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SMM Daily Review - 2011/12/15 Base Metal Market
Dec 16,2011 10:04CST
smm insight
SHFE 1202 copper contract prices opened RMB 2,290/mt lower at RMB 53,430/mt Thursday, and the most active SHFE four-month aluminum contract gapped lower at RMB 15,600/mt.

SHANGHAI, Dec. 16 (SMM) –


As LME copper prices plunged overnight, SHFE 1202 copper contract prices opened RMB 2,290/mt lower at RMB 53,430/mt Thursday. As both long and short investors chose to close positions on a large scale during the whole trading day, SHFE three-month copper contract prices met new resistance at RMB 54,000/mt, with prices narrowly fluctuating around RMB 53,800/mt in the morning business. In the afternoon session, as the Shanghai Composite Index lost 2,200 points, and since LME copper prices slid below USD 7,200/mt, SHFE three-month copper contract prices declined below RMB 53,400/mt, down as low as RMB 52,820/mt. Finally, SHFE 1202 copper contract prices closed at RMB 53,460/mt, down RMB 2,260/mt or 4.06%, while SHFE 1203 copper contract prices fell to RMB 52,420/mt and finally ended at RMB 53,050/mt, down RMB 2,430/mt. Positions for SHFE 1202 copper contracts were down 29,494 lots, but trading volumes were up 32,192 lots, while positions and trading volumes for SHFE 1203 copper contracts were up 53,612 lots, and 270,000 lots, respectively, a signal of the completion of the most actively-traded copper contracts. SHFE copper prices were expected to extend losses for the foreseeable future.

In the spot market, cargo-holders were forced to increase copper discounts, as SHFE copper prices fell by more than 3%, with the most actively-traded copper contract prices already losing RMB 54,000/mt, and since the price gap between SHFE 1112 and 1201 copper contract reached between RMB 500-600/mt as the delivery day approached. Combined with an increase of hedged copper, copper discounts were reported between negative RMB 500-300/mt in the morning session. Traded prices for standard-quality copper were between RMB 54,400-54,550/mt in the morning business, and RMB 54,450-54,700/mt for high-quality copper. Due to large copper discounts, cargo-holders of domestic copper, especially high-quality copper, could only choose to hold back goods. Market supply was dominated by imported copper, and speculators were major market participants, with bearish sentiment spreading in the market and low confidence about consumption at the year’s end. In the afternoon session, SHFE copper prices fell further, and the price differential between SHFE 1112 and 1201 copper contract expanded to RMB 1,000/mt, causing spot copper discounts to increase to between negative RMB 850-650/mt. Traded prices declined to between RMB 54,050 54,150/mt in the afternoon session, and market transactions were brought into stalemate.   


After LME aluminum dropped to a yearly low, the most active SHFE four-month aluminum contract gapped lower for a third day at RMB 15,600/mt on December 15th. The contract hit an intraday high of RMB 15,715/mt supported by bargain hunting, slipped later weighed by weakness in the Shanghai Composite Index, and finally closed RMB 230/mt or 1.45% lower at RMB 15,645/mt. Positions of the contract increased 5,300 lots to 73,986 lots. Transactions broke through 20,000 lots for the first time since December 1st and shorts still accounted for major transactions. SMM expects the contract to struggle near RMB 15,600/mt in the near term.

Traded prices of spot aluminum in Shanghai were between RMB 15,830-15,860/mt on Thursday, with premiums of RMB 40-60/mt over the SHFE current-month aluminum price. In the morning, SHFE aluminum prices gapped lower and led to a slump of as much as RMB 200/mt in spot prices. With only one day ahead of delivery date of the SHFE current-month aluminum price, expanded premiums boosted buying for futures and thereby narrowing losses of the SHFE current-month aluminum contract. Spot prices slipped and deals were hardly concluded for aluminum spot as a result. In the afternoon, the SHFE current-month aluminum price stabilized. Deals for aluminum support stayed sparse, however, as supply was quite scarce.

On Thursday, as preliminary China December PMI released by HSBC turned out higher than figures in October and November, SHFE 1201 lead contract prices edged up slowly after opening about RMB 200/mt lower at RMB 15,140/mt, and then moved between RMB 15,050-15,150/mt. In the afternoon, SHFE lead prices maintained downtrend and moved around RMB 15,070/mt level, with prices finally closing at RMB 15,055/mt, down RMB 265/mt, or 1.7%. Trading volumes decreased by 250 lots to 438 lots, and positions increased slightly by 20 lots to 1,556 lots.

In domestic spot markets, quotations for domestic well-known brands such as Nanfang, Chihong Zn & Ge were between RMB 15,180-15,200/mt, with premiums against the most active SHFE lead contract prices of RMB 50/mt. Lead from Gejiu and other branded lead were traded at RMB 15,100/mt. Downstream buyers were more willing to purchase due to lower prices, but traders fell short of goods as smelters were not actively selling goods. Market remained stable compared with the previous trading day.


In domestic spot markets, spot zinc prices were RMB 20-30/mt below SHFE three-month zinc contract prices in the morning session, with #0 zinc traded between RMB 14,650-14,700/mt. As SHFE zinc prices rose, spot discounts expanded to negative RMB 50-60/mt, with traded prices rising to RMB 14,700-14,750/mt. But transactions were mainly made in the morning session, and quiet when prices rose. Imported zinc were RMB 90/mt below SHFE 1202 zinc contract prices, traded between RMB 14,650-14,700/mt, close to #1 zinc prices.

On Thursday, SHFE 1203 zinc contract became the most actively traded, with prices opening significantly lower at RMB 14,520/mt, and gaining back previous losses to touch RMB 14,915/mt as a large number of longs entered the market in the morning session. In the afternoon, SHFE three-month zinc contract prices fell to the moving average and finally close at RMB 14,715/mt, down RMB 410/mt. Trading volumes increased by nearly 120,000 lots to 279,086 lots, and total position increased by 7,898 lots to 167,246 lots.

Lasting worries towards the European debt crisis combined with a plunge in LME tin prices overnight restarted the downward run of Shanghai spot tin on December 15th. Mainstream Yunxi, Yunxiang and Nanshan branded tin plus a small amount of Yunshan branded tin were traded between RMB 157,000-161,000/mt. While branded tin smelters were holding quotations firm, mainstream traded prices were near RMB 160,000/mt as a result of lower-priced supply by other goods holders. Shanghai spot tin prices nevertheless are more stable compared with LME tin prices. The traded volume remained limited as the downstream demand turns weaker at year’s end. Rumors were heard that some solder producers already ended this year’s production due to light order volumes.

LME nickel prices slipped all the way to hit a low of USD 17,423/mt after falling below support level of USD 18,000/mt overnight, souring market confidence. The summit between Russia and the European Union was held on December 14th to 15th, and it was said that Russia may help to solve the European debt crisis. In addition, the November consumer confidence index from the euro zone may affect base metal price movement. LME nickel inventories were down by 276 mt to 89,544 mt.

On Thursday, Jinchuan Group cut ex-works nickel prices by RMB 4,000/mt to RMB 126,000/mt. In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were in the RMB 126,500-127,000/mt range, and mainstream traded prices of nickel from Russia were in the RMB 125,000-125,500/mt range. Hit by LME nickel price slump and Jinchuan Group’s downward price adjustment, spot nickel prices dipped sharply. Market sentiment was pessimistic, and buying interest was very low, with light trading volumes reported.



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