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SMM Daily Review - 2012/1/9 Base Metals Market
Jan 10,2012 10:04CST
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11% market insiders are optimistic, believing LME copper prices can rally to USD 7,700/mt and that SHFE copper prices will challenge RMB 56,500/mt.

SHANGHAI, Jan. 10 (SMM) --


SHFE 1203 copper contract prices, the most active one, opened down by RMB 220/mt at RMB 55,670/mt Monday. After the opening, SHFE three-month copper contract prices met resistance at the 60-day moving average and failed to rise above RMB 55,860/mt. As LME copper prices lost USD 7,500/mt and selling pressures flowed in, SHFE three-month copper contract prices slid to a low of RMB 54,800/mt in the session. In the afternoon business, since Chinese stock markets rose by nearly 3% to 2,200 points, SHFE three-month copper contract prices pare some earlier losses and fluctuated around RMB 55,150/mt. At the tail of trading, LME copper prices rallied to USD 7,500/mt, helping SHFE 1203 copper contract prices return to above the daily moving average and finally ended at RMB 55,490/mt, down RMB 400/mt or 0.72%. Positions for SHFE 1203 copper contracts were down 1,726 lots, and trading volumes were up 121,000 lots. With support at the 10-day moving average of RMB 55,400/mt but growing selling pressures from short investors, SHFE copper prices were unlikely to easily break resistance at RMB 56,000/mt over the near term.

In the spot market, as SHFE copper prices fell, offers for copper premiums rose, and mainstream offers were quoted between discounts of negative RMB 100/mt and premiums of positive RMB 80/mt in the morning business. Traded prices for standard-quality copper were between RMB 55,150-55,300/mt, and RMB 55,250-55,500/mt for high-quality copper. Market supply was sufficient with various brands during the whole trading day, and the supply of domestic copper was dominated by hedged copper. Speculative activities were restricted, and downstream producers also had no buying interest due to pessimism towards future copper prices and high premiums on Monday, bringing market transaction into stalemate. In the afternoon business, as SHFE copper prices trimmed some of earlier losses, copper discounts were reported across the board to between negative RMB 120-20/mt, but there were seldom market transactions.

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

According to the survey, 11% market insiders are optimistic, believing LME copper prices can rally to USD 7,700/mt and that SHFE copper prices will challenge RMB 56,500/mt. US economic figures continue to improve, with upbeat readings on key figures of non-farm payrolls and jobs data, helping US equities move at high price levels and providing solid support for copper price trends as well. Chinese stock markets will rise stably over the near term owing to a lift by the Central Government's measures, which will boost market sentiment. In Chinese spot markets, some downstream producers are expected to replenish some stocks this week as the Chinese New Year draws near, which can shore up copper prices over the short term. Therefore, copper prices can hopefully close with gains in the last two trading weeks before the holiday. 

28% market insiders are pessimistic about this week's copper prices. They expect LME copper prices to move between USD 7,300-7,400/mt and SHFE copper prices between RMB 54,000-54,500/mt. The European debt crisis is worsening, and the US dollar therefore moves at highs due to safe-havens, imposing great pressures on copper prices. Technical indicators for both LME and SHFE are pointing downside. The People's Bank of China (PBOC) decides to suspend issuance of 3-month notes for two weeks before the Chinese New Year holiday, so markets see little possibilities for the PBOC to cut the Reserve Requirement Ratio (RRR) before the holiday. China will announce important economic data Tuesday and markets expect the CPI will fall further, but that the GDP will fall, which will exert pressures on commodity markets since it indicates further slow in China's economic growth. In spot markets, copper importers for the purpose of financing are eager to move goods before the Chinese New Year holiday, and traders of hedged copper chose to close positions for risk aversion, resulting in ample market supply and dragging down copper prices. 

61% market insiders believe copper prices will fluctuate this week. The European debt crisis persists, so the euro is unable to recover from weakness. However, continuously improving US economic data forms strong support for low-end commodity prices. In Chinese markets, statements from the Premier Wen Jiabao lift market confidence on Chinese stock markets, which will increase for the near term, but cash flow pressures fail to ease. Copper supply remains sufficient before the Chinese New Year holiday, but downstream producers have some needs in stockpiling inventories. As such, these insiders hold the view LME copper prices will fluctuate around USD 7,500/mt and SHFE copper prices will vacillate around RMB 55,500/mt.


Despite a rebound of the Shanghai Composite Index to above 2,200 points, the most active SHFE three-month aluminum contract only gained a slight RMB 20/mt or 0.13% on Monday. Positions of the contract dropped 1,812 lots to 56,754 lots. The bearish market sentiment is gaining strength as stock replenishing demand has been weak ahead of the Chinese New Year. Investors are increasingly moving their positions backward, narrowing gaps between near term and long term contracts. SMM expects the contract to struggle at RMB 15,900/mt in the near term on light trading.

Traded prices of spot aluminum in Shanghai were between RMB 15,870-15,910/mt on Monday, with discounts of RMB 40-80/mt over the SHFE current-month aluminum price. In the morning, with the approach of the Chinese New Year holiday, demand among downstream buyers in East China was weak, while supply in the market was rather sufficient. With a bearish market outlook, goods holders were eager to sell goods for cash, resulting in various quotations, with discounts over the SHFE current-month aluminum price expanding to nearly RMB 100/mt. Transactions were quiet in general. In the afternoon, the SHFE current-month aluminum price climbed slightly. Quotations were sparse and fell between RMB 15,900-15,920/mt. Deals were hardly concluded as the spot market already entered the holiday pattern.

The SMM weekly average aluminum price stayed near RMB 16,000/mt for a fourth successive week as of last week, due to stagnating SHFE aluminum prices. SMM surveys show Chinese spot aluminum stocks have already broken through 400,000 mt after the New Year’s Day holiday. The downstream demand remained weak, however, as stock replenishment interest stayed low ahead of the Chinese New Year. Aluminum trading is only slightly active in the Guangdong region by virtue of tight supply. The bearish market sentiment is strengthening given a dim economic outlook. This is responded by pessimism of 20% market respondents in a most recent SMM survey. Remain 80% respondents expect aluminum prices to stabilize this week as a result of profit-taking by shorts, light trading, stable SHFE and LME aluminum prices and low interest to cut quotations given weak downstream demand.


SHFE lead prices rose to RMB 15,240/mt briefly after opening at RMB 15,110/mt on Monday. However, prices then moved down due to resistance at the 10-day moving average and the lack of upward momentum. After 10: 00 in the morning, SHFE lead prices plunged to RMB 15,100/mt with SHFE copper prices, but then rallied slightly influenced by the rising domestic stocks and moved between RMB 15,130-15,180/mt. SHFE lead prices finally closed at RMB 15,175/mt, down RMB 100/mt . Trading volumes increased by 58 lots to 458 lots, and positions decreased by 32 lots to 1,068 lots.

In domestic spot markets, traded prices for well-known brands such as Nanfang, Chihong Zn & Ge, and Shuikoushan were between RMB 15,210-15,230/mt. Other brands including Tianma were traded at RMB 15,150-15,180/mt. Despite the upcoming Chinese New Year holiday, markets were cautious before the release of China’s December CPI data. Buyers mainly purchased on as-needed basis, leaving transactions modest.

With regard to spot lead price trends this week, market players are mixed. 67% of them are neutral. Despite the number of US non-farm employment rose remarkably in December, concerns over European debt crisis still exist in the long run. Yields of Italian 10-year treasury bills rebounded to 7%, and the unemployment rate in euro zone hit a record high, while economic consumption index remained weak, triggering fears among inventors. Market players expect lead prices will find support as downstream buyers increase purchases ahead of the Chinese New Year holiday. Spot prices are expected between RMB 15,150-15,300/mt.

The remaining 33% are pessimistic, believing LME lead prices will not rise as European debt crisis still dominate the market, despite positive US economic data. Downstream buying interest will be affected due to low demand for electric bicycles. As such, lead prices should move between RMB 15,000-15,250/mt this week.


On Monday, SHFE three-month zinc contract prices opened lower at RMB 14,700/mt, and dipped to RMB 14,575/mt in the morning session, dragged down by the Shanghai Composite Index and shorts selling off assets. Supported by improving downstream buying interest, SHFE three-month zinc contrct prices rallied to the moving average and finally closed at RMB 14,740/mt, up RMB 45/mt. Trading volumes decreased by nearly 70,000 lots to 214,864 lots, and total position decreased by 12,452 lots to 213,386 lots.

In domestic spot markets, spot discounts did not narrow as SHFE three-month zinc contract prices plunged and then rallied. #0 zinc was traded between RMB 14,500-14,550/mt, with discounts of RMB 120-150/mt against SHFE three-month zinc contract prices. Imported zinc was still quoted RMB 180/mt below domestic prices. #1 zinc was traded between RMB 14,450-14,500/mt. The market was cautious ahead of the release of China’s CPI, with transactions quiet.

The market did not increase purchases two weeks ahead of the Chinese New Year holiday, with zinc prices continuing to fall and market confidence depressed.

With regard to zinc price trends for this week, 60% believe zinc prices should move between RMB 14,500-15,000/mt. With the exception of speculations China’s CPI will continue to fall, there is not positive news. Despite positive US non-farm employment data, debt problems exist, so zinc prices will likely rise. Downstream demand is low, while market confidence was depressed, with any purchases limited. Costs are the only factor supporting zinc prices for now. Zinc prices have been fluctuating around RMB 14,500/mt level, and smelters will actively place orders once LME zinc prices are around USD 1,800/mt. As such, LME zinc prices should move between USD 1,800-1,880/mt this week, and SHFE three-month zinc contract prices will fluctuate between RMB 14,500-15,000/mt, with spot discounts between RMB 50-200/mt.

30% market participants believe zinc prices will likely fall, with SHFE three-month zinc contract prices dipping to RMB 14,000/mt level. A large sum of debt of Greece is due in March, while French credit rating is likely to be downgraded, and China’s real estate loans are due recently, so market confidence was significantly depressed. LME zinc prices are likely to fall to USD 1,800/mt. SHFE three-month zinc contract prices should fall to RMB 14,000/mt level, with spot discounts narrowing to RMB 0-50/mt.

The remaining 10% think SHFE three-month zinc contract prices should touch RMB 15,000/mt level. Speculations domestic cash flow will loosen and China’s Central Bank will cut deposit reserve ratio allow them to believe LME zinc prices will touch USD 1,900/mt level, and SHFE three-month zinc contract prices should touch RMB 15,000/mt, with spot discounts expanding to RMB 100-250/mt.


Due to tight supply, spot tin prices surged further in Shanghai on Monday, with mainstream Yunxi, Jinhai and Nanshan branded tin trading between RMB 164,000-165,500/mt. Ex-works prices of Yunxi and Yunheng branded tin were also lifted for times with continually climbing prices. The metal seems will stay on the upward track in the near term supported by tight supply.

In a most recent SMM survey, 60% of market respondents expect tin prices to climb further this week. Their optimism is mainly based on tight supply, goods holders’ bullish sentiment, higher quotations and stock replenishment demand ahead of the Chinese New Year. 30% of respondents think this week’s tin prices will stabilize as downstream demand remains unimproved, LME tin prices are volatile and resistance at the RMB 165,000/mt mark from downstream is strong. Remaining 10% of respondents say tin prices face downside risks this week because previous gains are mainly results of speculation using tight supply.


During Monday’s Asian trading hours, LME nickel for delivery in three months slipped after opening, but later advanced to certain extent on rebound in China’s equity market. During the European trading hours, LME nickel prices pared early losses, and hit USD 18,745/mt at 18:00. LME nickel prices were firm above 10-day moving average of USD 18,500/mt, and will try to test resistance of 5-day moving average at USD 18,800/mt. Close attention should be paid to  meeting between Germany and France as well as industrial output data from Germany.

In the Shanghai nickel spot market, offers were mixed during the morning trading hours. Mainstream offers of nickel from Jinchuan Group were between RMB 131,500-132,000/mt, and mainstream offers of nickel from Russia were between RMB 129,500-130,000/mt. Boosted by pre-holiday stock replenishment, mainstream traded prices advanced to certain extent during the afternoon trading hours. Mainstream traded prices of nickel from Jinchuan Group were between RMB 131,800-132,000/mt, and mainstream traded prices of nickel from Russia were between RMB 129,800-130,000/mt. Spot transactions were relatively brisk on Monday. According to market players, supply of imported nickel from Russia was limited, so demand for Russian nickel was better than Jinchuan nickel.

Based on result of an SMM survey on market sentiment, 50% market players believe that although current LME nickel prices are weak, the meeting between Germany and France is expected to come with positive result to boost LME nickel prices. Coupled with pre-holiday downstream stock replenishment, spot nickel prices are also expected to advance further.
40% market players hold that LME nickel prices will remain flat from a week earlier. The US dollar will remain strong, and the euro will be still sluggish, which will restrict LME nickel prices from rising further. However, downstream pre-holiday stock replenishment will support spot nickel prices to certain extent. In this context, nickel prices will continue to vacillate in this coming week. 

10% market players expect that LME nickel prices will continue to be weighed by the European concern. Hungary’s credit cut will cloud the European market, and the steady decline in the euro will continue to cap LME nickel price growth. In addition, with the approaching of China' New Year holiday, supply and demand will be both sluggish in spot nickel market, so nickel prices face more downward risks.


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