SMM Daily Review – 2011/12/2 Base Metals Market

SHANGHAI, Dec. 5 (SMM)--

Copper:
SHFE 1202 copper contract prices, the most active one, opened flat at 58,860/mt on Friday. After the opening, as new short investors entered the market, and since Chinese stock markets kept weak and closed down by 1%, SHFE three-month copper contract prices failed to rally and fluctuated near RMB 57,500/mt, with a low touching RMB 57,360/mt. However, SHFE three-month copper contract prices gradually stabilized and moved above the daily moving average in the afternoon session. Tracking increasing LME copper prices, SHFE three-month copper contract prices climbed to RMB 58,120/mt at the tail of trading, but still came under pressure at the RMB 58,000/mt level. Finally, SHFE 1202 copper contract prices closed at RMB 58,060/mt, up RMB 200/mt or 0.35%. Positions for SHFE 1202 copper contracts were up 22,272 lots, and trading volumes were up 40,848 lots. Long and short investors held divergent views ahead of the release of the US non-farm payrolls, and SHFE copper prices were awaiting guidance from LME copper with great pressures at RMB 58,100/mt. 

In the spot market, as SHFE copper prices fluctuated after a low open, and since market supply was ample and consumption failed to improve, copper premiums fell from initial levels of between positive RMB 300-350/mt to between RMB 120-250/mt near the midday. Traded prices for standard-quality copper were between RMB 58,200-58,350/mt in the morning business, and RMB 58,250-58,500/mt for high-quality copper. Spot copper supply increased due to a rise in hedged copper on the previous day and since traders made purchases at low copper discounts that day. However, as copper prices were nearly unchanged from the previous day levels, downstream producers generally chose to stand on the sidelines due to uncertainties and instabilities in future copper prices, while traders also reduced purchases to avoid incurring losses before the weekend. In this context, overall market transactions were restricted in the morning session. In the afternoon business, as SHFE copper prices drifted higher, spot copper premiums declined again, with mainstream premiums reported between positive RMB 100-220/mt, and traded prices stayed basically flat with the morning business levels. Market supply decreased slightly in the afternoon session, but consumption failed to improve. Copper inventories compiled by the SHFE were down by 7,550 mt to 57,655 mt in the week ending December 2nd, a factor of supporting firm copper price trends. 

Aluminum:    
The most active SHFE three-month aluminum contract opened slightly higher at RMB 16,240/mt and closed at RMB 16,255/mt on December 2nd gaining RMB 30/mt or 0.18%. Though a power rate hike which means higher production cost will provide some support for the contract, weak consumption will limit its upward pace. As such, SMM expects the contract to struggle near RMB 16,250/mt in the near term. The latest SHFE aluminum stock decreased 2,159 mt to 177,415 mt.

Traded prices of spot aluminum in Shanghai were between RMB 16,250-16,280/mt on Friday, with premiums of RMB 0-30/mt over the SHFE current-month aluminum price. In the morning, SHFE aluminum prices struggled at RMB 16,240/mt lacking upward momentum, which resulted in a sluggish spot market. Traders lowered quotations due to low downstream buying interest, with spot premiums over the SHFE current-month aluminum price narrowing to near zero. Transactions were relatively limited on the whole. In the afternoon, the SHFE current-month aluminum price was little changed and purchases were rarely due to the coming weekend, with sparse deals being seen between RMB 16,250-16,260/mt.

Lead:
SHFE lead prices moved narrowly around the moving average between RMB 15,660-15,700/mt after opening at RMB 15,715/mt on Friday due to unclear price trends and cautious sentiment in the market. Finally, SHFE lead prices closed at RMB 15,695/mt, down RMB 65/mt. Trading volumes decreased by 472 lots to 392 lots, and positions decreased slightly by 34 lots to 2,490 lots.

In domestic spot market, quotations for domestic well-known brands such as Nanfang and Chihong Zn & Ge fell by RMB 50-80/mt compared to the previous trading day, to RMB 15,650/mt, with discounts against the most active lead contract prices of negative RMB 30/mt. Quotations for other brands such as Baiyin and Gejiu were between RMB 15,600-15,620/mt. In the afternoon, lead prices remained unchanged. Although smelters were more willing to move goods, downstream buyers were not actively purchasing at higher prices ahead of the weekend, with limited transactions done in the market.

Zinc:
Last Friday, SHFE three-month zinc contract prices opened at RMB 15,795/mt and dipped to RMB 15,685/mt in the morning session. As a large number of longs entered the market, SHFE three-month zinc contract prices rallied to the moving average, between RMB 15,700-15,750/mt, and finally closed at RMB 15,795/mt, down RMB 20/mt. Trading volumes decreased by 160,000 lots to 310,000 lots, and total position decreased by 11,138 lots to168,332 lots. A large number of investors left the market due to pessimism.

In domestic spot markets, spot prices were RMB 80-100/mt below SHFE 1202 zinc contract prices. #0 zinc was traded between RMB 15,650-15,700/mt, with transactions made at the low end, even as low as RMB 15,630/mt. #1 zinc was traded between RMB 15,600-15,650/mt. Traders held goods due to unfavorable discounts, while downstream buyers were cautious, leaving transactions extremely quiet.

Tin:
Shanghai spot tin price slipped further on December 2nd, with mainstream Yunxi, Tianti, Yunxiang, Nanshan etc. branded tin trading between RMB 165,500-168,000/mt. Though branded tin producers continued to hold quotations, non-stop selling at lower prices by some smelters had maintained a lower-priced supply. That combining with a weak demand caused the continued drop in tin prices last Friday. Meanwhile, though tin prices saw successive losses, its raw material prices were little changed. Capital pressure at smelters remained strong as a result, leading to frequent output cuts, which did not provide much help for tin prices though.

Nickel:
LME nickel price moved relatively stable during the Asian trading hours last Friday, but advanced slightly on weaker US dollar during the afternoon trading hours. LME nickel prices continued to extend upward momentum during the early European trading hours and hit a high of USD 17,209/mt at 5: 00 pm. Market sentiment was relatively cautious as investors were waiting for the US non-farm employment data. LME nickel inventories were down by 252 mt to 90,822 mt.

In the Shanghai nickel spot market, spot nickel prices slumped along with Thursday's LME nickel price plunge. Mainstream traded prices of nickel from Russia were in the RMB 123,500-124,000/mt range, and mainstream traded prices of nickel from Jinchuan Group were in the RMB 125,500-125,800/mt range. Trading sentiment was relatively sluggish. Although LME nickel price advanced in the afternoon trading hours on Friday, it only lent limited support to boost spot nickel prices. Downstream demand for refined nickel was sluggish, due to the lower operating rates at steel mills and supply of N PI as a substitute for refined nickel. Traders were pessimistic towards market outlook and lacked trading interest, resulting in quiet transactions in the market.