SMM Daily Review - 2011/10/25 Base Metals Market

SHANGHAI, Oct. 26 (SMM) --

Copper:

As LME copper prices extended gains overnight, the most active SHFE 1201 copper contract prices opened RMB 2,500/mt higher at RMB 56,000/mt on Tuesday, and fluctuated around the price mark after the opening. LME copper prices surged significantly near the midday and challenged USD 7,800/mt, and Chinese stock markets also returned to 2,400 points, helping all SHFE copper contracts increase sharply. Large-scale position closings by short investors also pushed SHFE copper prices to the upper trading limit of RMB 57,240/mt. In the afternoon session, LME copper prices fell to above USD 7,700/mt, and SHFE three-month copper contract prices also declined from highs due to large scale position closings, with prices closely fluctuating around RMB 57,000/mt. Finally, SHFE 1201 copper contract prices closed at RMB 56,710/mt, up RMB 3,210/mt or a gain of 6%. Positions for SHFE 1201 copper contracts were down 31,762 lots, while trading volumes were up 248,000 lots. Overall positions for all SHFE copper contracts were down 65,570 lots, but trading volumes were up 256,000 lots. SHFE copper prices Tuesday touched the upper trading limit for two consecutive days, but both long and short investors chose to close positions during the whole trading day, indicating growing risks over the short term.
 
In the spot market, after SHFE copper prices opened higher, copper premiums fell slightly to between positive RMB 150-250/mt before 11:00 am. Traded prices for standard-quality copper were between RMB 56,400-56,800/mt before 11:00 am, and RMB 56,500-56,900/mt for high-quality copper. SHFE copper prices followed LME copper prices to surge significantly after 11:00 am, touching the upper trading limit again. Market suppliers and buyers generally stood on the sidelines due to volatile price changes. There were also some speculators who believed SHFE copper prices would increase again the next day, and offered premiums of positive RMB 0/mt, but transaction volumes were extremely limited. Traded prices were reported between RMB 57,000 -58,000/mt, but with no market transaction at all. SHFE copper prices fell below the upper trading limit in the afternoon session, and premiums for the “Guixi” brand rose to between positive RMB 300-350/mt due to unwillingness in sales, and mainstream spot copper premiums were reported at between positive RMB 180-280/mt. Traded prices stabilized between RMB 57,300 -57,950/mt in the afternoon business, while spot copper supply remained sufficient, with some downstream producers making purchases.    
 
Aluminum:
 
The most active SHFE 1112 aluminum contract opened higher at RMB 16,680/mt on October 25th, and fluctuated within a wide range later despite a strong rebound in Chinese stock prices. The contract finally closed at RMB 16,375/mt, down RMB 170/mt or 1.03% from the previous trading day. Highest and lowest prices during the day were RMB 16,710/mt and RMB 16,320/mt. Positions of the contract plummeted by 9,814 lots to 62,352 lots, only around 1,000 lots more than the SHFE 1201 contract which may become the most active one tomorrow. As price gaps between different contracts narrowed, profit-taking opportunities also decreased. SMM expects the most active SHFE aluminum contract to test support at RMB 16,250/mt in the short term as cautiousness prevailed among investors.
 
Traded prices of spot aluminum in Shanghai were between RMB 16,460-16,500/mt on October 25th, with premiums of RMB 0-20/mt over the SHFE current-month aluminum price.
 
In the morning, goods holders were actively touting their goods at zero premiums over the SHFE current-month aluminum price after SHFE aluminum prices dropped, which, however, was rarely responded with purchases. Though aluminum futures gained later, spot aluminum prices were little changed as most traders stood on the sidelines. Market transactions were quite limited.
 
Spot aluminum prices dropped quickly in the afternoon after SHFE aluminum prices erased gains and lost over 1%. The selling interest was quite weak among goods holders, with quotations falling between RMB 16,360-16,460/mt. Transactions in the afternoon were rarely seen, however, as the buying interest was even weaker.

 Lead:

On Tuesday, SHFE lead prices opened at RMB 15,330/mt and fluctuated around the moving average in the morning session. SHFE lead prices surged to RMB 15,650/mt at noon, and fell with LME lead prices in the afternoon, with prices finally closing at RMB 15,095/mt. Trading volumes increased by 970 lots to 2,540 lots, and total positions decreased by 102 lots to 2,038 lots.

In domestic spot markets, well-known brands such as Chihong Zn & Ge and Nanfang were quoted between RMB 15,080-15,130/mt, close to SHFE three-month lead contract prices. Spot prices rose to RMB 15,300/mt at noon as a large number of longs entered the market, but with market players cautious. In the afternoon, spot prices fell to RMB 15,200/mt with SHFE lead prices. Traders and downstream buyers were cautious due to fluctuating lead prices, with transactions muted.

Zinc:

On Tuesday, SHFE three-month zinc contract prices opened higher at RMB 15,140/mt, fluctuating between RMB 14,800-15,000/mt in the morning session. Boosted by SHFE copper prices, SHFE three-month zinc contract prices surged to RMB 15,500/mt at noon, fluctuating between RMB 15,200-15,300/mt, and rolled back previous gains to close at RMB 15,035/mt, up RMB 305/mt. Trading volumes increased by 420,000 lots to 958,338 lots, and total positions increased by 1,974 lots to 219,600 lots.
In spot markets, #0 zinc was traded around RMB 14,950/mt, with premiums of RMB 50/mt against SHFE 1201 zinc contract prices, and was traded between RMB 15,200-15,250/mt at noon as SHFE zinc prices rose. #1 zinc was traded between RMB 15,150-15,200/mt, but with transactions quiet. In the afternoon, spot premiums against SHFE 1201 zinc contract prices were between RMB 20-30/mt, causing some speculators to increase purchasing, but with transactions still muted. 
 
Tin:
 
Shanghai spot tin prices climbed to above RMB 180,000/mt on October 25th supported by continuously climbing LME tin prices. Small volumes of Nanshan branded tin was traded at RMB 180,500/mt in the morning. Other branded tin including Yunxi, Yunheng, and Yunxiang was mainly traded between RMB 182,000-183,000/mt. Market supply was tight during the day as many smelters stood on the sidelines. Some downstream buyers purchased seeing tin prices climbing. Despite a slight increase, market transactions remained limited.

Nickel:

On Tuesday, LME nickel prices slipped slightly to USD 19,650/mt after opening at USD 19,900/mt, but later surged to a high of USD 20,300/mt and later fell below USD 20,000/mt. Market sentiment will remain cautious as players were waiting for specific measures from Wednesday’s EU summit. LME nickel inventories were 87,828 mt, up 102 mt from a day earlier.

In the Shanghai nickel spot market, Monday's LME nickel price surge greatly boosted sentiment in spot nickel market. Traders quoted relatively higher offers during the morning trading hours, but transactions were still limited. Jinchuan Group raised ex-works nickel prices to RMB 140,000/mt, guiding spot nickel prices to certain extent. Mainstream traded prices of nickel from Russia were between RMB 140,000-140,500/mt, and mainstream traded prices of nickel from Jinchuan Group were around RMB 141,500/mt. Overall trading sentiment was relatively quiet, as wait-and-see sentiment grew when LME nickel prices fluctuated wider during the Asian trading hours. Transactions were still largely done among traders, with few downstream consumers entering market.