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SMM Daily Review - 2011/11/14 Base Metals Market
Nov 15,2011 10:44CST
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Source:SMM
As LME copper prices closed significantly higher last Friday, SHFE 1201 copper contract prices, the most active one, opened 1,570/mt up at RMB 57,030/mt on Monday.

SHANGHAI, Nov. 15 (SMM) --

Copper

As LME copper prices closed significantly higher last Friday, SHFE 1201 copper contract prices, the most active one, opened 1,570/mt up at RMB 57,030/mt on Monday. After the opening, SHFE three-month copper contract prices edged up due to large-scale position closings by short investors, with a low only touching RMB 56,920/mt. Near the midday, since LME copper prices broke out USD 7,900/mt and since Chinese stock markets surged by 2%, SHFE three-month copper contract prices climbed up to the upper daily trade limit of RMB 58,780/mt. But due to profit-taking by long investors, positions for SHFE three-month copper contracts were down 4,000 lots from earlier increases of nearly 20,000 lots, leading the prices to fluctuate narrowly around RMB 58,500/mt in the afternoon session. Finally, SHFE 1201 copper contract prices closed at RMB 58,430/mt, up RMB 2,970/mt or 5.36%. Positions for SHFE 1201 copper contracts were down 15,576 lots, while trading volumes were slightly down 500 lots. Short and long investors still kept cautious towards building positions for fear of overnight risks, with intraday operation increasing. SHFE copper prices moved higher after a high open on Monday, a signal of stabilizing following the price declines, but with strong resistance at RMB 59,000/mt.    

In the spot market, as SHFE copper prices moved higher after a high open, spot copper discounts expanded to between negative RMB 220-100/mt near the midday, with discounts for some standard-quality copper even quoted at negative RMB 250/mt. Traded prices for standard-quality copper were between RMB 58,200-58,900/mt in the morning business, and RMB 58,300-59,000/mt for high-quality copper. Some speculators were anxious to move goods for cash generation at the highs during the whole trading day. Some traders made purchases for hedge trading, while downstream producers kept cautious at the highs, restricting overall market transactions. Market was dominated by wait-and-see sentiment on Monday. In the afternoon session, SHFE copper prices continued to move at high levels, and the price differential between SHFE 1111 and 1201 copper contracts was still RMB 200/mt, propelling cargo-holders of SHFE 1111 copper contracts to sell actively. As a result, spot copper discounts rose to between negative RMB 300-150/mt in the afternoon session, but speculators and downstream producers had no intention of purchasing, while traded prices were nearly unchanged from the morning business.

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

Based on the survey, about 14% market insiders believe copper prices will stably move higher this week, with LME copper prices expected to test USD 8,000/mt. Since SHFE copper prices opened higher on Monday and stood above the 5-day moving average again, these insiders believe SHFE copper prices will likely return to earlier fluctuating band. Market worries over the Europe ease some after new governments in Italy and Greece took office at the weekend, reducing pressures on copper prices. The US economic data is also gradually improving, which will boost market confidence. Gold prices are still fluctuating, but crude oil prices have been recently increasing stably, leading base metals to experience rebound trends. The People's Bank of China (PBOC) is increasing short-term central bank bills as the end of the year approaches, a signal of introduction of targeted loosening monetary policy at the year-end, which is positive for both stocks and commodity markets. On the copper fundamental side, China's domestic copper smelters cut their output by around 10% in 4Q, so supply of domestic high-quality copper will fall, which will support copper premiums and lay a foundation for LME copper price rebound.

Around 29% insiders surveyed are pessimistic, believing LME copper prices will fall below USD 7,500/mt and SHFE copper prices will test support at RMB 55,000/mt. Despite positive attitudes, the establishment of new Italian and Greek governments can't smoothly solve all their debt problems and economic issues, as Greece's deficit is 9% of its GDP, well above than the 7.6% level required by the bailout plan. In the currency markets, the Euro will easily meet selling pressures due to instabilities in the European debt crisis, while the US dollar is greatly welcomed and gets support at the 60-day moving average, imposing new pressures on copper prices. The one-month falling proportion of cancelled warrants to total LME copper inventories is also easing, down to 8% from 14% as of last Friday evening, which will have a limited impact on high copper prices. Short investors are waiting opportunities to impose selling pressures at USD 8,000/mt for LME copper and RMB 60,000/mt for SHFE copper, keeping long investors on edge. Technical indicators for both LME and SHFE copper prices are pointing downward, creating potential risks for copper prices this week. In the spot market, copper premiums are unlikely to sustain after the delivery data for SHFE current-month copper contract due to sluggish consumption and cargo-holders' willingness in moving goods for cash generation, and this will dampen SHFE copper price trends.

Approximately 57% insiders expect copper prices this week will continue to fluctuate due to uncertainties in many factors, with LME copper prices estimated between USD 7,600-7,850/mt and SHFE copper prices between 55,500-58,500/mt.   

Aluminum

The most active SHFE aluminum contract 1201 gapped higher at RMB 16,250/mt on November 14th after investor worries towards the European debt crisis and Chinese monetary policies eased. The contract climbed later supported by profit-taking of shorts. Profit-taking activities of longs, however, limited gains of the contract, which finally closed RMB 190/mt or 1.18% higher at RMB 16,320/mt. Positions of the contract decreased 2,698 lots to 81,468 lots. The gains of SHFE aluminum were moderate compared with other base metals. The price gaps between short term and long term contracts widened as investors continued to sell the former and buy the latter. The market optimism was a little bit fragile; therefore SMM expects the most active SHFE aluminum contract to continue struggling at the RMB 16,300/mt mark.

Traded prices of spot aluminum in Shanghai were between RMB 16,130-16,180/mt on Monday, with discounts of RMB 20-40/mt over the SHFE current-month aluminum price. Low-iron aluminum was traded between RMB 16,230-16,250/mt in Shanghai. Traded prices of spot aluminum in Wuxi were between RMB 16,120-16,160/mt. SHFE aluminum prices opened slightly higher, attracting buyers to purchase at lower prices. The SHFE current-month aluminum price rose and touched RMB 16,200/mt at around 11: 00 in the morning, which led to higher quotations by goods holders and tight supply at lower prices. However, the buying interest turned low after quotations climbed, with market transactions gradually turning sparse. Transactions were quite sparse in the afternoon as a result of low buying interest as well as low selling interest at lower prices.

The SMM weekly average aluminum ingot price for the week ending on November 11th is RMB 16,165/mt, down RMB 129/mt or 0.79% from the previous week. In a latest SMM survey, 58% of market respondents expect little change in this week’s aluminum prices. According to these respondents, continued uncertainties in Europe, weak aluminum demand due to the approaching year end and continuously increasing aluminum supply will cause huge pressures for domestic aluminum prices, which, however, are supported by high production costs. The remaining 42% of market respondents divided with half expect domestic aluminum prices to rise slightly and half expecting domestic aluminum prices to dip this week. The optimistic half cited easing domestic monetary policies as support, which was partially eroded, however, due to weak demand. The pessimistic half said optimism towards the situation in Europe was temporary and any negative news will induce another dip in domestic aluminum prices. The downward pace will also be limited, though, due to high production costs.

Lead

SHFE 1112 lead prices opened RMB 300/mt higher at RMB 15,200/mt on Monday due to a surge in LME lead prices overnight. Later, prices were driven to rise by longs and touched RMB 15,620/mt at around 11: 00 a.m. with rising domestic stock market. In the afternoon, SHFE lead prices continued to increase and closed at RMB 15,520/mt, up RMB 610/mt, or 4%. Trading volumes decreased slightly by 20 lots to 454 lots, and positions dropped by 134 lots to 1,848 lots, with short covering reaching 4.4%, which also contributed to the rise in SHFE lead prices.

On Monday, SHFE lead prices fluctuated upward after opening higher. In domestic spot markets, quotations for well-known brands such as Nanfang, Chihong Zn & Ge, and Yuguang were between RMB 15,400-15,470/mt, up around RMB 400/mt compared to last Friday. In the afternoon, branded lead prices dropped slightly due to still weak demand. Quotations for brands including Shuangyan were at around RMB 15,450/mt, with discounts over SHFE 1112 lead contract prices at negative RMB 50/mt. Transactions turned quiet with wait-and-see sentiment.

With regard to lead price trends this week, optimistic and pessimistic insiders are 50% and 50%. The pessimistic market players believe that Greek and Italian prime ministers resigned, Italy’s 10-year government bond yields were steady below 7%, and the Italian Senate passed the budget bill for 2012, all helping improve the hope in resolving European debt crisis. Besides, good news from the US was reported, and China’s Central Bank released data for credit loans to show some banks loosened credit loans. In this context, SHFE lead prices are expected to rebound. In domestic spot markets, smelters are unwilling to sell goods as prices are lower than they can accept, and smelters in Yunnan are more unwilling to sell goods due to power restrictions. As a result, SHFE lead prices should move between RMB 15,200-15,800/mt this week.

The remaining investors are cautious, believing European debt crisis will continue. In addition, market fundamental of lead has not improved, with lead ingot supply surplus, and with LME and SHFE inventories remaining at high levels. LME canceled warrants hovered at 20,000 mt, and will unlikely increase. Traders are pessimistic, and have low stocks to supply to downstream buyers. They only maintain inventories at normal levels to reduce risk. Downstream battery producers have not reach full capacity although environmental protection inspections had ended, and the seasonal high demand period for electric bicycles has not neared, while domestic spot consumption is still weak, with transactions quiet. SHFE lead prices should fluctuate around RMB 15,000/mt level this week.

Zinc

Boosted by positive news from Europe and the US last weekend, SHFE three-month zinc contract prices fluctuated higher following LME zinc price trends after opening higher at RMB 15,045/mt on Monday. A large number of short investors exited the market, while long investors built positions. As a result, SHFE zinc prices were prompted to break through the 40-day moving average, with prices gradually climbing to as high as RMB 15,590/mt, but pressures were found at RMB 15,600/mt. Later, SFHE three-month zinc contract prices fell slightly, with prices edging higher gradually along with the daily moving average at the tail of trading and finally closing at RMB 15,430/mt, up RMB 700/mt. Trading volumes increased by 70,950 lots to 344,610 lots, while positions fell by 14,676 lots to 185,264 lots.

In spot markets, as SHFE zinc prices opened significantly higher above the 20-day moving average on Monday, traded prices for #0 zinc were between RMB 15,100-15,200/mt. Later, as SHFE zinc prices climbed continuously, breaking through the 5-day, 10-day and 40-day moving averages consecutively and even hitting a high of RMB 15,590/mt, spot discounts rose from zero to negative RMB 40-50/mt against SHFE 1201 zinc contract prices in response. Mainstream traded prices for #0 zinc were between RMB 15,250-15,350/mt, with sparse deals made below RMB 15,200/mt. Traders made purchases actively due to widening spot discounts and market optimism, while smelters also became more willing to move goods amid rising zinc prices, keeping trading sentiment brisk.

With regard to zinc price trends this week, 50% market players believe that zinc prices should edge up, with SHFE three-month zinc contract prices touching RMB 16,000/mt. Italian Senate passed the budget bill for 2012 including new credit tightening measures last Friday, while Italy’s prime minister finally stepped down. The market gave an optimistic expectation to the credit tightening policies by the new government, although Italy was caught in mass sovereign debt, its economic structure is more active compared to Greece, and is more affordable to the debt, so concerns over Italy’s debt crisis will east. On the other hand, Papademos was sworn in Greek parliament on November 11th, and the market is optimistic towards the former vice president of European Central Bank. US CCI for November was 64.2, better than the forecasted 61.5. The good news boosted market risk appetite, so the US dollar index should fall to 76 next week, pushing up LME zinc prices to break through USD 2,000/mt level. SHFE three-month zinc contract prices should touch as high as RMB 16,000/mt along with LME zinc prices, moving between RMB 15,400-16,000/mt. Spot discounts should expand, with spot prices between RMB 15,300-15,700/mt.

37% market players are neutral, believing SHFE three-month zinc contract prices should fluctuate between RMB 15,000-15,600/mt. The growth of China’s new credit loans in October was better than forecasts, so demand for commodity will increase to boost market confidence. Besides, progress has been made in resolving European debt crisis. In this context, SHFE three-month zinc contract prices should rise to stand steadily at RMB 15,000/mt level. But downstream buying interest will weaken as zinc prices rose, while smelters will begin to move goods, causing goods supply available in the market to increase, weighing down zinc prices. In this context, SHFE three-month zinc contract prices should move between RMB 15,000-15,600/mt, with spot discounts between negative RMB 10-50/mt.

The remaining 13% are pessimistic, thinking zinc prices should fall to struggle between RMB 14,500-15,000/mt. Good news reported from Europe will be absorbed by the market, while Italy’s debt crisis is still remaining unresolved. The future of Europe is subject to Italy’s new prime minister’s operation. Other European countries will be unable to bailout Italy if the same scenario happens in Italy as in Greece, Ireland and Portugal. Uncertainty over Greek problems will depress investors’ confidence. The US dollar index should find support at 76, and LME zinc prices will fall to USD 1,860-1,940/mt. SHFE three-month zinc contract prices will fall to move between RMB 14,500-15,000/mt, tracking LME zinc prices.

Tin

Shanghai spot tin prices were little changed from last Friday on November 14th. Mainstream traded prices of Yunxi, Yunheng, Tianxi, Yunxiang, Kaiyuan, Jinlong and Nancang branded tin were between RMB 178,000-180,500/mt. The traded volume continued to rise during the day. As the European debt crisis eased, LME tin prices started to rebound. Domestic tin prices also showed signs of rebound, with the downstream buying interest gradually rising. However, after talking with downstream enterprises, SMM found out that their orders did not see much improvement, therefore the weak demand will limit gains, if domestic tin do rebound, of domestic tin prices.

A latest SMM survey shows 50% of market respondents expect domestic tin prices to be stable this week. According to these respondents, LME tin has already started to rebound with alleviated worries towards the European debt crisis and fine-tuning of Chinese monetary policies. However, it stayed near USD 22,000/mt due to strong resistance above. As for domestic tin, weak demand will limit its upward space, but tight supply due to high production costs will provide some support.

35% of market respondents expect a slight increase in domestic tin prices this week, believing that the strengthening LME tin will help lift up domestic tin prices a little bit.

The remaining 15% of market respondents expect losses in domestic tin prices to continue this week. According to these respondents, the macro environment did not see a material improvement as most optimistic expectations are speculative. Meanwhile, LME tin also faces downside risks following its failed attempts to break through. Domestic tin prices, which are facing pressure due to weak demand, may slip as a result.

Nickel

LME nickel prices advanced to hit a high of USD 18,550/mt after opening at USD 18,252/mt during the Asian trading hours on Monday. During the early European trading hours, LME nickel prices fell from high on stronger US dollar index. Generally speaking, LME nickel prices presented weak performance, with great resistance above. LME nickel inventories were 83,892 mt, down 288 mt from a day earlier.

In the Shanghai nickel spot market, trading sentiment slightly improved, as Monday’s LME nickel price increase boosted market sentiment. Prices of Russian nickel advanced higher than prices of Jinchuan nickel. Traded prices of nickel from Russia advanced from RMB 132,500-133,000/mt during the morning trading hours to RMB134,000-134,500/mt during the afternoon trading hours. Mainstream traded prices of nickel from Jinchuan Group were around RMB 136,000/mt and advanced to RMB 136,500/mt during the afternoon trading hours. Transactions were moderate in the market, but downstream demand was still sluggish.

Based on result of an SMM survey on market sentiment, around 45% market players believe that LME nickel prices will remain fluctuation trend this week, and may not likely advance significantly, as current macro economic environment has not stabilized.

40% market players hold that LME nickel prices may advance slightly this week, as market concern over macro economic condition has eased to certain extent and since negative news have been absorbed by market. With waning risk aversion sentiment, LME nickel prices may gain upward momentum, and spot nickel prices will be supported by Jinchuan Group’s ex-works nickel prices.

The remaining 15% market players believe that LME nickel prices may slip this week. As macro uncertainties still exist and since the European debt crisis remains unsolved, it is expected that LME nickel prices may be dragged down by shorts.

 

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