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SMM Daily Review - 2011/12/12 Base Metal Market
Dec 13,2011 10:28CST
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SHFE 1202 copper contract prices opened slightly up by RMB 330/mt at RMB 57,620/mt Monday, and the SHFE three-month aluminum contract opened slightly higher at RMB 16,155/mt.

SHANGHAI, Dec. 13 (SMM) –


As LME copper prices closed with gains last Friday, SHFE 1202 copper contract prices, the most active one, opened slightly up by RMB 330/mt at RMB 57,620/mt Monday. After the opening, SHFE three-month copper contract prices slid rapidly since long investors made profit-taking overnight, lowering to test support at RMB 57,000/mt. In the afternoon business, as Chinese stock markets lost 2,300 points, SHFE three-month copper contract prices came under pressure at RMB 57,000/mt and fell after LME copper prices declined below USD 7,700/mt, with prices fluctuating around RMB 56,700/mt following an intraday low of RMB 56,630/mt. Finally, SHFE 1202 copper contract prices closed at RMB 56,760/mt, down RMB 530/mt or 0.93%. Positions for SHFE 1202 copper contracts were down 5,312 lots, while trading volumes were up 51,916 lots. With increasing selling pressures and position closings by short investors overnight, SHFE copper prices lost support at three daily moving averages and were expected to test support at the 30-day moving average. Hence, SHFE copper prices would meet resistance to rally over the near term with technical indicators pointing downward.

In the spot market, SHFE copper prices began to slide immediately after the opening, but copper discounts were still reported across the board and expanded all the way due to sufficient supply. Copper discounts rose from negative RMB 150-50/mt in earlier trading hours to negative RMB 200-80/mt near the midday. Traded prices for standard-quality copper were between RMB 57,350-57,450/mt in the morning business, and RMB 57,400-57,600/mt for high-quality copper. Cargo-holders were eager to sell to generate cash during the whole trading day, but downstream producers still made purchases on an as-needed basis, while speculators only had buying interest in high-quality copper with large discounts, highlighting cautious trading on Monday. In the afternoon session, as SHFE copper prices continued to fall, spot copper discounts expanded to negative RMB 250-150/mt. Traded prices slid to between RMB 57,050-57,400/mt in the afternoon session, and market transactions remained light.  

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

Based on the survey, about 24% market insiders are positive about copper prices this week, believing LME copper prices will likely move at highs between USD 7,900-8,000/mt and SHFE copper prices will rally above RMB 58,000/mt. Europe's debt crisis tends to ease recently. During Friday's European Union (EU) summit, 26 state members reached consensus on reinforcement of finance rules and agreed to strengthen bailout tools for the debt crisis, heightening market expectations about EU finance integration, reassuring jittery investors, and supporting low-end copper prices. US economic data continues to improve, so markets are optimistic towards economic reports to be released this week, which will help copper prices rally. China's National Bureau of Statistics (NBS) last Friday announced November's CPI continued to fall, while the Central Economic Working Conference will be held this week, from which markets are expecting positive financial measures as well as sound and stable monetary policies for 2012, which will help Chinese stock markets and SHFE copper prices move from the lows. On the Chinese spot markets, SHFE current-month copper contracts will be delivered this week, which will support spot copper prices to some extent and lift SHFE copper prices.  

The remaining 76% market insiders are pessimistic, with LME copper prices expected between USD 7,600 -7,850/mt. Despite some positive factors, there are still too many uncertainties in the euro zone area, and the deal reached during the EU summit didn't introduce detailed rules. HSBC will release the latest Manufacturing Purchasing Managers' Index (PMI) this week, which is unlikely to improve owing to weak domestic consumption, which will drag down commodity markets. The Shanghai Composite Index lost 2,300 points Monday, and Chinese stock markets will not rally due to unstable market sentiment and a lack of capitals. According to the latest import data, China's imports of unwrought copper and copper semis were 450,000 mt in November, up 18% MoM and 28.6% YoY. SHFE copper inventories were up by 15,057 mt in the week ending December 9th, a signal that spot copper supply will remain sufficient over the near term. Besides, copper consumption remains weak due to sluggish orders and finance settlements at the year-end, so copper discounts will likely sustain this week even if SHFE current-month copper contracts will be delivered this week, which is unlikely to support copper futures prices. Technically, both SHFE and LME copper prices are facing increasing upside pressures after both falling below three daily moving averages, hampering future copper price trends.  


The SHFE three-month aluminum contract opened slightly higher at RMB 16,155/mt but closed RMB 20/mt or 0.12% lower at RMB 16,085/mt on December 12th, due to short selling and profit taking by the longs after the Shanghai Composite Index plunged below the 2,300 points mark. Positions decreased 96 lots to 68,016 lots. The bearish market sentiment turned even stronger due to a remarkable contraction in November's export. Pressure is mounting for the contract at the RMB 16,100/mt mark and weak consumption and plunging LME aluminum prices indicate higher possibilities that the contract might drop below RMB 16,000/mt.

Traded prices of spot aluminum in Shanghai were between RMB 16,140-16,170/mt on Monday, with discounts of RMB 0-30/mt over the SHFE current-month aluminum price. In the morning, the SHFE current-month aluminum price opened higher but fell later to struggle at the RMB 16,150/mt level. In the spot aluminum market, with strong bearish moods caused by sluggish consumption, goods holders were actively selling goods before delivery date of the SHFE current-month aluminum contract. Inquiries from downstream buyers were rarely seen, however, inducing discounts over the SHFE current-month aluminum price. Only a few deals were reported in the market. In the afternoon, the SHFE current-month aluminum contract stagnated near RMB 16,150/mt. The spot market was extremely quiet with only sparse quotations seen between RMB 16,140-16,150/mt. The wait-and-see sentiment was strong among both sellers and buyers. Deals were hardly concluded.

In an SMM survey on future aluminum prices, 62% of market respondents expect this week's aluminum to stabilize, citing a draw between the slowing China economy, significantly contracted trade surplus, capital pressure at year's end on the negative side and limited inventory growth caused by recent rains and snows on the positive side. Remaining 38% of respondents expect this week's aluminum prices to drop, saying that sluggish European and US economies have caused a huge contraction in China's industrial sectors and inadequate orders at aluminum processors will keep downstream buying interest low despite of limited aluminum stocks. Further more, successive surges in the LME aluminum stock have dragged aluminum into a downward track after its two-week rebound. These market players expect aluminum prices to drop further and may even lose the RMB 16,000/mt mark.

On Monday, SHFE lead prices opened RMB 100/mt higher at RMB 15,730/mt and moved between RMB 15,650-15,670/mt. In the afternoon, SHFE lead prices dropped briefly to RMB 15,590/mt but gained support at the 10-day moving average, and moved around RMB 15,630/mt. Prices finally closed at RMB 15,660/mt. With strong cautious sentiment among investors, trading volumes only decreased by 6 lots to 272 lots, and positions decreased by 46 lots to 1,946 lots.

In domestic spot markets, quotations for domestic well-known brands such as Nanfang, Chihong Zn & Ge and Chengyuan were around RMB 15,650/mt, with discounts against the most active SHFE lead prices of negative RMB 0-20/mt. Other brands such as Yunyue were traded at RMB 15,600/mt. In the afternoon, lead prices were stable. Downstream buyers remained cautious and only purchased on an as-needed basis, while smelters were still unwilling to sell goods. Transactions were quiet on the whole.

With regard to lead price trends for the week, 33% insiders are optimistic, believing prices should rebound due to good news, but with increases limited. SHFE lead prices are expected to touch RMB 16,000/mt as China's CPI and PPI released last Friday fell, a signal of easing inflation and loosening domestic monetary policies. The EU summit resulted in a financial agreement of its member countries except for UK, boosting market confidence. Besides, LME lead inventories continued to fall since early December by 8,125 mt, to 361,700 mt. Canceled warrants surged from 25,000 mt in late November, to 45,000 mt. In domestic spot markets, smelters were still unwilling to sell goods, so goods supply available in the market is tight. In this context, lead prices should find support.

40% market players believe lead prices will hover between the 5-day and 10-day moving averages, close to last week's levels. Despite progress in the EU summit, the critical problem regarding issuing unified bonds in the eurozone was not even mentioned, thus, the results may not greatly influence the market. Besides, in spot markets, smelters are not willing to move goods due to low lead prices, and downstream consumption is still depressed influenced by the warmer winter. Therefore, lead prices will struggle due to weak supply and demand.

The remaining 27% are pessimistic, thinking the result of EU summit was still worse than expected. Downstream producers will still suffer environmental protection inspections, with profit margins significantly contracted, combined with weak demand, cash flow problems exacerbate by year's end. In this context, more downstream enterprises stated they will purchase on an as-needed basis, so SHFE lead prices will likely fall to RMB 15,350/mt.

On Monday, SHFE three-month zinc contract prices opened higher at RMB 15,730/mt, but fluctuated at RMB 15,595/mt in the morning session. As domestic stocks fell below 2,300, SHFE three-month zinc contract prices closed at RMB 15,575/mt, down RMB 60/mt. Trading volumes decreased by 3,776 lots to 159,000 lots, and total position decreased by 4,784 lots to 145,000 lots, with prices meeting resistance at the 5-day moving average.

In domestic spot markets, #0 zinc was traded between RMB 15,480-15,500/mt in the morning session, and then prices dipped to RMB 15,450-15,500/mt along with SHFE zinc prices, even as low as RMB 15,400/mt. #1 zinc was traded between RMB 15,400-15,500/mt. Cargo holders were moving goods actively, while downstream buying interest was low, leaving transactions quiet.

With regard to zinc price trends for this week, 50% of market players believe SHFE three-month zinc contract prices should move between RMB 15,600-16,000/mt. The EU summit last weekend resulted in a financial agreement of the 23 member countries, but did not lead to any substantive policy. Besides, US CCI in December rose to a 6-month high at 74.2, but failed to reduce its unemployment rate, a signal US economic growth will slow, but will not experience double-dip recession. LME zinc prices should move between USD 1,980-2,020/mt. In China, downstream enterprises will remain cautious due to cash flow problems and higher zinc prices, while most of them prefer to consume inventories, so demand for zinc ingot will be low. Smelters increased goods supply due to the need to generate cash flow, and large amounts of imported zinc arrived at ports recently, so sufficient supply will rein in zinc prices. Spot discounts should remain negative RMB 100-200/mt, with traded prices between RMB 15,400-15,800/mt.

30% of insiders believe zinc prices will rise. Investors' sentiment will push up due to the result of EU summit and positive US economic data, driving up commodity prices in the short term. LME zinc prices should try to touch USD 2,100/mt level. Both China's CPI and PPI for November dropped, a signal of easing domestic inflation and weakening real economy, so domestic macro policies will turn to secure growth instead of controlling inflation. SHFE zinc prices should stand stable at RMB 16,000/mt mark, moving between RMB 16,000-16,500/mt. Spot prices will resist increases due to weak fundamentals, with spot discounts expected to expand to negative RMB 200-300/mt, and traded prices between RMB 15,800-16,200/mt.

The remaining 20% believe SHFE three-month zinc contract prices should fall to RMB 15,000-15,600/mt. Export orders were affected by ongoing European problems, and domestic consumption failed to offset the losses. In this context, the weak demand at the year end will weigh down zinc prices. Spot discounts will narrow as zinc prices fall, with negative RMB 0-100/mt against SHFE three-month zinc contract prices.

Shanghai spot tin prices stabilized on December 12th with the low end climbing a little bit. Yunshan, Tianti, Yunxiang and Jinlong branded tin mainly traded between RMB 159,000-160,500/mt. Yunxi branded tin was traded between RMB 162,000-163,000/mt. Ex-works prices of Yunxi and Yunheng branded tin were relatively firm. Goods movements were active in the morning but cooled in the afternoon after LME tin slipped.

In an SMM survey on future tin prices, 60% of market respondents expect further losses in this week's tin prices. They said capital pressure will induce more liquidating at lower prices and the EU summit did not provide practical support. Therefore, tin prices still face an uncertain future with downside risks staying. The metal may consequently drop below the RMB 160,000/mt mark during this week's trading.

The remaining 40% of respondents expect domestic tin prices to stabilize. These market players said after goods holders have come into consensus that lower prices can not stoke up the buying interest, their future strategies might be to hold prices firm, thereby providing support for the metal at the RMB 160,000/mt mark.

LME nickel futures contracts for delivery in three months fluctuated lower during the Asian trading hours, and hit a low of USD 18,175/mt at 16:30 on December 12th. The EU summit ended last Friday. Although Britain did not agree to revise the European Constitution, the 26 out of 27 euro zone members led by Germany and France agreed on deeper European integration and stricter budget rules. The news from the EU summit is expected to limitedly support market, and will be hard to reverse sluggish economic condition in the euro zone. LME nickel prices felt significant resistance at 60-day moving average, and may be hard to make any breakthrough if no solid news comes out.

In the Shanghai nickel spot market, traded prices of nickel from Jinchuan Group were in the RMB 130,600-131,000/mt range, and traded prices of nickel from Russia were in the RMB 128,800-129,000/mt range. Affected by last Friday's LME nickel price increase, spot nickel prices advanced to certain extent during Monday's morning trading hours. However, traded prices in spot market began to fell by RMB 100-200/mt during the afternoon trading hours, due to price decline of LME nickel prices on Monday. Generally speaking, market players adopted a wait-and-see attitude, and trading quantities waned to certain extent on Monday.

Based on result of an SMM survey, 10% market players believe that LME nickel prices will advance slightly in this coming week, believing that possible output decline of nickel in November may prevent nickel prices from slipping. 30% market players hold that LME nickel prices will continue fluctuation trend. No negative news was reported from the EU summit, despite that the EU summit did not come up with radical improvement. Therefore, LME nickel prices are expected to struggle to find direction. 60% market players expect that LME nickel prices will slip slightly. No substantial progress was made at last week's EU summit, and no solid news is expected to come out from the euro zone in the short term. Coupled with quiet trading sentiment by the end of they year, the possibility for nickel prices to fall is high in this coming week.




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