 55,650-56,100/mt, but some speculators with optimistic sentiment still entered into the market. Copper inventories monitored by the Shanghai Futures Exchange (SHFE) were up 1,750 mt to 99,661 mt in the week ending October 14th, again indicating that cargo-holders of imported copper were recently eager to move goods for cash generation.  

Aluminum:
The most active SHFE 1112 aluminum contract opened lower at RMB 16,610/mt on October 14th. Both longs and shorts had been continuously exiting the market due to stagnating prices. In the afternoon, after LME aluminum prices climbed, profit-taking activities by the shorts increased, which helped the most active aluminum contract return to the RMB 16,700/mt mark and finally close at RMB 16,695/mt, up RMB 5/mt or 0.03% from previous trading day. Positions of the contract decreased 2,922 lots to 93,594 lots. After China’s September CPI came out meeting market expectations, the bearish market sentiment slightly weakened. However, due to limited upward space for the metal, investors successively moved to commodities with stronger financial attributes. Total transactions stayed below 40,000 lots. SHFE aluminum contracts closed mixed during the day showing stronger stability than other metals. As the aluminum market will remain quiet in the short term, the most active SHFE aluminum contract is expected to meet strong resistance at RMB 16,700/mt.

Latest SHFE aluminum stock increased 39,754 mt to 117,132 mt, the first increase since February 18th this year. The main reason for this increase is deliveries following the last trading day for the SHFE current-month aluminum contract. Meanwhile, with increased aluminum stock following the National Day holiday and strong capital pressure, some goods holders used the futures market as a financing channel. Before the holiday, the SHFE aluminum stock dropped below 100,000 mt, a new low since early February. However, following the recent surge of nearly 40,000 mt, SHFE aluminum supply has become excessive.

Mainstream traded prices of spot aluminum in Shanghai were between RMB 16,900-16,930/mt in the morning on October 14th, with premiums of RMB 20-50/mt over the SHFE current-month aluminum price. Tight capital supply among downstream processors and weak terminal demand has led to an over 20% reduction in production orders. Those medium-to-small enterprises have even been pushed to the brink of collapse. The significant drop in aluminum demand also led to a prevailing bearish market sentiment. Though slight spot premiums were maintained, purchase orders were hardly received among goods holders whose aluminum stocks have recently seen increases following the National Day holiday. Market deals were extremely limited as a result. In the afternoon, after the SHFE current-month aluminum price climbed to near RMB 16,900/mt, spot premiums over the price also disappeared. Mainstream traded prices of spot aluminum in the afternoon were between RMB 16,890-16,910/mt. Some middlemen entered the market following this drop to replenish their stocks, but overall market transactions were limited.

Lead:
Last Friday, SHFE lead prices opened at RMB 14,900/mt, moving between RMB 14,920-14,970/mt in the morning session. In the afternoon, SHFE lead prices found support at RMB 14,960/mt, touching RMB 15,100/mt and finally closing at RMB 15,085/mt, up 1.17%. Trading volumes decreased by 56 lots to 776 lots, and total positions decreased by 298 lots to 1,916 lots.

In domestic spot markets, the brand Chihong Zn & Ge was quoted around RMB 14,950/mt, while Nanfang, Chengyuan and Hanjiang were quoted around RMB 14,900/mt. SHFE lead prices fell slightly as of 10:00 am after the NBS released China’s CPI for September, and prices for well-known brands were cut to RMB 14,850-14,900/mt. In the afternoon, SHFE lead prices hovered between RMB 14,950/mt as traders and downstream buyers stood on the sidelines. The market was cautious ahead of the weekend, leaving transactions quiet.

Zinc:
Last Friday, SHFE three-month zinc contract prices opened lower at RMB 15,080/mt. China’s CPI for September was still high at 6.1%, triggering concerns over high inflation. Meanwhile, the Shanghai Composite Index weakened. As a result, SHFE three-month zinc contract prices fell below the moving average at a time, and rallied at noon. In the afternoon, SHFE zinc prices gained back previous losses to close at RMB 15,295/mt, up RMB 125/mt, or up 0.82%. Trading volumes decreased by over 6,000 lots to 246,792 lots, and total positions decreased by 14,284 lots to 186,592 lots.

In domestic spot markets, #0 zinc was traded between RMB 15,180-15,220/mt, close to or RMB 20/mt higher than SHFE 1112 zinc contract prices. #1 zinc was traded between RMB 15,130-15,150/mt. Downstream buyers purchased modestly ahead of the weekend and since it was the last trading day before the delivery date, keeping transactions quiet. In the afternoon, spot prices rose along with SHFE zinc prices, close to SHFE 1112 zinc contract prices, and transactions were more muted.

Tin:
Shanghai spot tin prices slipped further on October 14th. Mainstream traded prices during the day were between RMB 180,500-183,000/mt. Mainstream tin brands during the day were Yunxi, Yunxiang, Feidie and Kaiyuan. Yunxi branded tin traded higher at RMB 185,000-185,500/mt. Weak domestic demand has been the key for the continuously drop in tin prices. Though goods holders continuously lowered their quotations, tin consumption remained weak. Domestic tin market stayed quiet even during the conventional peak season due to capital pressure, decreased export orders and weak global economy etc. reasons. As some goods holders continuously held their goods, domestic tin stock will also increase in the future, thereby weighing on future tin prices. As for the short term, domestic tin is expected to remain weak.  

Nickel:
Last Thursday, LME nickel market opened at USD 18,950/mt and closed at USD 18,411/mt, down USD 632/mt from a day earlier, with the highest price at USD 19,071/mt and the lowest price at USD 18,300/mt. Last Friday, LME nickel prices fluctuated higher after opening at USD 18,450/mt during the Asian trading hours. During the afternoon trading hours, LME nickel prices fell slightly, but later resumed upward momentum due to correction of the US dollar, with prices hitting a high of USD 18,725/mt. Overall trading sentiment improved to certain extant, due to eased market sentiment as China’s CPI was in line with market expectation. LME nickel inventories were 91,476 mt, up 456 mt from a day earlier.

In the Shanghai nickel spot market, mainstream traded prices advanced to certain extent. Traded prices of nickel from Russia were between RMB 138,000-138,500/mt, and traded prices of nickel from Jinchuan Group were between RMB 139,500-140,000/mt. During the afternoon trading hours, traded prices slightly advanced further along with higher LME nickel prices. Transactions were moderate in the market. Supply of nickel from Russia increased from several days’ earlier, expanding price spread between Russia nickel and Jinchuan nickel. Transactions were largely made among traders, and few downstream consumers entered market.