SMM Daily Review - 2011/10/24 Base Metals Market

SHANGHAI, Oct. 25 (SMM) --

Copper

As LME copper prices surged overnight, SHFE 1201 copper contract prices opened RMB 1,840/mt higher at RMB 53,500/mt on Monday. After the opening, SHFE three-month copper contract prices continued to fluctuate around the daily moving average of RMB 53,300/mt, with the low-end at RMB 52,800/mt. Later, HSBC announced HSBC's China Flash Purchasing Managers' Index (PMI) rebounded above the dividing line of 50% in October, lifting LME copper prices to stand above USD 7,300/mt and SHFE copper prices to challenge RMB 54,000/mt. In the afternoon session, LME copper prices stabilized at USD 7,400/mt, and Chinese stock markets surged by 2%, helping SHFE three-month copper contract prices rapidly rise by their daily limit immediately after the opening. Finally, SHFE 1201 copper contract prices closed at RMB 54,750/mt, up RMB 3,090/mt or a gain of 5.98%. Positions for SHFE 1201 copper contracts were down 4,942 lots, and trading volumes were down 346,000 lots, with the daily handover rate reaching as high as 300%. SHFE copper prices hadn't filled earlier shortfalls, and markets had little confidence over future copper price rebounds.     
 
In the spot market, as SHFE copper prices opened higher, copper premiums initially fell to between positive RMB 350-450/mt in earlier morning business. As consumption remained weak and since SHFE copper prices later moved higher and increased by more than RMB 600/mt as of 10:00 am, spot copper premiums already decreased to between positive RMB 250-350/mt near the midday. Traded prices for standard-quality copper were between RMB 54,150-54,600/mt in the morning business, and RMB 54,200-54,700/mt for high-quality copper. Overall spot copper supply was sufficient during the whole trading day. Both domestic and imported copper cargo-holders were active moving goods to generate cash due to the approach of the month's end. Speculators conducted market operations, while downstream producers had little interest in purchases due to doubts about continuous rebounds in future copper prices, with market wait-and-see sentiment growing in the market. In the afternoon session, mainstream offers of spot copper premiums fell to between positive RMB 150-300/mt, as SHFE copper prices rose by their daily limit. Traded prices increased significantly to between RMB 55,400-55,750/mt, but cargo-holders reduced sale volumes, keeping market transactions very limited, although speculators intended to make purchases at low copper premiums.
 
With regard to copper price trends this week, SMM conducted a survey of market insiders.

Based on the survey, about 38% insiders in the survey expect copper prices will stop falling and rebound this week. The European Union (EU) summit will make the final decision this Wednesday. Although the extent of the effects of new policies is unknown, attitudes of Euro-zone finance ministers will lift the Euro in the short term, which will help market risk appetites improve. The US Federal Reserve (Fed) earlier this week already announced to introduce loose monetary measures out of consideration of faltering US economy, and the US dollar index is moving at a low level of near 76, which will support copper price trends. After US equity markets were soothed by investor confidence, the Dow Jones Industrial Average already stood above all moving averages and has a clearer trend now. Meanwhile, crude oil prices already stood above all daily moving averages, with solid support at the low-end, which will boost copper prices. Technically, LME copper prices have broken the resistance of three daily moving averages, with the high-end directly challenging USD 7,550/mt and strong support at the low-end. China Customs announced Monday that China's refined copper imports were 275,000 mt in September, up 14% YoY and 17% MoM, which also strengthened market confidence about robust demand from top consumer China. LME copper inventories were 444,275 mt as of Monday, and cancelled warrants were 58,425 mt, accounting for more than 13% of the total inventories and up 2% compared with a week earlier. The declines in inventories were mainly in Singapore and flowed into China. SHFE copper inventories were down significantly 11,935 mt in the week ending October 21st to 87,726 mt, and the continuous declines in inventories will support copper prices. In the spot market, spot copper premiums have been climbing since the delivery date, with the highest at positive RMB 600-700/mt, which will help copper prices rebound. Hence, LME copper prices will move at high levels between USD 7,250-7,700/mt this week, and SHFE copper prices will fluctuate in the RMB 53,500-56,000/mt range.
 
Around 62% insiders surveyed hold cautious sentiment towards copper price trends this week, believing there is limited rebound room for copper prices. The European debt crisis persists, and a Greek default is unavoidable. The EU summit has been deferred many times, and even if the summit produces good decisions, it will not fundamentally lift market confidence. Furthermore, German and French leaders have disagreements on the way of solving the Euro-zone debt crisis for consideration of their own interests, which serves as a potential risk for copper price rebounds. Based on the latest CFTC reports, short investors have more advantages and will weigh down copper prices. Moreover, USD 7,500/mt and RMB 56,000/mt are strong resistance for LME and SHFE copper prices to move upward. Due to huge fluctuations in recently days, market risk sentiment is growing, keeping investors more cautious. SHFE copper prices both fell and rose by their daily limit within one week, and will not quickly make corrections and help copper prices stabilize. Due to the approach of the month's end, cash flow pressures will force speculators to make operations actively, and Chinese stock markets have difficulties to move upward, which will restrict SHFE copper prices. Therefore, copper prices will increase at first and then fall this week. LME copper prices will move between USD 7,000-7,600/mt, with resistance at USD 7,600/mt, and SHFE copper prices will fluctuate in the RMB 51,000-56,000/mt band, with pressures at RMB 56,000/mt.      
 
Aluminum:
 
The most active SHFE 1112 aluminum contract gapped higher at RMB 16,390 on October 24th, and surged 2.9% in the afternoon to an intraday high of RMB 16,700/mt. The contract trimmed gains later, however, and finally closed at RMB 16,560/mt, up RMB 330/mt or 2.03% from previous trading day. Positions of the contract decreased 6,128 lots to 72,166 lots. The most active SHFE aluminum contract stood above the RMB 16,500/mt mark again supported by encouraging performance of the financial market. However, as spot aluminum prices failed to follow the move, the most active SHFE aluminum contract is expected to test support at the RMB 16,500/mt mark in the short term.
 
Traded prices of spot aluminum in Shanghai were between RMB 16,500-16,540/mt on October 24th, with premiums of RMB 0-50/mt over the SHFE current-month aluminum price.In the morning, SHFE aluminum prices rebounded further. However, spot aluminum prices failed to get on the upward track due to rare purchases from downstream buyers who were facing strong capital pressures at month’s end. Meanwhile, liquidating efforts of goods holders further damped the upward momentum of spot aluminum prices, with spot premiums over the SHFE current-month aluminum price quickly narrowing to near zero. Market transactions were quite rare as only a few middlemen replenished their stocks at lower prices.
 
In the afternoon, the SHFE current-month aluminum price hit an intraday high of RMB 16,745/mt, but most goods holders stood on the sidelines, and only a few middlemen purchased at lower prices. Mainstream traded prices of spot aluminum in the afternoon were between RMB 16,560-16,600/mt. Quotations above RMB 16,600/mt were also seen, but transactions were rarely reached at such prices.
 
The SMM weekly average aluminum ingot price during October 17th to 21st was RMB 16,586/mt, down RMB 408/mt or 2.4% from the previous week.
 
In a latest SMM survey, though investors’ optimism towards the EU Summit this Wednesday helped SHFE aluminum prices rebound, there are still 32% of market respondents expect domestic aluminum prices to drop this week. Their main reasons include, firstly, a unified monetary policy against different financial policies in various Euro zone countries remains a huge block to solve the Euro zone debt crisis, therefored the Euro zone economy will not improve in the short term. Meanwhile, domestic credit supply remains tight, which reduced the possibility for domestic demand to improve. Market supply, therefore, will become increasingly excessive. The rebound we saw on Monday, according to these respondents, is only temporary.
 
42% of market respondents said aluminum prices will not change much this week. According to their opinions, though the Euro zone debt crisis has slightly eased, there is no positive news from financial markets or fundamentals.
 
The remaining 26% of market respondents expect aluminum prices to climb this week, saying that support from the two plunges and excessive panic in the previous week, production cost which is now higher than present aluminum prices, strong capital pressures at aluminum producers will push aluminum prices a little bit higher this week.

 Lead:
 
SHFE 1112 lead contract prices opened RMB 400/mt higher at RMB 14,640/mt on Monday boosted by rising LME lead prices last Friday, with prices mainly moving around the daily moving average. As domestic stock markets and LME lead prices strengthened in the afternoon session, SHFE lead prices even gained by the daily limit after breaking the RMB 15,000/mt mark, with prices finally closing at RMB 15,025/mt, up RMB 850/mt or 6%. Trading volumes decreased by 158 lots to 1,570 lots, while positions fell by 214 lots to 2,140 lots.
 
As SHFE 1112 lead contract prices moved around the daily moving average after opening significantly higher, quotations for domestic well-known branded lead like Chihong Zn & Ge, Yubei and Nanfang were flat with SHFE 1112 lead contract prices, with traded prices between RMB 14,700-14,800/mt. Quotations for other brands like Baiyin were between RMB 14,650-14,750/mt. As SHFE lead prices even rose by the daily limit in the afternoon, prices for well-known branded lead like Chihong Zn & Ge increased to between RMB 15,100-15,150/mt in response. Lead prices made strong gains, and downstream inquiries were sparse, with overall trading sentiment sluggish.
 
With regard to lead price trends this week, 80% market players are cautious, believing SHFE lead prices should fluctuate between RMB 14,400-14,800/mt. Germany and France did not reached an agreement how to use EFSF to resolve European debt crisis. But spot premiums against SHFE 1112 lead contract prices remained firm between RMB 120-180/mt, and SHFE lead inventories fell by 3,778 mt in two weeks, which will support spot lead prices to some extent.
 
The remaining 20% are optimistic, believing SHFE lead prices should rebound to RMB 15,000/mt. Despite a failure of the agreement on the bailout issue of European debt crisis, finance ministers in the Euro zone approved bailout loans of EUR 8 billion. As a result, the US dollar index fell to a new low for the month. The optimism towards US GDP to be released this week will boost LME lead prices. Meanwhile, operating rates at smelters continued to fall, while downstream buyers were actively purchasing at lower prices, causing supply surplus to ease. 

Zinc:
 
SHFE three-month zinc contract prices rallied again on Monday and opened higher at RMB 14,520/mt boosted by strong LME zinc prices last Friday, with prices mainly moving between RMB 14,400-14,500/mt in the morning session. SHFE three-month zinc contract prices rose further to break RMB 15,000/mt in the afternoon session supported by strong SHFE copper prices, with prices finally closing at RMB 15,040/mt, up RMB 825/mt or 5.8%. Trading volumes decreased by over 40,000 lots to 538,346 lots, while positions fell by 2,258 lots to 217,626 lots. 
 
In spot markets, as SHFE three-month zinc contract prices rallied again and moved around the daily moving average on Monday, spot premiums fell further. Traded prices for #0 zinc were between RMB 14,600-14,650/mt, with premiums against SHFE 1201 zinc contract prices between positive RMB 100-150/mt. Traded prices for #1 zinc were between RMB 14,600-14,650/mt, almost flat with prices for #0 zinc due to limited supply. In addition, market supply available was mainly #1 zinc imported from Kazakhstan, with domestic #1 zinc almost unavailable. Markets still lacked confidence in market outlook despite zinc price rallies, keeping trading sentiment neutral.
 
With regard to zinc price trends this week, 47% of market players believe zinc prices should continue to rebound, with SHFE three-month zinc contract prices moving between RMB 15,000-15,500/mt. They think the EU summit this Wednesday will produce good news to boost market sentiment. On the other hand, the US Federal Reserve is taking some measure to further ease monetary policies to boost US economic growth. In this context, the US dollar index will likely fall to 76, boosting metal prices. Supply surplus will ease, pushing up SHFE three-month zinc contract prices to RMB 15,000-15,500/mt. Spot goods should be traded between RMB 14,800-15,300/mt.
 
33% of market players believe SHFE three-month zinc contract prices should fluctuate between RMB 14,700-15,000/mt, and will barely rise. Spot goods prices should be between RMB 14,700-15,000/mt.
 
The remaining 20% believe SHFE three-month zinc contract prices will dip to RMB 14,300-14,700/mt, and spot prices will be between RMB 14,500-14,800/mt. 

Tin:
 
The sentiment in Shanghai spot tin market slightly improved on October 24th supported by optimism towards the macro environment. Traded prices of the metal, however, were little changed. Mainstream tin brands during the day were Yunxi, Yunheng, Yunshan, Yunxiang and Nanshan, which mainly traded between RMB 178,000-182,000/mt. Market transactions increased compared with the previous week as climbing LME tin prices stoked up the downstream buying interest. The market supply decreased in the afternoon after some goods holders pulled back their goods.
 
A latest SMM survey shows that 60% of market respondents expect a slight increase in domestic tin prices this week as investors are optimistic towards the EU Summit solution scheduled to come out this Wednesday. The positive PMI data of China also helped to lift up the market sentiment. Therefore, these respondents expect a rally to start for domestic tin prices supported relatively tight supply and expectation for a short-term gaining trend of LME tin prices. Domestic raw material prices have been staying at high levels recently, and with climbing coal and electricity prices, the production cost of smelters was also climbing, thereby leading to a tight supply as smelters held goods. This situation will help domestic tin prices gain in the short term.
 
The remaining 40% of market respondents expect little change in domestic tin prices this week, saying that the metal will mainly fluctuate near the RMB 180,000/mt mark. They believe LME tin will only be strong for a short while as the overall market situation has not seen any material breakthrough. Meanwhile, market transactions will also remain sluggish due the weak domestic demand. Therefore, spot tin prices are not likely to move up rapidly, but will be stable at present levels.

Nickel:

In the Shanghai nickel spot market, Jinchuan Group cut ex-works nickel prices by RMB 2,000/mt to RMB 137,000/mt. Boosted by last Friday’s and Monday’s LME nickel price increase, spot nickel prices also advanced on Monday. Mainstream traded prices of nickel from Russia were between RMB 137,000-137,500/mt, and mainstream traded prices of nickel from Jinchuan Group were around RMB 138,500/mt. Overall trading sentiment was moderate. Traders reported improved transactions, while downstream consumption still did not improve. 

Based on result of an SMM survey on market sentiment, 50% market players believe that LME nickel prices will continue to fluctuate around USD 19,000/mt. Although market has positive expectation over the EU summit, the concern that whether or not the European debt crisis can be solved completely still exists. 35% market players believe that LME nickel prices may advance to certain extent, as market sentiment has eased to certain extent from short-term relief to the European debt crisis. The remaining 15% players hold that nickel prices still have downward risk. If outcome of Wednesday’s conference is lower than market expectation, panic sentiment may reappear, which will weigh on nickel prices.