SMM Daily Review - 2011/10/20 Base Metals Market

SHANGHAI, Oct. 21 (SMM) --
Copper:
As LME copper prices slumped overnight, SHFE 1201 copper contract prices opened RMB 2,600/mt lower at RMB 51,610/mt on Thursday. After the opening, long investors eagerly withdrew from the market, and short investors imposed newly strong selling pressures. In this context, SHFE three-month copper contract prices slipped by their daily limit, down to RMB 50,950/mt and were pressured down at near the price mark during the whole trading day. Finally, SHFE 1201 copper contract prices closed at RMB 50,950/mt, down RMB 3,260/mt. Positions for SHFE 1201 copper contracts were up 35,556 lots, while trading volumes were down 237,000 lots. SHFE copper prices were likely to loss the support at RMB 50,000/mt.

In the spot market, as SHFE copper prices fell by their daily limit of nearly 6% and the SHFE/LME copper price ratio was down to 7.3, copper premiums rose significantly to positive RMB 500-650/mt. Traded prices for standard-quality copper were between RMB 52,300-52,500/mt, and RMB 52,400-52,600/mt for high-quality copper. Domestic copper cargo-holders increased sale volumes. Downstream producers with sufficient orders increased purchases at low prices, while speculators’ buying interest was dampened due to higher copper premiums. On account of bearish sentiment, market transactions became cautious. In the afternoon session, as SHFE copper prices fell by their daily limit across the board, standard-quality copper was rarely seen in the market, while premiums for high-quality copper rose to between positive RMB 750-800/mt. Traded prices in the afternoon session were held firm with the morning levels, and there was virtually no market transactions.     

Aluminum:
The most active SHFE 1112 aluminum contract gapped over 1% lower at RMB 16,280/mt on October 20th, and dropped later to RMB 15,940/mt due to strong short selling, with the loss widening to 3.2%. After narrowing losses at the tail of trading, the contract finally closed at RMB 16,145/mt, down RMB 320/mt or 1.94% from previous trading. Positions of the contract decreased 4,794 lots to 83,060 lots. Most SHFE aluminum contracts dropped below RMB 16,000/mt during today’s trading, but returned above the mark before closing. Positions of the SHFE 1201 contract surged 16,834 lots to 67,058 lots today as a result of position transfer. Before the most active SHFE aluminum contract changes, it is expected to struggle at RMB 16,000/mt first, and will drop further if it fails to consolidate at the mark.

Mainstream traded prices of spot aluminum in Shanghai were between RMB 16,350-16,380/mt on October 20th, with premiums of RMB 140-160/mt over the SHFE current-month aluminum price.

In the morning, SHFE aluminum prices gapped 2% lower again, and traders with relatively low stock levels stood on the sidelines as a result. However, market supply was still sufficient due to continuously released warrants. Spot premiums over the SHFE current-month aluminum price surged to near RMB 150/mt, but spot prices dropped nearly RMB 300/mt. Transactions slightly increased during the day due to stock replenishment at lower prices among downstream buyers and middlemen.

In the afternoon, the wait-and-see sentiment turned strong among both sellers and buyers after SHFE copper and zinc prices dropped to a stop and the SHFE current-month aluminum prices widened losses. Quotations were between RMB 16,290-16,340/mt in the afternoon. Transactions were quite sparse.

Lead:
On Thursday, SHFE 1112 zinc lead contract prices opened lower at RMB 13,710/mt, fluctuating around the moving average in the morning session. In the afternoon, SHFE lead prices fluctuated between RMB 13,750-13,850/mt, dragged down by LME lead prices, and closed at RMB 13,850/mt, down RMB 620/mt, or down 4.28%. Trading volumes increased by 644 lots to 1,524 lots, and total positions increased by 234 lots to 2,254 lots.

In domestic spot markets, the brand Chihong Zn & Ge was quoted at RMB 14,320/mt, but with transactions quiet. Other brands such as Nanfang, Chengyuan and Yubei were quoted between RMB 14,000-14,100/mt, with premiums of RMB 100-120/mt against SHFE 1111 lead contract prices, and quotations of the Gejiu brand were rarely reported. Traders were actively selling goods to generate cash due to pessimism, while downstream buyers purchased on an as-needed basis, leaving transactions muted.

Zinc:
On Thursday, SHFE three-month zinc contract prices opened lower at RMB 14,200/mt, and plummeted to a new low for the year at RMB 13,780/mt. Finally, SHFE three-month zinc contract prices closed at RMB 13,850/mt, down RMB 795/mt, or down 5.43%. Trading volumes increased by over 360,000 lots to 622,742 lots, and total positions increased by 50,970 lots to 234,748 lots.

In domestic spot markets, #0 zinc was traded around RMB 14,250/mt, with premiums of RMB 300-350/mt against SHFE 1201 zinc contract prices. #1 zinc was traded between RMB 14,200-14,250/mt. Goods supply increased after delivery, and downstream buying interest was strong, keeping transactions brisk. 

Tin:
Shanghai spot tin prices dropped further on October 20th following the plunge in LME tin prices. Yunheng, Yunxiang, Nanshan and Kaiyuan branded tin was mainly traded between RMB 177,500-179,000/mt. Small volumes of Yunxi branded tin was traded at RMB 182,500/mt. Market transactions were quite limited. Market players became pessimistic toward the metal amid continuously dropping prices and a bearish trend in the short term. Downstream demand remained weak, with downstream buyers only purchasing as needed.  

Nickel:
On Wednesday, LME nickel prices opened at USD 19,001/mt and closed at USD 18,647/mt overnight, down USD 613/mt from a day earlier, with the highest price at USD 19,149/mt and the lowest price at USD 18,600/mt. On Thursday, LME nickel prices fluctuated lower to hit a low of USD 18,160/mt after opening at USD 18,575/mt during the Asian trading hours. Risk appetite waned due to unsolved European debt crisis, weighing down on base metal market. LME nickel inventories were 88,488mt, down 990 mt from a day earlier.

In the Shanghai nickel spot market, Wednesday’s LME nickel price decline and Thursday’s LME nickel price slump dragged down spot nickel prices. Although Jinchuan Group’s ex-works prices remained firm at RMB 139,000/mt, traded prices in spot market were already lower than Jinchuan Group’s ex-works nickel prices. Mainstream traded prices of nickel from Russia were between RMB 135,000-135,500/mt, and mainstream traded prices of nickel from Jinchuan Group were in the RMB 137,000-137,800/mt range. Overall trading sentiment was sluggish. Cargo-holders were pessimistic towards market outlook, believing nickel prices will have room to fall further, so they made transactions cautiously. Near the end of the year, some market players believed that tight liquidity may further drag down prices, resulting in sluggish sentiment in the market.