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SMM Daily Review - 2011/11/7 Base Metal Market
Nov 8,2011 10:18CST
price review forecast
SHFE 1201 copper contract prices opened RMB 240/mt up at RMB 59,000/mt on Monday, and the most active SHFE aluminum contract 1201 opened slightly higher at RMB 16,370/mt.

SHANGHAI, Nov. 8 (SMM) –

SHFE 1201 copper contract prices, the most active one, followed LME copper prices to open RMB 240/mt up at RMB 59,000/mt on Monday. After the opening, SHFE three-month copper contract prices moved lower after touching a high of only RMB 59,130/mt due to great selling pressures, with prices falling down after a high open during the whole trading day. In the afternoon session, SHFE three-month copper contract prices fluctuated around RMB 57,700/mt, and reached a low at RMB 57,580/mt. However, SHFE three-month copper contract prices returned to around RMB 58,000/mt again at the tail of trading as short investors left the market and eased some pressures. Finally, SHFE 1201 copper contract prices closed at RMB 57,950/mt, down RMB 810/mt or 1.38%. Positions for SHFE 1201 copper contracts were down 6,348 lots, and trading volumes were down 235,000 lots. With market activity much weaker than the previous week, SHFE copper prices got weak support at the 10-day moving average.

In the spot market, SHFE copper prices moved lower, and cargo-holders of hedged copper allowed transactions at a discount for profit-taking, dragging spot copper offers down to around premiums of positive RMB 0/mt. Mainstream spot copper offers were quoted between discounts of negative RMB 50/mt and premiums of positive RMB 50/mt in the morning business. Traded prices for standard-quality copper were between RMB 58,300-58,800/mt in the morning business, and RMB 58,350-58,900/mt for high-quality copper. Cargo-holders of domestic standard-quality copper were unwilling to make transactions at discounts and thus reduced sales. Market transactions were restricted given market pessimism towards copper prices this week, with financing demand exceeding copper fundamental demand. In the afternoon session, as SHFE copper prices continued to move at levels, copper premiums held flat with morning business, while traded prices fell to between RMB 58,150-58,550/mt/mt, with cautious trading sentiment.

With regard to copper price trends this week, SMM conducted a survey.

Based on the survey, about 63% market insiders are pessimistic towards the outlook, believing LME copper prices will test RMB 7,500-7,600/mt at the low-end and SHFE copper prices return around RMB 55,000/mt. Futures of the Euro-zone area remain unknown since Italy's debt problems need to be resolved, and since French also has to solve its own economic problems after the country's credit ratings were questioned. This means it's still impossible for the Euro-zone area to get out of its debt issues even if Greece's debt woes tend to ease compared with earlier stages. In the US, a job creation plan proposed by the Obama administration last week meets difficulties again and the two political Parties in the US will not reach consensus over the short term. Combined with volatile commodity markets and unstable investor confidence, LME copper prices lack upward momentum. From recent copper price movements, LME and SHFE copper prices face great technical pressures at USD 8,000/mt and RMB 60,000/mt, respectively, and will remain so if there is not any big positive event. Copper consumption in China's spot market is weak, and cargo-holders of imported copper are moving goods at a discount because of the steady drops in the SHFE/LME copper price ratio, which will not support SHFE copper prices. In general, copper prices will be in the face of systematic risks and are likely to experience another round of declines.   

The remaining 37% insiders expect there will not big fluctuations in copper prices this week. They predict LME copper prices will move between USD 7,700-8,000/mt and SHFE copper prices will fluctuate in the RMB 56,000-59,500/mt band. Despite bearish market sentiment and volatile copper price trends, some positive factors will help copper prices to continuously fluctuate this week. The US dollar index faces increasing pressures at above 77 after rebounding from the lows, which will ease pressures on copper prices. Economic data in the US is improving, and markets are positive about the initial jobless claims and other economic figures to be announced this week, boosting market confidence. In the Euro-zone area, despite some uncertain factors, Greece's cancel of national referendum and proposal of building unity government confirm that the Euro-zone countries are willing to make efforts to stop a contagion of the European debt crisis. Markets are still hopeful towards the Euro-zone Finance Minister meeting this week. From the copper fundamental side, LME copper inventories have fallen by more than 10%, and cancelled warrants have been high, which will help copper prices show more resilience. In China, China will release important economic data including October CPI data, which is expected to experience a turning point following September's 6.1%. If the final CPI data for October is in line with market expectations, China's tightening monetary policy is likely to ease selectively. Given no investment room in the property sector, markets expect Chinese stock markets will be the first choice of investment channel for investors, which will help the Shanghai Composite Index stabilize around 2,500 points and support copper futures prices. As November 15th will be the delivery date for current-month copper contracts on the spot market, copper premiums will appear and provide support for copper price trends. Therefore, copper prices will keep fluctuating this week.

The recent aluminum market has not seen any practical support. Though LME aluminum resisted downward pressures, which helped the most active SHFE aluminum contract 1201 open slightly higher at RMB 16,370/mt, the latter still closed RMB 55/mt or 0.34% lower at RMB 16,275/mt due to the prevailing bearish sentiment. Transactions volume dropped to less than 20,000 lots, which on the other hand limited losses of the contract. Positions of the contract decreased 148 lots to 74,954 lots. SMM expects the most active SHFE aluminum contract to struggle at RMB 16,300/mt in the short term as the market waits for a direction.

Traded prices of spot aluminum in Shanghai were between RMB 16,240-16,270/mt on November 7th, with discounts of RMB 20/mt to premiums of RMB 10/mt over the SHFE current-month aluminum price. In the morning, the SHFE current-month aluminum prices stagnated near RMB 16,250/mt, the downstream buying interest was quite low, with premiums over the SHFE current-month aluminum price being rarely seen in transactions. Though market supply remained sufficient, goods holders' selling interest slightly weakened. Only a few aluminum brands for delivery were welcomed in the market. Transactions were sparse, however, as sellers and buyers diverged on prices. In the afternoon, the SHFE current-month aluminum price narrowly fluctuated below RMB 16,250/mt. The selling interest was low among traders. Quotations in the afternoon were between RMB 16,220-16,240/mt, wit zero discount or premium over the SHFE current-month aluminum price. Most buyers stood on the sidelines. Market transactions were quite limited.

The SMM weekly average aluminum ingot price for the week ended November 4th was RMB 16,294/mt, down RMB 182/mt or 1.1% from the previous week. In a latest SMM survey, though aluminum prices have been slipping for months and hit a new low last week, 40% of market respondents expect domestic aluminum prices to continue the slipping trend. They say that downstream demand remains weak, and will not see much improvement despite strong expectations of monetary easing in China. Meanwhile, the European debt crisis that has been continuously lifting up and pressing down investors' confidence added to the bearish market sentiment. Even though most market players expect strong support at RMB 16,000/mt, they still expect a decline in this week's aluminum prices. 52% of market respondents are neutral towards this week's aluminum prices. They say aluminum producers can turn to the futures market to reduce losses, and purchasers will actively buy in at lower prices as production cost is high, therefore aluminum prices is not likely to slip this week. However, as the situation in Europe is far from optimistic, aluminum prices may not see any significant rebound either. The remaining 8% of market respondents expect domestic aluminum prices to climb this week. They say the downstream demand is stable, while the supply has slightly decreased. Supply and demand in specific regions is relatively balanced, which will lead to even lower selling interest of goods holders. With domestic stock markets warming up, aluminum prices are more likely to see a rebound, though the space for rebound is much limited.

SHFE lead prices fell rapidly to near RMB 15,400/mt after opening at RMB 15,480/mt on Monday, with prices later mainly moving between RMB 15,350-15,410/mt. SHFE lead prices found solid support at the 5-day moving average, with prices finally closing at RMB 15,405/mt, down RMB 75/mt. Trading volumes decreased by 204 lots to 366 lots, while positions increased by 36 lots to 1,968 lots.

In spot markets, market players including smelters and downstream consumers were waiting for results from the meeting of euro zone finance ministers, and they chose to stand on the sidelines, leaving trading sentiment quiet. Traded prices for domestic well-known branded lead like Nanfang, Chihong Zn & Ge and Cengyuan were between RMB 15,400-15,450/mt, while traded prices for other brands like Hanjiang were near RMB 15,350/mt.

With regard to lead price trends this week, 27% of market players believe lead prices should move between RMB 15,400-15,900/mt. Greece has made progress in resolving debt crisis, while Chinese investors are expecting monetary policies will loosen, and LME inventories have fallen 3,225 mt as of November 1st. Meanwhile, lead smelters in Guangxi were informed the government will widely implement power restrictions, and will reduce lead supply, giving support to lead prices.

33% of insiders were pessimistic, believing lead prices should move between RMB 14,800-15,300/mt. The G20 meeting failed to reach an agreement on the plan of IMF to resolve European debt crisis, and the worse-than-forecast US non-farm employment data left the market cautious. In addition, downstream lead battery producers reported the replace rate of batteries used in electric bicycles slowed down compared to the past years.

The remaining 40% believe lead prices should fluctuate between RMB 15,000-15,400/mt. Both traders and downstream buyers are cautious, only maintaining necessary inventories, so transactions of spot lead should be still muted.  

SHFE three-month zinc contract prices fell gradually below the daily moving average in the morning session after opening slightly higher at RMB 15,480/mt on Monday, with prices briefly rebounding in the midday supported by strengthening Shanghai Composite Index. SHFE three-month zinc contract prices later fell again to test the 10-day moving average due to short selling pressure, with prices even hitting an intraday low of RMB 15,265/mt. Prices generally moved between RMB 15,300-15,350/mt in the afternoon session, and finally closed at RMB 15,345/mt, down RMB 100/mt. Trading volumes decreased by 120,000 lots to 236,860 lots, while positions fell by 6,474 lots to 199,890 lots. 

In spot markets, as SHFE zinc prices fell gradually after opening slightly higher, spot premiums were reported between positive RMB 0-10/mt over SHFE 1201 zinc contract prices in morning trading. Later, spot premiums rose to between positive RMB 30-50/mt in response to falling SHFE zinc prices. Traded prices for #0 zinc were between RMB 15,350-15,400/mt, with limited deals made at the high-end, while traded prices for #1 zinc were between RMB 15,300-15,350/mt. Markets were mostly cautious given continuous declines in zinc prices, keeping trading sentiment sluggish.

With regard to zinc price trends for this week, 50% market players see SHFE three-month zinc contract prices fluctuating between RMB 15,200-15,700/mt, meeting resistance at RMB 16,000/mt level and finding support at the 10-day moving average. Greek prime minister unexpectedly proposed to put European bailout deal to a national referendum last Tuesday. Market concerns improved as Greek people were strongly objecting welfare cut and due to strikes.

A large volume of imported zinc surged into the market last week, but domestic smelters were holding goods as current zinc prices are close to costs, with inventories remaining at high levels. Smelters will sell off inventories once zinc prices rise to RMB 16,000/mt, combined with imported zinc arrivals in the market and lower prices, zinc prices should meet resistance.

30% market players believe zinc prices will rise slightly. The number of US non-farm employment in October grew more slowly, but US unemployment rate in October fell to a 6-month low, showing US job market improved. On the other hand, the US dollar index met resistance at the 30-day moving average, and LME spot discounts narrowed to USD 2/mt, down from USD 21/mt, while inventories continued to fall. In this context, SHFE three-month zinc contract prices should rise to RMB 15,780/mt, with spot prices close to or slightly below SHFE zinc prices.

The remaining 20% believe zinc prices should fall, with SHFE three-month zinc contract prices struggling between RMB 14,800-15,200/mt. LME zinc prices will fluctuate between USD 1,900-1,950/mt, falling to test the 20-day moving average. As domestic tightening monetary policy will continue, SHFE three-month zinc contract prices should inch down along with LME zinc prices, to RMB 15,000/mt. 

Shanghai spot tin prices were little changed on November 7th. More tin brands were seen during the day. Yunxi, Yunheng and Yunxiang branded tin was traded between RMB 179,500-181,500/mt. Small volumes of branded tin from Jiangxi and Jiangsu were traded near RMB 178,500/mt. A few smelters moved goods at lower prices, but mainstream traded prices did not change. The wait-and-see sentiment still prevailed among most smelters, with their quotations held firm. Market transactions were slightly limited. Downstream demand did not show any sign of improvement. Tin prices therefore still faced downward pressures.

In a latest SMM survey, 60% of market respondents expect domestic tin prices to be stable this week. They expect LME aluminum to exhibit a breakthrough, but will not see a straight up as the global economic environment is still far from stabilized with the European debt crisis waiting for detailed measures while China has shown signs of monetary easing. Domestic tin prices may also stay at current ranges as low selling interest of smelters will offset weak demand.

The remaining 40% of market respondents expect a decline in this week's domestic tin prices. From what we have seen today, investors' confidence is not strong as a few secondary tier smelters have already lowered their quotations. LME tin prices have not shown any breakthrough this week, and weak demand will possibly drag down domestic tin prices.

On Monday, LME nickel prices edged down during Asian trading hours after opening at USD 18,800/mt, and slid to USD 18,550/mt during earlier European trading hours along with a stronger US dollar. Markets were waiting for the development of the Euro-zone finance ministers meeting, with pressures felt in the market. Inventories were 85,056 mt, down by 420 mt.

In the Shanghai nickel market, spot prices dropped on Monday along with weak LME nickel prices. Transactions for Russian nickel were generally between RMB 136,000-136,500/mt, and RMB 138,800-139,000/mt for Jinchuan nickel. Trading sentiment was low, with no improvement in downstream demand, and deals were mainly made among traders.

According to SMM survey of price trends this week, approximately 50% of market players believe that nickel prices will continue to fluctuate, with prices expected between USD 18,000-19,000/mt. Although the resolution plan for the European debt issues has boosted market sentiment, no details are now available. Meanwhile, economic conditions in the Europe have also triggered market concerns, leaving nickel prices under pressures. About 30% of market players expect prices to drop further this week, given weak market fundamentals and market worries over macro-economic conditions. The rest of market players believe that nickel prices will rise along with easing concerns over the European debt issues and optimism towards demand in China from the loosening monetary policy.



base metals;daily review

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