SHANGHAI, Jan. 13 (SMM) – Major US economic data was better than forecasts last week, a signal of steadily recovering US eonomy. China's imports rose significantly, and CPI fell for 5 consecutive months in December. Commodity market improved along with rebounding Dow Jones Industrial Average and the Shanghai Composite Index. SMMI jumped 2.05%. SMMI.Cu was up 2.06%. SMMI.Sn led increases by 6.55%, and SMMI.Ni rose 4.6%, while SMMI.Al was up 0.03%.
Chinese Premier Wen Jiabao's recent statements at the National Finance Conference helped boost Chinese stock markets, and China's December's CPI and PPI growth was lower as expected and is a strong indication inflation is coming under control, but is also raising expectations for further cuts in the bank Reserve Requirement Ratio (RRR) before the Chinese New Year holiday. SHFE copper prices rose after initially falling, and stood above the RMB 58,000/mt level, up 3.5% for the week. Positions for SHFE copper contracts were significantly down by 40,000 lots, while the SHFE/LME copper price ratio fell further since the increase in SHFE copper prices were less than that for LME copper.
In spot markets last week, copper discounts expanded, but cargo-holders and domestic copper smelters became less willing to move goods as the Chinese New Year holiday nears, causing copper supply to fall. Speculators chose to enter the market at discounts last Friday, but downstream producers chose to stay out of the market, making the already limited market transactions more pronounced before the holiday.
SHFE copper prices will move between RMB 56,500 -59,000/mt in the coming week. Spot copper supply will therefore decrease further, which will allow slight copper discounts or even slight premiums.
On Wednesday, SHFE 1204 aluminum contract became the most actively traded contract. Rising LME aluminum prices helped SHFE aluminum prices return above RMB 16,000/mt. In domestic spot aluminum market, trading activity, however, was low, and with the lack of upward momentum, causing spot prices to meet resistance at RMB 16,250/mt. Last week, the SHFE/LME aluminum price ratio fell from 7.8 to below 7.5, creating no incentives for imports.
After the New Year holiday, total domestic aluminum inventories exceeded 400,000 mt, with significant growth in Shanghai and Wuxi, resulting in weaker spot aluminum prices in East China compared with futures market. The SMM aluminum prices edged up, but failed to exceed RMB 16,000/mt. Downstream producers generally left for the upcoming Chinese New Year holiday, and only made limited purchases in earlier week, denting market sentiment. As a result, spot discounts expanded briefly to RMB 100/mt, but still failed to generate downstream buying interest. In general, trading activity was low over this past week along with the approach of the Chinese New Year holiday.
SHFE three-month zinc contract prices were supported by higher LME zinc prices, initially struggling near moving averages early in the week, but later surging to RMB 15,000/mt on Wednesday and rising to RMB 15,200/mt on Thursday, above all moving averages.
Last week, spot transactions were extremely muted since most downstream producers had suspended production for the holiday. Spot discounts against SHFE three-month zinc contract prices remained between RMB 130-150/mt early in the week, with spot prices struggling around RMB 14,500/mt. Downstream buyers purchased based only on orders, so spot discounts continued to expand with rising SHFE zinc prices, to as high as RMB 260-280/mt on Thursday. Downstream buying interest was low at higher prices, and only a few traders purchased for arbitrage.
Last week, market demand fell as some downstream producers suspended production, causing spot inventories to grow. Inventories in East China surged 6,000 mt, to 416,400 mt, inventories in South China grew 1,000 mt, to 129,300 mt, and inventories in North China remained unchanged at 14,000 mt. Since many logistics companies will also shut down for holiday, spot inventories are likely to grow further.
Last week, SHFE lead prices moved higher due to rising Chinese stock markets and rising LME lead prices, presenting a weekly growth of almost 2%. Influenced by LME lead prices, SHFE lead prices should move between RMB 15,220-15,450/mt in the coming week.
In China's domestic spot markets, prices remained between RMB 15,150-15,250/mt early last week, but rose by RMB 100/mt later in the week as SHFE lead prices moved higher. Traded prices were between RMB 15,250-15,350/mt, but a bullish post-holiday market sentiment caused smelters to limit sales. Downstream buyers were not actively replenishing stocks and began the holiday early given poor sales. In this context, transactions were generally quiet. This coming week, smelters are holding goods due to a growing bullish outlook. Meanwhile the weak downstream consumption and the cash flows problems before the Chinese New Year holiday will limit stock replenishments. As a result, spot lead prices will not likely rise in the coming week, with domestic spot prices expected at RMB 15,200-15,400/mt.
Spot tin prices climbed all the way from RMB 164,000-165,000/mt to the highest RMB 172,000/mt last week in Shanghai. Traded volumes were moderate early in the week but turned light during later trading days as stock replenishments gradually draw to a close. In addition, the buying interest dropped sharply with climbing prices. Traded prices of the metal dropped to RMB 170,000-171,000/mt on Thursday and rebounded to RMB 170,000-173,000/mt on Friday after Yunnan Tin Group lifted its quotation to RMB 175,000/mt supported by an overnight surge in LME tin prices. The traded volume was quite light though, with deals hardly concluded.
As LME nickel prices rallied, domestic spot prices advanced as well. Last Wednesday, Jinchuan Group raised ex-works nickel prices by RMB 4,000/mt, to RMB 135,000/mt, then raised prices again by RMB 2,000/mt, to RMB 137,000/mt. As of last Thursday, the average weekly spot nickel price was RMB 134,850/mt, up RMB 4,350/mt from a week earlier. Due to strong demand from pre-holiday stock replenishments, trading volumes were up in domestic spot nickel markets. As the Chinese New Year holiday nears, inventories held by traders were down significantly, leaving traders reluctant to move goods as nickel prices and quoted offers remained high.
Technically speaking, Relative Strength Index (RSI) daily chart suggested a buying indication, and the weekly chart plotted near 50. The monthly, weekly charts of Bollinger bands had downward trend, but the daily chart indicated an upward price trend. The weekly chart of Bollinger bands also indicated resistance at USD 19,850/mt and USD 20,800/mt. Technical indicators suggest LME nickel prices should have upward momentum in the short term, but will fluctuate in the medium-to-long term. LME nickel prices will meet resistance at USD 19,850/mt, USD 20,000/mt and USD 20,850/mt, but find support at 20-day moving average of USD 19,000/mt and at the 10-day moving average of USD 18,600/mt.
In domestic nickel spot markets, spot nickel prices were already considered high following the two price adjustments by Jinchuan Group. Many downstream producers will close next week for the Chinese New Year holiday, so spot prices should remain in the RMB 135,000-139,000/mt range in the coming week.