SHANGHAI, Feb. 7 (SMM) –
As LME copper prices closed with strong gains overnight, SHFE 1204 copper contract prices, the most active one, opened RMB 1,070/mt higher at RMB 60,850/mt Monday. As long investors made profit-taking, SHFE three-month copper contract prices lacked upward momentum after the opening, and fluctuated around the daily moving average during the whole trading day, with an intraday high at RMB 60,950/mt. At the tail of trading, as Chinese stock markets fell after initially surging, SHFE three-month copper contract prices came under pressure at the daily moving average and retreated to a low of RMB 60,530/mt. Finally, SHFE 1204 copper contract price closed at RMB 60,530/mt, up RMB 750/mt or 1.25%. Positions for SHFE 1204 copper contracts were down 12,896 lots, while trading volumes were up 17,388 lots. Both short and long investors chose to close positions during the whole trading day, and long investors had little intention of keeping up with rising prices. Therefore, SHFE copper prices would likely test RMB 60,000/mt and remain weak for the foreseeable future.
In the spot market, SHFE copper prices fluctuated at high levels, but cargo-holders had no intention of expanding copper discounts since hedge trading was constrained. In this context, copper discounts were reported between negative RMB 350-200/mt in the morning business. Daily traded prices for standard-quality copper were between RMB 59,500-59,700/mt, and RMB 59,600-59,800/mt for high-quality copper. Downstream producers stuck to the sidelines as copper prices increased, so overall market activity was cautious on Monday.
SMM conducted a survey about copper prices this week.
Based on this survey, 58% insiders are optimistic towards the outlook, believing LME copper prices will hopefully challenge an early high of USD 8,800/mt and SHFE copper prices will likely move towards RMB 63,000-65,000/mt. US nonfarm payrolls were positive, and the jobless rate fell for three consecutive months, meaning a continuous recovery in the US economy, which will be able to prop up copper prices in the short term. SHFE copper prices are likely to make corrections and rebound gradually given the falling SHFE/LME copper price ratio. Technical indicators are also pointing upside for both LME and SHFE copper prices. According to the latest Commodity Futures Trading Commission (CFTC) reports, net long positions for Comex copper funds were 4,183 lots as of January 31, and 4,955 lots for net short positions as of December 18, 2011. Comex copper funds rose by 9,000 lots for long positions in one and a half months, highlighting bullish sentiment for copper markets over the near term. China will announce the latest CPI data this week, and markets commonly expect the data to fall further, increasing market speculation of a cut in the Reserve Requirement Ratio (RRR). Improved investor sentiment will help push up copper prices. In the spot market, downstream producers will gradually return to the market after the Lantern Festival, which will help improve copper markets. Together with the approach of the delivery data for current-month copper contract, spot copper discounts will narrow and therefore support copper prices.
12% market insiders SMM surveyed expect LME copper prices to slide to near USD 8,300/mt and SHFE copper prices to test support at RMB 59,000/mt. As Greece is unwilling to promise a reform expected by the European Union (EU) and the International Monetary Fund (IMF), the euro zone finance ministers postponed the February 6 meeting to February 8. Meanwhile, the finance ministers said the euro zone will not provide bailout funds for Greece if the country doesn't implement reform, weighing on the euro and lifting the US dollar. Chinese stock markets are unlikely to increase given no improved cash flows, so SHFE copper prices will probably move downward to look for support. In the spot market, although downstream producers will gradually return to the market following the Lantern Festival, sluggish orders and tightness in cash flows will keep them standing on the sidelines, which can't bolster copper futures prices.
30% market insiders anticipate copper prices will continue to fluctuate this week, with LME copper prices expected between USD 8,400-8,500/mt and SHFE copper prices between RMB 59,500-61,000/mt. Negative and positive news was intertwined. Despite upbeat economic data from the US, the euro zone debt crisis persists. The struggle between long and short investors was severe technically. On the copper supply side, LME copper inventories have been falling, but SHFE copper inventories have increased sharply after the Chinese New Year holiday. Spot copper discounts in London expanded, while those on Chinese domestic markets narrowed. In Chinese markets, tight cash flows become one of the factors affecting downstream producers' buying interest, but weak orders have kept spot copper demand stable. LME copper prices have increased for four consecutive weeks, but most investors keep wary, with both buying interest and selling pressures limited.
The most active SHFE aluminum contract for delivery in April opened slightly higher at RMB 16,255/mt and closed RMB 10/mt or 0.06% higher at RMB 16,215/mt following struggle at the 5-day moving average on Monday. Total transactions increased 1,588 lots to 11,262 lots while total positions dropped 160 lots to 57,034 lots. Lacing direction from the news side, the contract met stronger impact from weak fundamentals. SMM expects the contract to stay near the present level while pressure builds at the RMB 16,200/mt mark.
Spot aluminum was traded between RMB 15,920-15,950/mt in Shanghai, with discounts of RMB 50-80/mt over the SHFE current-month aluminum price. Low-iron aluminum was traded between RMB 16,000-16,020/mt. The SHFE current-month aluminum price stayed near RMB 16,000/mt and downstream businesses were still in holiday pattern. Despite of sufficient supply, spot discounts did not expand. Goods holders were waiting for a recovery in demand after the Lantern Festival. Trading was light.
The averaged traded price of aluminum was RMB 15,968/mt last week. In a recent SMM survey on 41 aluminum traders, 8 expect aluminum price to climb this week, citing expectations of higher prices of other base metals and accelerated recovery of demand following the Lantern Festival. 31 said aluminum price will be little changed this week based on a balance on the news side which was supported by stable futures prices. Only 2 traders expect aluminum price will drop this week, which they see as the result of climbing stocks and staying weak demand following Chinese New Year.
On Monday, SHFE lead prices opened higher at RMB 16,265/mt due to the above-expected US employment figures. However, investors' confidence was depressed as Greece failed to reach any agreement on a new debt deal and EU finance ministers' meeting was adjourned accordingly. Thus, the US dollar index rose, with SHFE lead prices under pressure at moving averages and finally closing at RMB 16,245/mt, up RMB 170/mt. Trading volumes increased by 28 lots to 242 lots, and positions for SHFE three-month contract decreased by 60 lots to 1,844 lots.
In domestic spot markets, prices remained stable at around RMB 16,000/mt. Quotations for brands such as Jinsha were between RMB 16,050-16,100/mt, with discounts against the SHFE three-month lead price at RMB 180/mt. Lead from Gejiu and brands including Jinli and Wanyang were quoted between RMB 15,900-15,950/mt. Quotations for Nanfang and Chengyuan were rarely reported due to production halts at the companies. With slow recovery at downstream enterprises and the high price at RMB 16,000/mt, limited transactions were done in the market. In the afternoon, lead prices changed little and trading market did not improve.
Last week, the US nonfarm payrolls were reported to rise by 243,000 and its January unemployment rate fell to 8.3%, the lowest level since February 2009, driving base metals prices up generally. The above-expected employment figures boosted market confidence to recovery of US economy. As such, 20% of markets players are bullish towards the market for the coming week, believing lead prices may edge up with downstream enterprises resuming production following the Lantern Festival. But the increase will be limited with spot prices expected to rise and stabilize at RMB 16,000/mt.
Despite the positive US economic data, 33.3% of market players still hold that lead prices may be under pressure below the RMB 16,000/mt mark. As the European finance ministers' meeting was adjourned and since market was still waiting for the result of Greek debt talks, concerns over the eurozone economy recurred. On the other hand, although SHFE lead prices moved up influenced by LME lead prices, transactions in China's domestic spot markets were limited due to weak demand caused by slow recovery at downstream enterprises. Prices for domestic well-known brands over the most active SHFE lead contract price expanded from RMB 50/mt in late January to RMB 180/mt, reflecting gloomy spot markets. In this context, prices are not likely to rise.
The remaining 46.7% believe lead prices will continue to fluctuate around RMB 16,000/mt this coming week. Both improved PMI data for major economies and increased US employment figures are positive news for the market. With respect to China's domestic markets, however, spot transactions are modest with spot discounts over SHFE lead prices expanding continually. The supply surplus is not likely to ease despite production halts at smelters in Guangxi. As such, prices are not expected to rise with resistance at the RMB 16,000/mt mark.
Boosted by strong LME zinc prices last Friday, SHFE three-month zinc contract prices opened significantly higher at RMB 16,155/mt and then moved narrowly around the daily moving average. SHFE three-month zinc contract prices fell slightly to RMB 16,105/mt in the midday due to strong short selling pressures, but the entrance of long investors provided support for SHFE zinc prices, with prices finally closing at RMB 16,195/mt, up RMB 245/mt or 1.54%. Trading volumes fell by nearly 70,000 lots to 160,068 lots, while positions decreased by 4,264 lots to 159,708 lots.
In the spot market, as SHFE three-month zinc contract prices opened significantly higher, spot discounts expanded. Discounts of domestic #0 zinc were between RMB 320-350/mt over SHFE three-month zinc contract prices, with traded prices between RMB 15,800-15,850/mt, and deals at the high-end price were limited. Since downstream consumers have not fully resumed operation and markets were cautious toward current high prices, #1 zinc was traded near RMB 15,750/mt, with overall trading activity quiet.
With regard to zinc price trend this week, 60% of market players are optimistic, believing SHFE three-month zinc contract prices will rise further this week. Chinese Premier Wen Jiabao said China may participate in resolving European debt crisis, and US data shows that the US economy shows signs of improving. In addition, the gradual production restarts at downstream consumers after February 6th will provide some support for spot zinc prices. Therefore, LME zinc prices are expected to break through USD 2,200/mt, moving between USD 2,200-2,260/mt. SHFE three-month zinc contract prices will rise further to RMB 16,200-16,800/mt, while spot discounts will expand to RMB 400-500/mt, leaving the arbitrage window open.
20% of market players believe zinc prices will continue to fluctuate this week. Although macroeconomic news shows signs of improving, downstream demand remains weak, so any upward momentum in SHFE three-month zinc contract prices will be limited this week. LME zinc prices are expected to hover between USD 2,150-2,200/mt, while spot discounts will move between RMB 300-400/mt over SHFE three-month zinc contract prices.
The remaining 20% believe zinc prices may fall further this week, believing LME zinc prices may fall to USD 2,100/mt, SHFE three-month zinc contract prices may drop to RMB 15,500-15,800/mt and spot discounts will likely narrow to RMB 200-300/mt given a lack of progress in Greek debt restructuring talks.
Spot tin prices dropped further on Monday in Shanghai, with the low end sliding to RMB 179,000/mt, as supply increased after Jiangxi suppliers entered the market while demand stayed weak. Nanshan, Jinlong, Feidie and Yunxiang branded tin traded between RMB 179,000-181,000/mt while Yunxi and Yunheng branded tin traded between RMB 181,500-183,500/mt.
In a most recent SMM survey on this week's tin price, 64% respondents expect losses as supply is becoming sufficient while demand stays weak. While tin showed more stability than other base metals in LME, Chinese tin prices still dropped during recent trading days. Further more, as smelters increase their supply following the Lantern Festival, tin prices will see quicker losses.
Remaining 36% respondents expect tin price to be stable this week since more downstream businesses will resume operation following Lantern Festival and most domestic smelters have been limiting output and supply in support of tin prices.
On Monday, a technical correction is possible for LME nickel price after last Friday's rally. During Monday's European trading hours, the euro zone will announce February Sentix investor confidence index and Germany's December seasonally adjusted manufacture orders, which will affect base metal movement.
In the Shanghai nickel spot market, mainstream traded prices of nickel from Jinchuan Group were between RMB 144,500-145,000/mt, and mainstream traded prices of nickel from Russia were between RMB 143,500-143,600/mt during the morning trading hours. As LME nickel prices slipped to certain extent, mainstream traded prices of nickel from Jinchuan Group were between RMB 144,300-144,800/mt range, and mainstream traded prices of nickel from Russia were between RMB 143,000-145,500/mt during the afternoon trading hours. Trading sentiment remained sluggish, with limited transactions between traders and limited demand from downstream consumers.
Based on result of an SMM survey on market sentiment, 40% market players believe that LME nickel prices will continue to advance in this coming week, as last week's robust non-farm employment data and positive PMI from the US indicate that the US manufacture sector is recovering. Apart from that, the UK and Australia will hold interest rate meeting, and it is expected possible interest rate cut will be adopted, which will boost market sentiment in the short term and will push LME nickel prices higher.
Another 40% market players expect that LME nickel prices will not fluctuate much, and a technical correction is possible for LME nickel price after last Friday's rally. As the is no solid news and no progress for Greek debt negotiation, LME nickel prices are tend to remain fluctuation trend in this coming week.
The remaining market players hold that LME nickel and other risk assets will be dampened if the euro continues to be weak, despite of positive economic data from the US in the short term.
SMM Daily Review – 2012/2/6 Base Metals Market
SHANGHAI, Feb. 7 (SMM) –